Onemednet Corp. / Data Knights Acquisition Corp. — 2022 Form 10-K
Entity clarification: The supplied filing is Data Knights Acquisition Corp.’s 10-K, not an operating-company 10-K filed by Onemednet Corp. OneMedNet is identified as the proposed merger target. The reporting year ended December 31, 2022; the 2021 comparison covers only the period from the SPAC’s February 8, 2021 inception through year-end.
Business context and reporting period
Data Knights was a shell company formed to complete a business combination and had not commenced operations by December 31, 2022. It focused its search on data-center and technology businesses and entered into a merger agreement with OneMedNet on April 25, 2022. The proposed transaction would exchange OneMedNet shares for Data Knights Class A shares. Stated consideration is $200 million, subject to adjustments for working capital, closing net indebtedness, transaction expenses, and post-closing adjustments. Closing conditions include both companies’ stockholder approvals and at least $5,000,001 of tangible net assets for Data Knights.
Financial results and position
| Metric | 2022 | Prior period |
|---|---|---|
| Operating revenue | None | None |
| Net income | $336,658 | $5,135,790 |
| Cash used in operating activities | $940,463 | $378,487 |
| Cash outside trust at year-end | $30,870 | $453,151 |
| Trust investments at year-end | $29,029,416 | $117,320,973 |
| Current liabilities | $1,976,137 | $289,980 |
| Total liabilities | $9,116,614 | $9,166,648 |
2022 net income included $4.49 million of noncash gains from changes in warrant-liability fair value and $1.37 million of realized and unrealized trust-account gains, offset by $5.10 million of formation and operating costs, $205,560 of franchise tax expense, and a $214,850 income-tax provision. Basic and diluted net income per share was $0.03. Operating margins are not meaningful because the company had no revenue or operating business.
The company reported a $1,945,267 working-capital deficit and a stockholders’ deficit of $8,806,438. Year-end liabilities included $2,545,838 of sponsor extension loans, $207,081 of working-capital loans, a $4,025,000 deferred underwriting fee payable if a business combination closes, and $362,558 of warrant liabilities. The filing reports no long-term debt. No off-balance-sheet financing arrangements were reported.
Material changes versus the prior period
- Trust investments fell by about $88.3 million, principally following the November 2022 redemption of 8,768,456 public shares for approximately $91.4 million. The company reported 2,731,544 redeemable public shares remaining at year-end.
- Cash outside the trust declined by $422,281, while cash used in operating activities increased from $378,487 to $940,463.
- Net income fell from $5.14 million to $337,000. The comparison is limited because 2021 covers only the company’s inception-to-year-end period; both periods’ reported profits were materially affected by warrant fair-value changes.
- On December 31, 2022, an amendment to the advisor agreement triggered issuance of 1,378,517 Class B shares to ARC Group, with up to 143,766 shares subject to forfeiture under stated redemption conditions. Data Knights recorded $2,825,960 of stock-based compensation expense.
Outlook, risks, and unusual items
- Liquidity and going concern: The auditor and management stated that substantial doubt exists about the company’s ability to continue as a going concern. Year-end cash outside the trust was only $30,870, working capital was deficient, and the company had no assurance of additional financing.
- Combination deadline: The filing describes a potential extension period through August 11, 2023, subject to monthly sponsor-funded deposits. It reports two monthly extensions exercised by year-end and later extensions through April 11, 2023. One note instead refers to an August 23, 2023 deadline; the filing text is inconsistent and the applicable deadline should be verified.
- Deal and dilution risk: The OneMedNet transaction remained subject to customary closing conditions, stockholder approvals, redemptions, financing needs, and the minimum tangible-net-assets condition. The filing provides no assurance that the transaction would close. Sponsor loans may be repaid or, in some cases, converted into units; the advisor share issuance and potential transaction financing may dilute existing holders.
- Control weakness: Management found disclosure controls and internal control over financial reporting ineffective at year-end because of a material weakness in accounting for complex financial instruments and related disclosures. Remediation steps were underway; the auditor did not attest to internal-control effectiveness.
- Other exposures: The filing discusses possible creditor claims against trust assets, uncertainty about the sponsor’s ability to meet its indemnification obligations, potential liquidation with warrants expiring worthless, and a possible 1% federal excise tax on post-2022 share repurchases or redemptions. Management also said COVID-19 could affect the search or financial position, but the specific impact was not determinable.
Investor verification priorities
- Confirm the issuer and transaction status: this is Data Knights’ SPAC filing, with OneMedNet as the proposed target, not OneMedNet’s standalone operating results.
- Verify the current merger terms, stockholder approvals, closing conditions, redemption level, financing commitments, and resulting ownership and dilution.
- Reconcile the filing’s conflicting business-combination deadlines, extension history, and trust-account figures, including the $29.0 million year-end balance and remaining public shares.
- Assess how the material weakness is being remediated and whether subsequent filings report effective controls or corrected disclosures.
- Confirm the availability of cash and sponsor support to fund operations and transaction costs, and the potential effect of creditor claims, excise tax, or liquidation on public shareholders.