Business context and reporting period
Finance of America Companies Inc.’s Form 10-Q covers the quarter ended March 31, 2021, but the financial statements and most of MD&A relate to Replay Acquisition Corp., the SPAC, before its merger with Finance of America Equity Capital LLC (FoA). The business combination closed April 1, 2021, after the reporting period. Accordingly, this filing does not provide quarterly operating results for FoA or the post-combination company.
Replay was a blank-check company and had not begun operating activities or generating operating revenue. Its activity was principally the search for and completion of a business combination.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Operating revenue | None reported | None; Replay had no operating revenue |
| General and administrative expenses | $9.14 million | $0.17 million |
| Net income | $0.81 million | $6.73 million |
| Operating cash flow | $(0.37) million | $(0.10) million |
Q1 2021 net income reflected a $9.94 million noncash gain from revaluing warrant liabilities and about $7,000 of trust-account investment income, offset by $9.14 million of expenses. In Q1 2020, the corresponding warrant gain was $5.76 million and trust-account investment income was $1.13 million. Profit margins are not meaningful for this non-operating SPAC.
At March 31, 2021, cash outside the trust was $483,000; investments in the trust account were $293.32 million. Total liabilities were $45.12 million, including a $25.41 million warrant liability, $9.92 million of accounts payable and $9.19 million of deferred underwriting commissions. The trust balance was largely matched by $287.5 million of shares subject to possible redemption, classified as temporary equity. Replay reported no long-term debt or other listed long-term obligations.
Material changes and unusual items
- Expenses rose to $9.14 million from $167,000, principally reflecting transaction-related costs, while net income fell to $811,000 from $6.73 million.
- The warrant liability decreased from $35.35 million at December 31, 2020 to $25.41 million at March 31, 2021, producing a noncash gain that materially affected reported earnings. Future fair-value changes could cause earnings volatility.
- Cash outside the trust declined by $367,000 during the quarter. The balance sheet implies a working-capital deficit of about $9.97 million; MD&A reports approximately $9.9 million, while a note separately states approximately $18.7 million.
- The filing describes a material weakness in accounting controls over complex financial instruments and temporary and permanent equity, including warrant accounting. Management concluded disclosure controls were ineffective as of March 31, 2021 and stated that remediation efforts were ongoing.
Outlook, risks and contingencies
Management expected available working capital and potential, but not committed, sponsor or affiliate loans to meet needs through the earlier of the business combination or one year from the filing. No working-capital loans were outstanding at March 31. The business combination subsequently closed on April 1, 2021; the filing notes that required acquisition disclosures were omitted because information was not yet available.
The filing identifies COVID-19 as a potential adverse factor but says its specific effect was not readily determinable. It also describes possible third-party claims against trust funds, sponsor indemnification subject to exceptions, deferred underwriting commissions payable only upon a completed combination, and warrants that could expire worthless if a combination were not completed. No legal proceedings were reported.
Most important facts for investors to verify
- Obtain post-combination Finance of America financial statements: this 10-Q’s reported financials are Replay SPAC financials, not FoA’s operating results.
- Review the completed transaction’s accounting, consideration, financing and resulting capitalization, including the $250 million PIPE commitment and potential share dilution.
- Check subsequent filings for the warrant-accounting restatement details, valuation effects and progress remediating the disclosed material weakness.
- Reconcile the working-capital deficit figures, particularly the note’s approximately $18.7 million amount versus the balance-sheet and MD&A figures.