BuzzFeed, Inc. / 890 5th Avenue Partners, Inc. — Q3 2021 Form 10-Q
Important context: This filing is by 890 5th Avenue Partners, Inc. (the SPAC that planned to combine with BuzzFeed), not BuzzFeed’s operating company. It covers the quarter and nine months ended September 30, 2021; the statements are unaudited. The SPAC had not commenced operations and reported no operating revenue.
Business context and proposed transaction
The SPAC completed its IPO on January 14, 2021, raising $287.5 million gross, and placed $287.5 million in a trust account. On June 24, 2021, it agreed to merge with BuzzFeed; the merger agreement was amended on October 28, after quarter-end. A separate agreement contemplated $150 million of unsecured convertible notes to be issued at transaction closing. The filing does not report the combined company’s operating results.
Financial results and liquidity
- Revenue and margins: No operating revenue; the SPAC stated it would not generate operating revenue before a business combination. Operating margins are therefore not meaningful.
- Net loss: $414,330 for Q3 and $3.67 million for the first nine months of 2021. Q3 operating loss was $526,946; nine-month operating loss was $2.65 million. There is no prior-year comparable operating period presented.
- Key Q3 expenses and other items: General and administrative expense was $416,535, related-party administrative fees $60,000, and franchise tax expense $50,411. A $109,592 gain from the change in warrant fair value and $3,024 of trust investment gains partly offset expenses.
- Cash flow, nine months: $2.77 million used in operating activities; $287.5 million used in investing activities for the trust deposit; and $290.13 million provided by financing activities, primarily IPO and private-placement proceeds. Cash fell by $141,961 to $59,820.
- Balance sheet at September 30: Total assets were $288.12 million, including $287.51 million in trust investments. Cash outside the trust was $59,820. Current liabilities were $1.69 million, including a $1.0 million related-party working-capital loan; total liabilities were $13.90 million, including $12.21 million of warrant liabilities. Working capital deficit was approximately $1.1 million. Stockholders’ deficit was $13.28 million; $287.5 million of redeemable Class A shares was presented as temporary equity.
- Debt and financing: The $1.0 million Sponsor working-capital loan remained outstanding. Up to $1.5 million of working-capital loans could be converted into post-combination units at the lender’s option. The proposed $150 million convertible notes were not existing quarter-end debt; proposed terms included 7.0% annual interest (8.5% if less than $144 million remained in trust after closing), maturity five years after financing, and conversion into approximately 12 million shares, subject to the stated conversion-price formula.
Material changes, outlook, and risks
- Restatement: The company revised the presentation of redeemable Class A shares as temporary equity and restated its January 14 balance sheet and March and June 2021 interim statements. The restatement did not change total assets, total liabilities, cash flows, or net income/loss, but changed equity classification and prior-period earnings-per-share allocations.
- Controls: Management concluded disclosure controls were ineffective due to a material weakness in accounting for complex Class A share and warrant features. The weakness led to the restatement. Remediation was ongoing; management cautioned that efforts may be time-consuming and costly and may not be sufficient.
- Liquidity outlook: Management believed available working capital and borrowing capacity would cover needs through the earlier of a business-combination closing or one year from the filing. The SPAC had until January 14, 2023 to complete a combination, or it would wind up and redeem public shares under the stated terms.
- Risks and contingencies: Warrant liabilities are remeasured at fair value each period, creating potentially material noncash earnings volatility. The filing also identified potential negative trust-account interest and uncertainty about COVID-19’s effect on the search and transaction. The SPAC said no off-balance-sheet arrangements or legal proceedings were reported.
- Related-party and transaction costs: The SPAC paid the Sponsor $20,000 monthly for administrative services. A business-combination marketing fee of approximately $10.1 million was described as payable to underwriters under the relevant agreement.
Important facts for investors to verify
- Confirm the merger’s final terms, closing status, redemption levels, and cash remaining in trust; the October 28 amendment occurred after quarter-end.
- Review the proposed convertible-note documentation, including the final interest rate, conversion-price formula, and dilution implications.
- Assess the $1.0 million Sponsor loan, remaining loan commitment, and whether any amount is converted into equity.
- Track remediation of the material weakness and the accuracy of subsequent financial reporting.
- Distinguish the SPAC’s trust assets and transaction-stage results from BuzzFeed’s operating financial performance, which this filing does not provide.