Business context and reporting period
Important filing identity: Although the request identifies Lindblad Expeditions Holdings, Inc., this is Capitol Acquisition Corp. II’s Form 10-K for the fiscal year ended December 31, 2014, filed March 13, 2015. Capitol was a blank-check company and had no operating revenue; this filing does not provide Lindblad’s financial results.
On March 9, 2015, Capitol agreed to acquire Lindblad Expeditions, Inc. The proposed transaction was subject to stockholder approval and other conditions, with completion expected by May 15, 2015.
Financial results and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1,052,701 | $748,654 |
| Operating loss | $1,052,701 | $748,654 |
| Interest income | $82,082 | $37,894 |
| Interest expense | $41,689 | $10,260 |
| Net loss | $1,012,308 | $721,020 |
| Net loss per share | $0.16 | $0.12 |
| Net cash used in operating activities | $764,804 | $595,647 |
| Working capital | $(781,844) | $217,039 |
| Total assets | $200,129,715 | $200,427,482 |
| Total liabilities | $911,559 | $197,043 |
| Stockholders’ equity | $11,236,008 | $12,248,291 |
Margins are not meaningful because Capitol reported no revenue. At year-end, it held $200 million of restricted trust funds, plus $22,421 of trust interest available for working capital and taxes. Outside the trust, it reported $28,634 cash and $9,998 in marketable securities. The company reported $470,000 in non-interest-bearing related-party notes outstanding, payable upon a business combination or potentially convertible into warrants. It reported no long-term debt or off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Net loss increased by about 40% from 2013, as operating expenses rose about 41%; operating cash use also increased.
- Working capital moved from a $217,039 surplus to a $781,844 deficit. Year-end liabilities rose mainly due to $360,000 of accrued Delaware franchise taxes and $470,000 owed to related parties.
- Cash declined by $283,664 during 2014. The $200 million trust balance remained unchanged.
Outlook, risks and unusual items
- Proposed acquisition: Lindblad shareholders were to receive approximately $330 million in aggregate consideration—about $90 million cash and 24 million Capitol shares, including shares underlying options. The filing expected closing by May 15, 2015; completion was not assured.
- Deadline and liquidity: Capitol had until May 15, 2015 to complete a business combination. Management stated it expected available cash and committed financing to meet needs through that date. After year-end, insiders lent a further $616,329 and committed to provide up to another $375,000.
- Stockholder redemptions: Public holders could seek pro rata trust redemptions, subject to the stated limits. Redemptions or transaction costs could leave insufficient cash for the $90 million cash consideration and require additional financing. Completion also required at least $5 million in net tangible assets and approval by a majority of shares voted.
- NASDAQ listing: NASDAQ granted continued listing subject to conditions, including completion of a business combination and satisfaction of initial listing criteria by May 15, 2015; failure could result in delisting.
- Franchise taxes: Capitol had not paid $360,000 of Delaware franchise taxes accrued for 2013 and 2014 at year-end. It reported paying the delinquent taxes in full on March 3, 2015, using part of the subsequent insider loan.
- Other risks: Trust assets could be exposed to creditor or bankruptcy claims, potentially reducing public shareholders’ recovery below $10 per share. If no business combination occurred, public shares were to be redeemed and warrants would expire worthless. The company also disclosed potential dilution from merger shares and outstanding warrants.
- Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2014. The auditor gave an unqualified opinion on the financial statements and did not provide an internal-control audit opinion.
Important facts for investors to verify
- Confirm transaction completion, final merger consideration, financing sources, redemption levels and resulting ownership dilution in subsequent filings.
- Verify the actual amount of cash available outside the trust and any remaining insider loans or commitments at closing.
- Check satisfaction of NASDAQ’s listing conditions and whether the combined company met initial listing requirements.
- Review Lindblad’s operating results, debt, cash flows, seasonality and risk disclosures in the merger proxy and later filings; they are not included here.
- Assess potential creditor claims, liquidation exposure and the terms and dilution effects of outstanding warrants.