FORUM MARKETS Inc annual report, FY2018

Business context and reporting period

Filing identity: The request identifies FORUM MARKETS Inc, but the supplied Form 10-K is for KBL Merger Corp. IV, a Delaware blank-check company (SPAC). Verify the intended issuer. The filing covers the fiscal year ended December 31, 2018; it does not provide standalone fourth-quarter results.

KBL was seeking a business combination, primarily in healthcare and related wellness, and had not begun operating a business. Its securities traded on Nasdaq. The filing was signed April 1, 2019.

Financial results and liquidity

Net income reflected interest earned on trust assets, not operating activity. Revenue-based margins are not meaningful because the company had no operating revenue.

• At December 31, 2018, cash outside the trust was $270,884, compared with $428,393 a year earlier. Trust cash and marketable securities were $118,165,948, principally U.S. Treasury bills.
• Current liabilities were $546,067, including $369,030 due to related parties; working capital was negative $275,183. Total liabilities were $4,571,067, including $4,025,000 of deferred underwriting fees payable upon a completed business combination.
• There was no long-term debt reported at year-end. The auditor cited substantial doubt about the company’s ability to continue as a going concern, given limited operating cash and the deadline to complete a combination.

Material changes and subsequent events

• Compared with 2017, 2018 net income rose to $1.04 million from $124,000, as trust interest increased; operating expenses also rose to $599,000 from $344,000. Operating cash use increased to $789,000 from $497,000.
• On March 5, 2019, stockholders approved an extension to June 7, 2019, or September 9, 2019 if a definitive agreement was signed by June 7. Holders redeemed 5,128,523 shares for a reported $52,829,304, approximately $10.30 per share. The trust balance fell to $65,633,068.
• On March 8, 2019, the company borrowed $573,433 from the Sponsor and distributed it to the 6,371,477 public shares not redeemed—$0.09 per share. A March 15 promissory note consolidated advances; $1,087,031 was outstanding on that date. The unsecured, non-interest-bearing note is due at a business combination or liquidation, and up to $1 million may be converted into post-combination units at the Sponsor’s option.
• A March 15 expense reimbursement agreement requires reimbursement to the Sponsor for an employee’s compensation at $180,000 annually plus $1,139 monthly for health insurance, effective January 1, 2019. $41,079 was due under the agreement as of March 15 and included in the promissory note.

Outlook, risks and unusual items

The company had no definitive business-combination agreement disclosed in the supplied text. It reported non-binding letters of intent entered into in November 2018 and cautioned that no transaction was assured. Management said additional financing might be needed and was not assured; Sponsor support beyond specified loans was generally discretionary.

• If no combination is completed by the applicable deadline, the company must cease operations, redeem public shares and liquidate. Rights and warrants would expire worthless. Creditors’ claims, including claims against the trust, could reduce redemption proceeds; the Sponsor’s indemnity is limited and its ability to pay was not verified.
• The company’s limited outside cash, working-capital deficit, going-concern warning and short combination timetable create material execution and liquidity risks.
• Other material risks include high redemptions reducing cash available for a transaction, competition for targets, potential dilution or debt financing, conflicts of interest and related-party dealings, and the possibility that the Sponsor’s support stops. The Sponsor or its affiliates have interests that may differ from public stockholders.
• The filing reports effective disclosure controls and internal control over financial reporting as of year-end. The auditor expressed an unqualified opinion on the financial statements but highlighted substantial doubt about going concern.

Key facts investors should verify

• Confirm the intended issuer: the supplied filing is for KBL Merger Corp. IV, not FORUM MARKETS Inc.
• Reconcile the extension-redemption payment: most disclosures state $52,829,304, while one passage states $52,529,304. Confirm the correct amount and the post-redemption trust balance.
• Verify the current trust balance and cash available after deferred underwriting fees, redemptions, taxes and any further withdrawals; the filing cites $65.6 million in trust after the extension and separately describes approximately $61.6 million after fees.
• Check whether a definitive transaction was signed by June 7, 2019, whether the extended deadline applied, and whether the company completed a business combination or liquidated.
• Review the Sponsor note balance, any conversion into units, further Sponsor loans, and the expense-reimbursement obligations.