Business context and reporting period
This is Data Knights Acquisition Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2022—not an operating-company 10-Q filed by OneMedNet Corp. Data Knights is a blank-check company pursuing a business combination with OneMedNet. It had not commenced operations or generated revenue by quarter-end. The proposed transaction would provide OneMedNet shareholders aggregate consideration valued at $200 million, subject to contractual adjustments and closing conditions.
Financial results and liquidity
- Revenue: None. The company reported no operating revenue and expects none before a business combination.
- Third-quarter results: Net loss was $153,275, versus net income of $1.293 million in Q3 2021. Operating and franchise-tax costs were $520,025, compared with $98,724 in the prior-year quarter. Results also included a $587,303 gain on trust investments, a $113,829 loss from changes in warrant fair value, and a $106,724 income-tax provision.
- Nine-month results: Net income was $2.992 million, compared with $5.600 million for the period from inception through September 30, 2021. The 2021 period began at inception, so it is not a directly equivalent nine-month comparison. The 2022 result included a $4.244 million noncash gain from the decline in warrant liabilities and a $779,706 gain on trust investments, offset by $1.925 million in operating and franchise-tax costs and $106,724 in income-tax expense.
- Cash flow: Operating activities used $796,537 and investing activities used $2.033 million; financing activities provided $2.612 million, including $2.3 million of extension loans and $300,000 of working-capital loans. Cash fell by $218,228 to $234,923.
- Balance sheet and liquidity: Trust investments totaled $120.134 million, but were principally reserved for a business combination or shareholder redemptions. Current liabilities were $1.453 million; total liabilities were $8.686 million, including $300,000 of working-capital loans, $2.3 million of extension loans, and a $4.025 million deferred underwriter fee. Working capital deficit was $1.218 million; stockholders’ deficit was $8.451 million.
- Margins and debt: Not meaningful for a pre-combination SPAC. The filing reports no long-term debt; related-party working-capital and extension loans were outstanding.
Material changes and subsequent events
- Warrant liabilities declined to $607,775 from $4.852 million at December 31, 2021, generating a substantial noncash gain that materially affected reported nine-month earnings.
- Trust investments rose to $120.134 million from $117.321 million, including sponsor-funded extensions and investment income, partly offset by withdrawals to pay taxes.
- After quarter-end, stockholders approved amendments allowing up to nine additional one-month extensions, potentially through August 11, 2023. The sponsor funded the first monthly extension with approximately $122,920.
- At the November 11, 2022 special meeting, holders redeemed 8,768,456 Class A shares for approximately $91.4 million, at about $10.42 per share. The filing reports approximately $28.5 million remaining in the trust after redemptions.
Outlook, risks and unusual items
Management intended to complete the OneMedNet transaction before the then-current December 11, 2022 deadline. Completion depended on customary conditions, including both companies’ shareholder approvals and at least $5,000,001 of tangible net assets at closing. The filing states that additional financing may be needed, particularly if substantial public-share redemptions occur; financing availability and transaction completion were not assured.
Management concluded that the company’s limited operating cash and uncertainty about completing a business combination raised substantial doubt about its ability to continue as a going concern. If it failed to complete a transaction by the applicable deadline, it would cease operations and redeem public shares from the trust, subject to the stated terms. The company also warned of potential dilution and debt-related risks if it raises capital for the transaction.
Other disclosed risks include possible effects of COVID-19 and the war in Ukraine and related sanctions. A new 1% federal excise tax on certain stock repurchases beginning in 2023 could affect redemptions, transaction funding, or liquidation distributions. Management reported that disclosure controls were not effective because of a material weakness related to complex financial instruments and prior restatements involving equity classification and earnings per share. No legal proceedings were reported.
Most important facts for investors to verify
- Whether the OneMedNet merger closed, and the final consideration, closing conditions, and financing arrangements.
- The trust balance and public-share count after the reported redemptions, and whether later extensions were funded and approved.
- Whether available cash and committed financing were sufficient to fund transaction costs and meet the closing net-tangible-asset requirement.
- How the material weakness in financial reporting controls was remediated and whether subsequent filings address it.
- The effect of any post-2022 redemptions and applicable guidance on the federal excise tax.