Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended September 30, 2018, filed by KBL Merger Corp. IV, a blank-check company seeking a business combination, with a stated focus on healthcare and wellness. Although the request identifies FORUM MARKETS Inc., the filing itself names KBL Merger Corp. IV; confirm the intended issuer. The company had not commenced operations or generated operating revenue.
Financial Results and Liquidity
| Metric | Q3 2018 / Sep. 30, 2018 | Comparable period / Dec. 31, 2017 |
|---|---|---|
| Operating expenses | $140,271 for Q3; $426,120 for nine months | $140,849 for Q3 2017; $222,545 for nine months 2017 |
| Interest income | $547,270 for Q3; $1,420,186 for nine months | $333,905 for Q3 2017; $389,634 for nine months 2017 |
| Net income per financial statements | $319,613 for Q3; $704,247 for nine months | $86,116 for Q3 2017; $60,149 for nine months 2017 |
| Cash outside Trust Account | $519,132 | $428,393 |
| Trust Account assets | $117,677,600 | $116,588,017 |
| Current liabilities | $666,491 | $208,131 |
| Total liabilities | $4,691,491, including $4,025,000 deferred underwriting fees | $4,233,131 |
There was no operating revenue, so operating margins are not meaningful. For the nine months, operating cash use was $596,430; investing activities provided $330,603 and financing activities provided $356,566, resulting in a $90,739 increase in cash. The company reported no long-term debt. Management said available working capital was expected to cover needs through the scheduled December 7, 2018 liquidation date.
Material Changes, Outlook, and Risks
- Interest income rose substantially year over year, driving higher reported net income; operating expenses also increased for the nine-month period.
- The Trust Account was invested primarily in short-term U.S. Treasury bills. The company had withdrawn approximately $556,000 of Trust Account interest through September 30, 2018 to pay taxes.
- The company had to complete a business combination within 18 months of the June 2017 IPO, or potentially within 21 months if it had entered into a qualifying agreement within the first 18 months. The filing identifies December 7, 2018 as the scheduled liquidation date and does not state that an extension or transaction had been secured.
- Management concluded that mandatory liquidation and dissolution raised substantial doubt about the company’s ability to continue as a going concern. A business combination was not assured.
- The Sponsor had advanced $402,752, unsecured, non-interest-bearing and due on demand. The filing says advances might be formalized and become convertible into post-combination units. Sponsor or other insider loans of up to $1 million could also be convertible if made.
- Public shareholders could redeem shares in connection with a business combination; if no transaction closed within the permitted period, public shares were subject to redemption and warrants and rights would expire worthless. Issuing equity or debt to fund a transaction could dilute shareholders or add repayment and covenant risks.
- The filing reports no legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls. Management reported no material market-rate exposure given the short maturities of Trust Account investments.
Important Facts to Verify
- Issuer identity: The supplied metadata says FORUM MARKETS Inc., but the filing identifies KBL Merger Corp. IV.
- Net income and taxes: MD&A gives different net income figures ($269,349 for Q3 and $653,983 for nine months) and tax provisions than the financial statements, which report net income of $319,613 and $704,247. Reconcile these discrepancies with the filed statements.
- Transaction deadline: Verify whether the company had a qualifying agreement, extension, or completed business combination after the reporting date and before the stated December 7, 2018 deadline.
- Share figures: The filing presents differing counts for shares subject to possible redemption in its balance sheet and notes; confirm the relevant share counts and redemption amounts.
- Liquidity and related-party funding: Confirm the status and terms of Sponsor advances, any further funding, and cash available outside the Trust Account.