Apex Technology Acquisition Corporation Form 10-Q Summary
Reporting period: Three months ended March 31, 2021. Although the request identifies AvePoint, Inc., the filing is for Apex Technology Acquisition Corporation, a special purpose acquisition company (SPAC) pursuing a proposed business combination with AvePoint. The financial statements are unaudited and Apex had not commenced operating activities or generated operating revenue.
Business Context and Transaction Status
Apex was formed to complete a merger, capital stock exchange, acquisition, or similar business combination, with an intended focus on software and internet technology companies. On November 23, 2020, Apex entered into a business combination agreement with AvePoint, subsequently amended on December 30, 2020, March 8, 2021, and May 18, 2021.
- The proposed transaction contemplated approximately $263 million of aggregate cash consideration, subject to specified deductions, and approximately 143.2 million shares of Apex common stock, subject to adjustments.
- Apex also had commitments for a $140 million PIPE transaction involving 14 million shares at $10 per share, contingent on closing the business combination.
- Apex was required to complete a business combination by September 19, 2021 or liquidate and redeem the public shares.
Financial Results and Key Metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Operating revenue | $0 | $0 |
| General and administrative expenses | $1.842 million | $0.194 million |
| Franchise tax expense | $0.050 million | $0.050 million |
| Change in fair value of warrant liabilities | $30.172 million gain | $4.294 million gain |
| Interest income | $0.032 million | $1.452 million |
| Net income | $28.312 million | $5.110 million |
| Net cash used in operating activities | $0.358 million | $0.383 million |
The reported earnings were primarily driven by a non-cash gain from the decline in the fair value of warrant liabilities, rather than business operations. Basic income per share attributable to non-redeemable Class A and Class B shares was reported as $2.96; diluted loss per share was $(0.15), reflecting the effect of the warrant fair-value adjustment. These per-share measures are not representative of operating profitability.
As of March 31, 2021, total assets were $352.612 million, including $351.890 million in the Trust Account and $139,492 of cash and cash equivalents outside the Trust Account. Total liabilities were $66.751 million, including $47.247 million of warrant liabilities, $13.150 million of deferred underwriting commissions, and a $300,000 related-party convertible promissory note. Class A shares subject to possible redemption were recorded as temporary equity at $280.861 million. Stockholders’ equity was $5.000 million.
The Trust Account consisted primarily of money market funds invested in U.S. Treasury securities. No Trust Account interest was withdrawn during the quarter. Apex had no traditional long-term debt, capital lease obligations, or off-balance-sheet financing arrangements.
Material Changes Versus the Prior Comparable Period
- Net income increased by $23.202 million, principally because the warrant-liability fair-value gain increased by $25.878 million.
- General and administrative expenses increased by $1.648 million, reflecting higher public-company, transaction, legal, accounting, and due-diligence costs.
- Interest income declined by $1.421 million because of lower interest rates and changes in Trust Account investments.
- Cash outside the Trust Account declined from $197,628 at December 31, 2020 to $139,492 at March 31, 2021.
- Accounts payable and accrued expenses increased to $6.004 million from $4.408 million, and the $300,000 related-party convertible note was issued during the quarter.
- Warrant liabilities declined from $77.419 million to $47.247 million, producing the primary reported gain.
- Redeemable Class A shares increased to 28.086 million from 25.255 million, while non-redeemable Class A shares declined to 7.724 million from 10.555 million.
Guidance, Outlook, Risks, and Unusual Items
- Management expected to continue incurring significant costs while pursuing the AvePoint transaction and did not expect operating revenue before completion of a business combination.
- Management stated that it believed additional funding would not be required for anticipated operating expenditures, but acknowledged possible funding needs if transaction costs exceeded estimates, significant redemptions occurred, or additional capital was needed to complete the transaction.
- Failure to complete a business combination by September 19, 2021 would require liquidation, redemption of public shares, and potential expiration of the warrants without value. Management disclosed substantial doubt about Apex’s ability to continue as a going concern because of this mandatory liquidation provision.
- The COVID-19 pandemic could adversely affect Apex’s financial position, target search, and ability to close the AvePoint transaction, although the specific impact was not determinable.
- The deferred underwriting commission of $13.150 million would become payable from the Trust Account only if a business combination were completed.
- Warrants were classified as liabilities and remeasured at fair value each reporting period. Changes in valuation assumptions, including market price, volatility, risk-free rates, and expected term, could materially affect reported earnings.
- Apex reported a material weakness in disclosure controls and procedures related to the accounting for derivative instruments and the restatement of prior financial statements to classify those instruments as liabilities. Management planned remediation, but provided no assurance that the measures would be effective.
- Apex adopted ASU 2020-06 effective January 1, 2021; the adoption had no impact on the financial statements.
Important Facts for Investors to Verify
- Whether and when the proposed AvePoint business combination closed, including final transaction consideration, redemption levels, PIPE funding, and post-closing capitalization.
- Whether Apex completed the transaction before the September 19, 2021 liquidation deadline and the consequences for public shareholders and warrant holders.
- The reconciliation of the $28.312 million net income to the $30.172 million non-cash warrant-liability fair-value gain and the resulting effect on reported earnings per share.
- The status and remediation progress of the material weakness and the related prior-period restatement.
- The availability of cash outside the Trust Account and the terms, repayment or conversion status of the $300,000 related-party convertible promissory note.
- The final amount of public-share redemptions and the amount remaining in the Trust Account after deferred underwriting commissions, taxes, transaction expenses, and other closing adjustments.