Business context and reporting period
Filing-entity discrepancy: The supplied 10-Q is for Capitol Acquisition Corp. II, a development-stage blank-check company—not Lindblad Expeditions Holdings, Inc. It covers the quarter ended March 31, 2014. The company reported that it was searching for a business-combination target and had no specific transaction under consideration.
Financial results and position
- Revenue: $0 for the quarter and since inception.
- Net loss: $241,981, versus $4,400 in Q1 2013. Operating costs were $264,978, versus $4,400; interest income of $30,017 partly offset costs, alongside $7,020 of interest expense.
- Cash flow: $186,051 used in operations and $3,239 used in investing; no financing cash flow. Cash declined by $189,290 to $123,008.
- Assets and liquidity: Total assets were $200.24 million, including $200 million of restricted trust funds and $36,800 of trust interest available for working capital and taxes. The company also reported $9,986 of marketable securities and $58,792 of prepaid expenses and other current assets. Management described approximately $170,000 as its cash position, including trust interest available and Treasury bills.
- Liabilities and equity: Current liabilities were $254,626, primarily $225,000 of accrued franchise tax. No borrowings were reported as outstanding at quarter-end. Stockholders’ equity was $12.01 million; 18,798,215 shares were classified as subject to possible redemption.
- Margins: Not meaningful because the company had no revenue.
Material changes versus the prior comparable period
Q1 net loss rose by $237,581 year over year, mainly reflecting higher operating costs after the May 2013 IPO and increased public-company, consulting, rent, and due-diligence expenses. Cash used in operations increased from $1,550 in Q1 2013 to $186,051 in Q1 2014. Revenue remained zero.
Outlook, risks, and unusual items
- Management expected available resources and committed insider loans to cover needs through February 15, 2015, or May 15, 2015 if a qualifying agreement had been entered into by February 15. CEO and CFO commitments totaled up to $615,000; up to $500,000 could be converted into warrants.
- If the company did not complete a business combination by the applicable deadline, it would liquidate and distribute the trust account to public shareholders. The trust held $200 million, initially equal to $10 per public share, subject to applicable claims and taxes.
- The company noted recurring operating losses, negative operating cash flow, uncertainty in finding and completing a transaction, and the possibility that low Treasury yields could limit working-capital interest income. It stated that trust funds might not be protected from third-party claims; officers’ protection commitments were subject to their ability to satisfy them.
- On completion of a business combination, deferred underwriting commissions of 4% of IPO gross proceeds would be payable. Consulting agreements also provided for aggregate annual fees of $330,000 and a $450,000 success fee, with a possible additional discretionary $20,000 fee.
- The filing reported no off-balance-sheet arrangements, no material subsequent events, effective disclosure controls, and no material change in internal control during the quarter.
Important facts for investors to verify
- Confirm the issuer: this filing names Capitol Acquisition Corp. II, not Lindblad Expeditions Holdings, Inc.
- Check subsequent filings for any target agreement, business-combination completion, deadline extension, or liquidation.
- Verify the availability and terms of the $615,000 insider loan commitments and any amounts drawn or converted.
- Review trust-account balances, redemption rights, potential third-party claims, and the deferred underwriting fee payable upon a transaction.
- Assess whether reported cash and interest available for working capital were sufficient to fund the search and transaction costs through the stated deadline.