Business context and reporting period
This is 1347 Capital Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2016—not an operating-company quarterly report for Limbach Holdings, Inc. 1347 was a special-purpose acquisition company with no operating revenue. During the quarter it pursued a proposed merger with Limbach Holdings LLC; the merger agreement was signed March 23, 2016.
Financial results and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative costs | $430,243 | $142,308 |
| Operating loss | $(430,243) | $(142,308) |
| Interest income | $47,097 | $6,183 |
| Net loss | $(384,646) | $(136,125) |
| Basic and diluted loss per share | $(0.21) | $(0.07) |
| Net cash used in operating activities | $(50,149) | $(81,971) |
Margins are not meaningful because the company had no revenue. At March 31, 2016, cash outside the trust was $78,804; trust assets were $46,050,791, principally U.S. Treasury bills. Total assets were $46,139,860, liabilities were $580,550, including a $125,000 non-interest-bearing sponsor note, and stockholders’ equity was $5,000,120. The filing reports no long-term debt or off-balance-sheet arrangements.
Material changes versus the prior comparable period
Quarterly net loss increased by $248,521 year over year, primarily reflecting higher general and administrative costs, including legal fees and NASDAQ listing expenses. Interest income rose by $40,914. Operating cash use decreased by $31,822. Compared with December 31, 2015, cash outside trust declined by $41,022, accounts payable and accrued expenses increased from $130,283 to $455,550, and trust assets decreased by $9,127.
Transaction, outlook, risks, and unusual items
- The proposed merger consideration is described as $60 million in aggregate: $35 million–$45 million cash, 1.5 million–2.5 million common shares, and up to 666,667 warrants, with the mix dependent in part on public-share redemptions.
- Closing conditions include required approvals and an effective Form S-4, at least $20 million available from the trust, and at least $65 million of debt financing, including at least $40 million funded at closing. The Form S-4 was filed April 15, 2016.
- If redemptions reduce trust funds below $42.9 million, the agreement provides for up to $10 million of preferred stock financing. Its stated terms include cumulative dividends of 8% for three years, 10% for the next two years, and 12% thereafter, plus conversion at $12.50 per common share.
- NASDAQ continued the company’s listing subject to completing its business combination by July 7, 2016 and providing evidence by August 7, 2016 that the resulting company had at least 300 round-lot shareholders.
- Management estimated about $94,000 of available cash and releasable trust interest for operations, but warned that cost overruns or lower interest could leave insufficient funds. Failure to complete a business combination within the applicable deadline would require liquidation; the filing states this raises substantial doubt about the company’s ability to continue as a going concern.
- Other risks include public-share redemptions, reliance on financing, potential dilution and senior preferred claims. The company reported no material change to the risk factors in its 2015 Form 10-K and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing entity and scope: these financial statements are for 1347 Capital Corp., not Limbach’s operating business.
- Check subsequent filings for merger completion, shareholder approvals, redemptions, and actual cash, share, and warrant consideration.
- Verify whether the required debt financing and minimum trust proceeds were secured, and whether the preferred-stock backstop was used.
- Review the applicable transaction and NASDAQ deadlines and any later extensions or changes.
- Assess whether the company’s limited cash outside the trust was adequate to fund transaction and public-company expenses.