Katapult Holdings, Inc. — 2021 Q1 filing summary
Entity and period: The supplied filing is FinServ Acquisition Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2021, not a quarterly filing by Katapult Holdings, Inc. It reports the SPAC’s pre-combination results and describes its proposed merger with Katapult.
Business context and transaction
FinServ was a blank-check company with no operating business or revenue, formed to complete a business combination. In December 2020, it agreed to merge with Katapult for stated aggregate consideration of $833 million, subject to adjustment and allocation between cash and FinServ shares. The agreement also provides for 7.5 million restricted shares subject to earn-out conditions and a separate $150 million PIPE financing, each subject to closing conditions. The filing gives no Katapult operating results.
Financial results and liquidity
- Revenue and margins: No operating revenue; the SPAC had not commenced operations. Operating expenses were general and administrative costs of $331,966, versus $224,187 in Q1 2020. Operating loss was $331,966. Operating margins are not meaningful.
- Net income: $204,737, compared with $5.49 million in Q1 2020. Q1 2021 included a $513,300 noncash gain from the change in fair value of warrant liabilities and $23,403 of interest income; these were offset by operating expenses. The prior period included a larger warrant fair-value gain and trust interest. The filing’s per-share figures are inconsistent: the statements report non-redeemable EPS of $0.03 for 2021 and $0.68 for 2020, while a note reports $0.79 for 2020.
- Cash flow: Cash used in operating activities was $438,769, versus $253,654 in Q1 2020. Cash declined $302,282 during the quarter to $741,613.
- Assets and liquidity: Trust Account assets were $251.1 million, primarily U.S. Treasury securities, and were restricted for the business combination or redemption process. Cash outside the Trust Account was $741,613. Current liabilities were $85,365; no long-term debt was reported.
- Other liabilities: Total liabilities were $53.7 million, including $44.3 million of warrant liabilities and a $9.35 million deferred underwriting fee payable if a business combination closes. The company reported $5.0 million of stockholders’ equity, excluding $193.3 million of Class A shares classified as temporary equity subject to possible redemption.
Material changes, outlook and risks
- Net income fell from $5.49 million to $204,737, reflecting substantially lower trust interest and warrant fair-value gains, as well as higher general and administrative expenses.
- The company had until November 5, 2021 to complete a business combination; otherwise, it was required to redeem public shares and liquidate. Management stated that this uncertainty raised substantial doubt about the company’s ability to continue as a going concern.
- Management expected to continue spending on the transaction process and said it did not believe additional funding was needed for operating expenditures, but warned that cost overruns or transaction-related financing needs could require additional securities or debt.
- Management cited a material weakness in internal control over financial reporting related to the prior accounting classification of warrants. Following an SEC staff statement, the warrants were classified as liabilities and remeasured at fair value. Management described remediation plans but gave no assurance they would be effective.
- Management said COVID-19 could adversely affect its financial position, results or target search, but the impact was not determinable. The filing provided no specific financial guidance.
Important facts for investors to verify
- Confirm the correct reporting entity: this is FinServ Acquisition Corp.’s 10-Q, not Katapult’s operating-company 10-Q.
- Verify the merger, PIPE financing, consideration terms, closing conditions and final post-transaction capitalization against the definitive transaction documents.
- Reconcile the inconsistent share counts and 2020 non-redeemable EPS figures in the filing.
- Assess the warrant reclassification, related material weakness and progress of remediation.
- Confirm the transaction outcome and the effect of redemptions, available cash and the November 5, 2021 deadline.