Business context and reporting period
Entity note: Although the request identifies Onemednet Corp, this filing is for Data Knights Acquisition Corp. (a Delaware SPAC), not Onemednet. The unaudited Form 10-Q covers the quarter ended September 30, 2021, and results from inception on February 8, 2021 through September 30, 2021. Data Knights had not commenced business operations and had generated no revenue; its purpose was to pursue a business combination.
Financial results and position
| Metric | Three months ended September 30, 2021 | Inception through September 30, 2021 |
|---|---|---|
| Revenue | None | None |
| Formation and operating costs | $98,724 | $170,064 |
| Net income | $1,292,965 | $5,600,271 |
| Interest earned in Trust Account | $2,897 | $3,691 |
| Gain from change in warrant liability fair value | $1,388,792 | $6,391,703 |
| Basic and diluted earnings per share | $0.09 | $0.55 |
- Reported net income was driven primarily by noncash gains from remeasuring warrant liabilities, rather than operating revenue.
- At September 30, cash outside the Trust Account was $533,706; Trust Account assets were $117,303,691, invested in U.S. Treasury securities. Working capital was $661,574.
- Total assets were $117,981,397; total liabilities were $8,826,378, including $4,785,246 of warrant liabilities and $4,025,000 of deferred underwriting fees. Stockholders’ deficit was $8,144,981. The filing reports no long-term debt.
- From inception through September 30, operating activities used $297,932 of cash; investing activities used $117.3 million, principally for the Trust Account; financing activities provided $118,131,638. No quarterly cash-flow statement is presented.
- Margins are not meaningful because the company had no revenue or operating business.
Material changes and unusual items
- The company completed its IPO on May 11, 2021, selling 11.5 million units for gross proceeds of $115 million, and sold $5,852,750 of private placement units. The underwriter exercised its full over-allotment option.
- The company restated prior financial statements to classify all 11.5 million public shares as temporary equity, rather than partly as permanent equity. The filing’s discussion is inconsistent about materiality: the financial-statement note says the impact was not material, while the controls section describes the prior-period error as material.
- Management concluded disclosure controls were ineffective as of September 30 due to a material weakness in accounting for complex financial instruments and temporary equity. It reported additional review procedures and continuing remediation efforts.
- No prior-year comparable quarter is provided; the company was formed in February 2021.
Outlook, risks, and commitments
- Management expected available capital to support operations through the earlier of a business combination or one year from the filing, and stated substantial doubt about liquidity had been alleviated. This does not assure completion of a transaction.
- The company had until May 11, 2022 to complete a business combination, with potential extensions up to November 11, 2022 subject to sponsor funding. If no transaction is completed, public shares are to be redeemed from the Trust Account and warrants may expire worthless.
- Management may seek sponsor or affiliate working-capital loans; up to $1.5 million could be convertible into units. Extension funding could total up to $2.3 million. Neither funding nor extensions are guaranteed.
- The deferred underwriting fee is payable only upon completion of a business combination. The company may reimburse a sponsor affiliate up to $10,000 monthly for administrative support.
- Management said the potential effect of COVID-19 on the company’s financial position, operations, or target search was not readily determinable. The filing reports no legal proceedings and no material risk-factor changes from the IPO prospectus.
- Potential transaction financing through equity or debt could dilute existing holders or increase leverage; the filing describes related risks. Trust funds are generally unavailable for operating expenses.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for Data Knights Acquisition Corp., not Onemednet Corp.
- Review the restated share classification and the conflicting descriptions of its materiality, and assess the disclosed material weakness and remediation progress.
- Distinguish reported net income from operating performance: the company had no revenue, and warrant fair-value gains accounted for most reported earnings.
- Verify Trust Account balances, cash available outside the trust, transaction deadline, and the conditions and funding needed for any extension.
- Review redemption, warrant, sponsor-loan, and deferred-underwriting terms before assessing the value available to public shareholders.