Business context and reporting period
The filing is CM Seven Star Acquisition Corporation’s unaudited Form 10-Q for the quarter ended June 30, 2018, not a filing under the name Kaixin Holdings. CM Seven Star described itself as a blank-check company seeking a business combination; it had not selected a target or begun operating activities. The report was signed August 8, 2018.
Financial results and position
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Revenue | None reported | None reported |
| Operating costs | $142,017 | $253,802 |
| Interest income | $931,978 | $1,669,222 |
| Realized investment loss | — | $97,758 |
| Net income | $789,961 | $1,317,662 |
| Basic and diluted EPS | $0.03 | $0.05 |
Six-month operating cash flow was negative $202,561; financing provided $500,000 from the Sponsor, and ending cash was $462,844. Cash and investments in the trust account totaled $208.36 million, generally restricted until a business combination or redemption. Total assets were $208.87 million; current liabilities were $563,161, including a $500,000 Sponsor note. Shareholders’ equity was $5.00 million. Conventional operating margins are not meaningful because the company had no revenue.
Material changes versus the prior comparable period
For the three and six months ended June 30, 2017, the company reported operating costs of $2,420 and a net loss of $2,420, with no interest income. The 2018 net income primarily reflected interest earned on trust investments. The $500,000 Sponsor loan was recorded in May 2018; cash outside the trust account increased from $165,405 at December 31, 2017 to $462,844 at June 30, 2018.
Outlook, risks and unusual items
- Management anticipated no operating revenue before completion of a business combination and expected public-company and due-diligence costs to increase.
- The company had 15 months from its October 2017 IPO—until approximately January 2019—to complete a business combination. It could seek a three-month extension, requiring a $2,063,629 trust deposit; insiders were not obligated to fund it. Failure to complete a transaction would trigger liquidation.
- Management said the $462,844 of unrestricted cash was expected to fund operations through a transaction or liquidation, but warned that underestimated due-diligence costs could require additional financing. Financing was not assured, and management disclosed substantial doubt about the company’s ability to continue as a going concern.
- The Sponsor note is non-interest-bearing and repayable after a business combination; if none is completed, the balance is to be forgiven. Trust funds were not available for ordinary working capital.
- On trust investments, the company recorded a $97,758 realized loss on securities sold during the six-month period, alongside interest income. The filing reported no off-balance-sheet arrangements or long-term debt, lease obligations, or operating lease obligations.
- Management concluded disclosure controls were effective as of June 30, 2018, with no material change in internal control over financial reporting during the quarter. No business-combination guidance or target-specific outlook was provided.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing names CM Seven Star Acquisition Corporation, whereas the request names Kaixin Holdings.
- Verify whether a business combination was identified or completed, and whether the company obtained any extension funding before the January 2019 deadline.
- Confirm the availability and composition of trust assets, and whether any redemptions, claims, or other restrictions changed their value.
- Assess the company’s unrestricted cash runway, Sponsor-loan terms and repayment or forgiveness, and any additional financing required.
- Review the source and sustainability of reported earnings: the company had no revenue, and reported income was principally trust-account interest.