Business context and reporting period
This is PropTech Acquisition Corporation’s unaudited Form 10-Q for the quarter ended September 30, 2020—not an operating-company report for Porch Group. PropTech was a special purpose acquisition company (SPAC) and had not commenced operating activities or generated operating revenue. It had agreed to acquire Porch.com, Inc.; the merger was still pending at quarter-end.
Financial results and liquidity
- Revenue and margins: No operating revenue; margins are not applicable.
- Net loss: $3.14 million for the third quarter and $2.77 million for the first nine months of 2020. The nine-month result included $1.00 million of trust-account investment income, offset by $3.35 million of general and administrative and related-party administrative expenses, $152,000 of franchise tax expense, and $189,000 of income tax expense.
- Cash flow: Nine-month operating cash use was $1.05 million; $546,000 was provided by investing activities from trust-account interest released for taxes. Cash declined $506,000 to $907,000.
- Assets and liquidity: Total assets were $174.43 million, including $173.20 million in the trust account. Management reported a working capital deficit of approximately $1.8 million, including about $99,000 of franchise tax obligations, and approximately $698,000 of trust-account investment income available for taxes.
- Liabilities and debt: Total liabilities were $9.04 million, including $3.01 million of current liabilities and $6.04 million of deferred underwriting commissions payable only if a business combination closes. The filing reports no long-term debt or outstanding working-capital loans.
- Redeemable shares: 16.04 million Class A shares, carried at $160.39 million, were classified as temporary equity and subject to redemption.
Changes versus prior comparable period
The filing provides no comparable third-quarter 2019 operating period; its 2019 results cover only July 31, 2019, inception, through September 30, 2019. For the nine months ended September 30, 2020, net loss was $2.77 million versus an $8,000 loss in that short inception-period comparison. From December 31, 2019, cash fell from $1.41 million to $907,000, while accrued expenses rose from $27,000 to $2.85 million. Trust-account investments increased from $172.74 million to $173.20 million.
Transaction, outlook, and risks
- The July 2020 merger agreement set aggregate consideration at $471.5 million, subject to adjustment, plus 5.0 million potential earnout shares tied to share-price targets of $18, $20, and $22. A PIPE was expected to provide $150 million for 15 million shares, subject to closing conditions.
- An October 12 amendment extended the transaction termination date to January 31, 2021, subject to possible extension. The SPAC’s charter separately required a business combination by May 26, 2021 or liquidation and redemption of public shares. The filing does not establish that the proposed merger subsequently closed.
- Management concluded that mandatory liquidation if no transaction is completed by the charter deadline raises substantial doubt about the company’s ability to continue as a going concern. Sponsor or insider loans were possible but not committed.
- COVID-19-related disruption, market conditions, financing availability, redemptions, dilution from additional share issuance, and transaction execution were identified as risks. If no business combination is completed by the deadline, warrants receive no trust-account distribution and may expire worthless.
- Disclosure controls and procedures were assessed as effective as of September 30, 2020. Management reported no material quarterly change in internal control over financial reporting.
Investor verification points
- Confirm the merger’s final status, consideration adjustments, closing conditions, and any later amendments or extensions.
- Verify actual PIPE funding, public-share redemptions, and resulting cash and ownership dilution at closing.
- Assess the working-capital deficit, accrued transaction expenses, and whether financing was secured to fund the transaction.
- Review the going-concern disclosure and the consequences of missing the applicable business-combination deadline.
- Check the allocation of reported earnings and loss per share: the filing reports different Class A and Class B results because of the SPAC’s redeemable-share accounting.