Business context and reporting period
This is Data Knights Acquisition Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2022—not an operating-company report for OneMedNet Corp. Data Knights was a SPAC with no operations or revenue, formed to complete a business combination. It reported 11.5 million public shares subject to redemption and $117.4 million held in its trust account at quarter-end.
After the quarter, Data Knights entered into a merger agreement with OneMedNet Corporation on April 25, 2022, according to the notes and subsequent-events disclosure. The proposed transaction would exchange OneMedNet shares for Data Knights Class A shares, with stated aggregate consideration of $200 million, subject to adjustments and closing conditions.
Financial results and position
- Revenue: None; the company said it did not expect operating revenue before a business combination.
- Profit: Net income was $2.20 million for Q1 2022, versus an $845 loss from inception through March 31, 2021. Q1 income included a $2.76 million noncash gain from the fall in warrant liabilities and $43,053 of investment gains, offset by $610,185 of operating and franchise-tax expenses. The prior-period figure is not a comparable three-month quarter.
- Cash flow: Operating activities used $294,018. Cash declined from $453,151 at December 31, 2021 to $159,133 at March 31, 2022.
- Liquidity: Working capital deficit was $363,953. The $117.4 million trust balance was principally reserved for a business combination or shareholder redemptions, not ordinary operating expenses.
- Debt and liabilities: No long-term debt or working-capital loans were outstanding. Total liabilities were $6.68 million, including $4.03 million of deferred underwriting fees payable only if a business combination closes and $2.09 million of warrant liabilities.
- Equity: Stockholders’ deficit was $6.41 million. The 11.5 million public shares, carried at $117.3 million, were classified as subject to possible redemption.
Changes, outlook, and risks
Warrant liabilities fell from $4.85 million at year-end to $2.09 million at quarter-end, producing the principal component of reported Q1 profit. This was a fair-value accounting gain, not operating earnings or cash generation. Trust investments rose by $43,053 in value.
On May 5, 2022, the sponsor deposited $1.15 million into the trust account to extend the business-combination deadline from May 11 to August 11, 2022. A further extension to November 11, 2022 was described as possible under the company’s governing documents, subject to conditions and additional funding. Failure to complete a transaction by the applicable deadline would lead to liquidation and distribution of trust assets to public shareholders; warrants could expire worthless.
Management identified substantial doubt about the company’s ability to continue as a going concern because of limited cash outside the trust and the deadline for completing a transaction. Sponsor or insider loans were possible but not committed. Completion also depended on approvals, satisfaction of closing conditions, financing and the minimum net tangible asset requirement. The filing cited potential dilution from transaction financing, market and regulatory uncertainty, COVID-19, and the Russia-Ukraine conflict. No quantified operating-company guidance was provided.
Disclosure controls were reported ineffective due to a material weakness related to accounting for complex financial instruments and prior restatements involving redeemable shares and earnings per share. Management said it performed additional analyses and was devoting resources to remediation. No legal proceedings were reported.
Important facts for investors to verify
- Confirm the correct issuer and transaction documents: this filing is Data Knights Acquisition Corp.’s, while the proposed target is OneMedNet Corporation.
- Reconcile the merger-agreement date: the notes and subsequent-events disclosure say April 25, 2022, but the MD&A says February 11, 2022.
- Confirm the applicable extension deadline and funding requirements. The filing generally states August 11 or November 11, 2022, but one MD&A passage gives November 11, 2023.
- Review the merger consideration adjustments, financing arrangements, redemption levels, dilution and closing conditions in the definitive transaction documents.
- Assess available operating cash, the going-concern warning, and whether the sponsor can provide further funds.
- Review the material weakness and prior restatements, and monitor whether remediation is completed.