Filing summary
Company mismatch: The supplied 10-Q is for Capitol Investment Corp. IV, not Custom Truck One Source, Inc. It covers the quarter ended June 30, 2018. Capitol Investment Corp. IV identifies itself as a blank-check company seeking a business combination and as a shell company; this filing does not provide financial results for Custom Truck.
Business context and financial results
Capitol Investment Corp. IV reported no operating revenue and said it would not generate operating revenue before completing an initial business combination. Its reported activity related to formation, its 2017 public offering and private placement, and its search for a target.
- Second-quarter 2018: Net income was $1.02 million, comprising $1.51 million of trust-account interest income, a $1,181 unrealized loss on trust investments, and $491,575 of operating costs. Basic and diluted income per share was $0.02.
- First half of 2018: Net income was $1.98 million, including $2.88 million of trust-account interest income and $904,819 of operating costs. The filing reports a small loss per share, rounded to $(0.00).
- Comparison: The filing gives a 2017 inception-period net loss of $5,050, but does not provide a comparable 2017 second-quarter or six-month period. Revenue and operating margins are not meaningful for this pre-combination company.
- Cash flow: Net cash used in operating activities was $857,602 in the first half. A $750,000 withdrawal from the trust account was reported as investing cash flow.
Balance sheet, liquidity and commitments
- At June 30, 2018, assets totaled $405.09 million, including $404.63 million in the trust account and $394,323 in cash outside it. The trust account held cash at quarter-end; the company said it invested the cash in U.S. Treasury bills on July 6.
- Current liabilities were $180,668. The balance sheet also included a $14.09 million deferred underwriting fee, payable from trust funds upon a business combination, and $385.82 million of Class A shares classified as subject to possible redemption. Shareholders’ equity was $5.00 million.
- The company reported no long-term debt or off-balance-sheet arrangements. It said it expected available cash and subsequent financing to meet needs through a business combination or August 21, 2019, when it would have to cease operations and wind up if no combination was completed.
- In August 2018, executives and independent directors committed to lend the company $261,000. Loans would be repaid upon a business combination; up to $1.5 million of eligible loans could be converted into warrants.
- Other commitments included monthly affiliate office and administrative fees of up to $20,000 and consulting arrangements with aggregate annual fees of $560,000 plus $1.09 million in success fees payable upon a business combination.
Outlook, risks and other notable items
Management said substantially all trust funds, less taxes and deferred underwriting commissions, were intended to fund a business combination. The company could need additional financing if a transaction requires more funds or substantial shareholder redemptions occur. If it cannot obtain sufficient funds or complete a business combination by the deadline, it may have to liquidate the trust account. Management warned that working-capital estimates could prove insufficient; sponsor, officer and director loans beyond the stated commitment were not assured.
Management assessed disclosure controls as effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter. The company considered short-term Treasury investments to present no material interest-rate risk.
Important facts for investors to verify
- Confirm the filing is for Capitol Investment Corp. IV, not Custom Truck One Source, Inc.; obtain the correct issuer’s filing for Custom Truck information.
- Verify the status and terms of the proposed business-combination search, which this filing does not identify by target.
- Confirm the $261,000 post-quarter loan commitment was funded and review any later borrowing or warrant-conversion terms.
- Review the business-combination deadline, redemption provisions, trust balance, deferred underwriting fee, and potential need for additional financing.