Filing summary
Entity clarification: This is Trebia Acquisition Corp.’s Form 10-Q, not an operating-company quarterly report from System1, Inc. Trebia was a blank-check company pursuing a proposed combination with System1 and Protected. The reporting period ended June 30, 2021; the filing was signed in August 2021.
Business context and financial results
Trebia had not begun operating or generating revenue. Its activity consisted of formation, public-company costs, and seeking a business combination. Accordingly, operating margins and business revenue are not applicable.
| Metric | Quarter ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Revenue | None | None |
| Formation and operating costs | $249,000 | $1.97 million |
| Net income (loss) | $(2.70) million | $17.86 million |
| Net cash used in operating activities | Not presented for the quarter | $741,000 |
The six-month profit was primarily noncash: gains from changes in the fair values of warrant and forward purchase agreement (FPA) liabilities, plus a gain on FPA termination. In the second quarter, a warrant fair-value loss and operating costs exceeded the gain on FPA termination. These results do not represent operating earnings.
Financial position and liquidity
- At June 30, cash outside the trust account was $102,000, prepaid expenses were $177,000, and the trust account held $517.5 million.
- Current liabilities were $1.80 million, including accrued expenses; working capital deficit was $1.53 million. Total liabilities were $63.75 million, including $43.83 million of warrant liabilities and an $18.11 million deferred underwriting fee payable upon a completed business combination.
- There was no conventional long-term debt reported at quarter-end. Shareholders’ deficit was $63.47 million. Class A shares subject to possible redemption were reported separately as temporary equity at $517.5 million.
- Cash outside the trust declined from $844,000 at December 31, 2020. Trebia stated it would need additional financing for operating and transaction costs and warned that such funding might not be available.
Material changes, transaction, and outlook
Compared with the second quarter of 2020, the quarterly net loss narrowed from $8.48 million to $2.70 million. The six-month 2021 net income contrasts with the $8.49 million loss from inception through June 30, 2020; the periods are not directly comparable, and the 2021 result was substantially affected by noncash fair-value changes. The warrant liability declined from $53.01 million at year-end 2020 to $43.83 million at June 30, 2021. The FPA liability, $10.65 million at year-end, was terminated and reduced to zero in connection with the proposed transaction.
On June 28, 2021, Trebia agreed to combine with System1 and Protected. The announced consideration included approximately $462.5 million cash and $667.5 million equity, subject to adjustments tied to shareholder redemptions. Cannae agreed to backstop up to $200 million of redemptions; the filing also described proposed Bank of America facilities of a $400 million term loan and a $50 million revolver, subject to conditions. These are proposed transaction terms, not completed financing. Trebia had until June 19, 2022 to complete a business combination or begin liquidation and redemption procedures.
Management stated that limited operating cash and the need for additional funding raised substantial doubt about Trebia’s ability to continue as a going concern through June 19, 2022. A subsequent event disclosed sponsor notes made available in July 2021 for up to $500,000; Trebia had drawn $325,000 by August 9. COVID-19 was identified as a potential impediment to finding or completing a transaction, but its impact was not quantifiable. No operating-company guidance was provided.
Risks, contingencies, and unusual items
- The filing disclosed material weaknesses in internal controls tied to prior accounting for warrants, the FPA, and redeemable shares. Prior financial statements were restated; management reported remediation efforts, but disclosure controls remained ineffective through June 30, 2021.
- Warrant liabilities are measured at fair value, making reported earnings sensitive to market prices and accounting estimates. Private warrant valuations use Level 3 inputs.
- Approximately $2.87 million of certain transaction-service fees were contingent on completing a business combination. The $18.11 million deferred underwriting fee was also payable only if a combination closed.
- If Trebia failed to complete a combination by the deadline, public shareholders were entitled to redemption from the trust, subject to stated terms; warrants could expire worthless. Trust funds were not available for general working capital.
Investor facts to verify
- Confirm the status and final terms of the proposed System1/Protected combination, including closing conditions and redemption levels.
- Verify whether the proposed Cannae backstop and Bank of America facilities were finalized, funded, or amended.
- Assess Trebia’s cash needs and sponsor-note availability against the business-combination deadline.
- Review the restatements, warrant and FPA valuation assumptions, and progress in remediating the disclosed control weaknesses.
- Check final transaction consideration, dilution, share-class rights, and any changes to contingent fees or underwriting obligations.