Business context and reporting period
The filing is KBL Merger Corp. IV’s unaudited Form 10-Q for the quarter ended March 31, 2019. The request metadata names FORUM MARKETS Inc., but the filing identifies the registrant as KBL Merger Corp. IV, a blank-check company seeking a business combination, focused on healthcare and wellness. It had not commenced operations and reported no operating revenue.
Financial results and position
- Results: Net income was $231,595, or $0.06 per basic share and $0.02 per diluted share, versus $173,458, or $0.04 basic and $0.01 diluted, in Q1 2018. Interest income rose to $592,314 from $387,484; general and administrative expense increased to $264,904 from $137,873. There was no operating revenue, so operating margins are not meaningful.
- Cash flow: Operating activities used $307,148, compared with $181,076 used in Q1 2018. Cash at quarter-end was $134,628, down from $270,884 at December 31, 2018. Redemptions used $52.829 million, offset by an equal withdrawal from the trust account; the trust held $66.327 million at quarter-end.
- Liquidity and liabilities: Current assets were $144,686 versus current liabilities of $1.178 million. Total liabilities were $5.203 million, including a $937,713 unsecured, non-interest-bearing sponsor note and $4.025 million of deferred underwriting fees payable upon a business combination. The filing reports no long-term debt or off-balance-sheet financing arrangements.
- Equity and assets: Total assets were $66.471 million, down from $118.437 million at year-end, largely reflecting the extension-related redemptions. Stockholders’ equity was approximately $5.0 million; $56.268 million of redeemable shares was presented as temporary equity.
Material changes and developments
- On March 5, stockholders approved an extension of the business-combination deadline to June 7, 2019, or September 9, 2019 if a definitive agreement was executed by June 7. Holders redeemed 5,128,523 shares for $52.829 million, approximately $10.30 per share.
- The sponsor loaned $573,433 into the trust account after the extension vote. The company also had $937,713 outstanding under its sponsor note at quarter-end; up to $1 million could, at the sponsor’s option, convert into post-combination units at $10 per unit.
- On April 10, the company entered a nonbinding term sheet with a private target. Target-related parties agreed to lend $400,000 for expenses, and a shareholder agreed to provide equity financing intended to help meet the $5,000,001 net tangible asset requirement. The filing says the $400,000 loan was received after signing. A shareholder also paid the sponsor $650,000 for part of the sponsor-note obligations and waived conversion rights on that portion.
Outlook, risks and contingencies
- The company depended on completing a business combination before its deadline; failure would require winding up and redeeming public shares. Management stated that this mandatory liquidation risk raised substantial doubt about the company’s ability to continue as a going concern through the applicable deadline.
- Management warned that additional capital might not be available on acceptable terms and that it could have to conserve liquidity, including suspending its pursuit of a transaction. Sponsor extension loans were discretionary after the stated terms.
- The term sheet was nonbinding, and completion of a transaction or the proposed financing was not assured. The filing also describes potential dilution from equity issuance and repayment, covenant and flexibility risks if debt is used.
- The sponsor had agreed to indemnify the trust for certain third-party claims, subject to exceptions, including claims involving unenforceable waivers. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Trust investments were short-term U.S. government securities or qualifying money-market funds; the company said it did not expect material interest-rate risk.
Important facts for investors to verify
- Whether a definitive business-combination agreement was executed by June 7, 2019, and whether the deadline was extended or a transaction closed.
- The status and conditions of the target-related $400,000 loan and the shareholder’s promised equity financing, including availability and sufficiency at closing.
- Current trust-account funds, public-share redemptions, and the net tangible asset test after any transaction financing and redemptions.
- Repayment, conversion, and ownership implications of the sponsor note and the shareholder’s $650,000 purchase of part of its obligations.
- The filing states that 9,748,977 common shares were issued and outstanding as of May 10, 2019; investors should reconcile that figure with redeemable shares, founder shares, rights, warrants, and any transaction-related changes.