Southland Holdings, Inc. — 2022 Q1 Filing Summary
Important identity mismatch: The supplied filing is a Form 10-Q for Legato Merger Corp. II, a blank-check company, not Southland Holdings, Inc. The summary below reflects the filing text and should not be treated as Southland’s financial results.
Business context and reporting period
The unaudited quarter ended March 31, 2022. Legato was formed to pursue a business combination and had not commenced operations. It said it initially intended to focus on infrastructure, engineering and construction, industrial, and renewables targets. This was its first reported first quarter; the filing provides no comparable Q1 2021 operating results.
Financial results and liquidity
| Metric | Q1 2022 / March 31, 2022 |
|---|---|
| Revenue | None; the company had not begun operations. |
| General and administrative costs | $254,479 in the financial statements. MD&A reports $254,469, a $10 discrepancy. |
| Trust account investment income | $85,474 |
| Net loss | $176,355; reported loss per share rounds to $0.00. |
| Operating cash flow | $(223,817) |
| Cash outside the trust | $876,214, down from $1,100,031 at December 31, 2021. |
| Trust account | $280,249,637, compared with $280,164,163 at year-end. |
| Working capital | $1,170,913, as reported by management. |
| Debt and deferred underwriting commissions | No long-term debt or working-capital loans outstanding; $9,660,000 of deferred underwriting commissions recorded as a liability. |
As a pre-combination SPAC, conventional operating margins are not meaningful. The filing reports no operating revenue or business-level profit.
Changes, outlook, risks, and unusual items
- Cash outside the trust decreased by $223,817 during the quarter; the trust balance increased by $85,474, consistent with reported trust investment income.
- Management expected available working capital and borrowing capacity to fund needs through the earlier of a business combination or one year from filing. It warned that additional financing might be needed, might not be available on acceptable terms, and that pursuing a transaction could be suspended to conserve liquidity.
- The company had until February 24, 2023 to complete a business combination, or May 24, 2023 if it had signed a definitive agreement by February 24. Failure to complete a transaction or obtain an extension would lead to liquidation. Management disclosed substantial doubt about the company’s ability to continue as a going concern and planned to complete a combination by the deadline.
- Public shareholders could redeem shares in connection with a business combination. The trust held approximately $10.15 per public share at inception, subject to interest and permitted tax withdrawals. Warrants would expire worthless if no combination were completed by the deadline.
- The company noted uncertainty about possible COVID-19 and Russia-Ukraine-war effects. It also warned that proposed SEC SPAC rules could increase transaction costs, time, and liability, and could impair its ability to complete a combination.
- A related-party affiliate agreed to protect the trust against certain claims reducing it below $10.15 per share, but Legato said it had not verified the affiliate’s ability to meet that obligation and did not believe it had significant liquid assets.
- Management said disclosure controls were effective as of March 31, 2022, and reported no material changes in internal control over financial reporting. No material subsequent events were identified.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing identifies Legato Merger Corp. II, not Southland Holdings, Inc.
- Review the $10 inconsistency in reported quarterly general and administrative costs ($254,479 in the statements versus $254,469 in MD&A).
- Verify the business-combination deadline, any extension or transaction agreement, and the related redemption and liquidation terms.
- Assess the adequacy of cash outside the trust for transaction expenses, and the reliability of any proposed sponsor or affiliate financing or indemnity.
- Consider the going-concern disclosure and the potential effects of redemptions, proposed SPAC regulation, and other disclosed uncertainties.