Business context and reporting period
This is Stable Road Acquisition Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2021, filed June 10, 2021. Stable Road was a special purpose acquisition company (SPAC), not Momentus Inc.; it had not begun operating activities or generated revenue. The proposed business combination with Momentus was pending.
Financial results and position
- Revenue: None. The company reported no operating revenue and did not expect any before completing a business combination.
- Net income: $5.77 million, versus $1.21 million in Q1 2020. Q1 2021 included $8.72 million of noncash income from a reduction in warrant fair value, $19,046 of trust interest, and $2.97 million of general and administrative expense. Q1 2020 included $949,700 of warrant fair-value income, $669,789 of trust interest, and $236,879 of expenses.
- Cash flow: Operating cash outflow was $710,750, compared with $227,767 in Q1 2020. Financing provided $600,000 from two promissory notes; investing provided $104,489 from trust withdrawals for taxes. Cash declined by $6,261 to $208,550.
- Liquidity and liabilities: Trust assets were $173.02 million, largely restricted for a business combination or redemptions. Current liabilities were $5.43 million, including $4.83 million of accrued expenses and accounts payable and $600,000 of non-interest-bearing promissory notes. The company also reported a $6.90 million deferred underwriting fee payable upon a completed combination and $39.36 million of warrant liabilities.
- Equity and redemption claims: $117.04 million of Class A shares was presented as temporary equity, reflecting possible redemptions. Stockholders’ equity was $5.00 million. No conventional operating margins were reported.
Material changes versus the prior comparable period
- General and administrative expenses rose to $2.97 million from $236,879, while operating cash outflow increased to $710,750 from $227,767.
- Net income increased, primarily because warrant-liability fair-value income rose to $8.72 million from $949,700; trust interest fell sharply to $19,046 from $669,789. Reported earnings therefore do not reflect operating performance.
- Warrant liabilities fell from $48.08 million at December 31, 2020 to $39.36 million at March 31, 2021, producing the reported fair-value gain.
- Two $300,000 promissory notes were issued in February 2021 and remained unpaid at quarter-end.
Transaction, outlook, and risks
- The merger agreement contemplated $1.131 billion of equity consideration, adjusted for Momentus debt, cash and cash equivalents, and option and warrant exercise prices. A proposed private placement covered 17.5 million shares at $10 per share, contingent on closing. A separate share repurchase was conditional on transaction net proceeds exceeding specified thresholds.
- Stable Road’s deadline to complete a business combination was extended to August 13, 2021. In May 2021, shareholders approved the extension and 19,662 public shares were redeemed. Failure to complete a combination by the deadline would require liquidation; management stated this raised substantial doubt about the company’s ability to continue as a going concern.
- The filing gives no operating forecast or revenue guidance. Management said additional financing might be needed if costs exceeded estimates, redemptions were substantial, or post-combination cash proved insufficient.
- Disclosure controls were deemed ineffective because of a material weakness involving the accounting classification of private warrants. Management described remediation efforts, including enhanced review of complex securities accounting.
- Two shareholder lawsuits alleged inadequate disclosures about the proposed transaction. The SEC Division of Enforcement was investigating certain SEC filing disclosures, including those relating to the transaction; Stable Road said it was cooperating. Outcomes were undetermined.
- Management said COVID-19 could adversely affect the company or its search for a target, but the impact was not determinable. The filing also identifies potential dilution and financing, debt, redemption, and transaction-completion risks.
Important facts for investors to verify
- Whether the Momentus transaction and related financing closed, and the final proceeds after redemptions, expenses, and any repurchase.
- The status and outcome of the SEC investigation and shareholder litigation, and any resulting disclosure or transaction changes.
- Stable Road’s deadline and liquidation risk as of the relevant date; the quarter-end going-concern assessment predates the May extension.
- The accounting and earnings-per-share presentation: the filing reports basic nonredeemable EPS of $1.19 and diluted EPS of negative $0.35 despite positive net income, and related note disclosures contain differing figures. The filing text does not provide a clear reconciliation.
- Whether the reported temporary-equity share counts and balance-sheet date labels are accurate; parts of the filing’s text appear to use inconsistent dates.