Business context and reporting period
This is Capitol Acquisition Corp. II’s unaudited Form 10-Q for the quarter ended March 31, 2015—not an operating-company 10-Q for Lindblad Expeditions Holdings, Inc. Capitol was a blank-check company seeking a business combination; it reported no operating revenue.
On March 9, 2015, Capitol agreed to combine with Lindblad Expeditions, Inc. The proposed transaction was valued at approximately $330 million, including approximately $90 million in cash and approximately 24 million Capitol shares, including options. The filing anticipated closing in the second quarter of 2015, subject to stockholder approval and other conditions.
Key financial metrics
| Metric | Q1 2015 / March 31, 2015 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 in Q1 2014 |
| Operating expenses | $1.412 million | $265,000 in Q1 2014 |
| Net loss | $1.410 million; loss per share $0.23 | $242,000; loss per share $0.04 in Q1 2014 |
| Operating cash flow | $(841,000) | $(186,000) in Q1 2014 |
| Cash and marketable securities outside the restricted trust | Approximately $210,000 | Cash was $28,634 at December 31, 2014 |
| Trust account | $200.0 million restricted, plus $1,216 of interest available for working capital and taxes | $200.0 million restricted at December 31, 2014 |
| Current liabilities | $2.482 million | $912,000 at December 31, 2014 |
| Related-party and director loans | $1.461 million due; non-interest-bearing and generally payable upon a business combination | $470,000 at December 31, 2014 |
Capitol had no reported revenue or operating margin. Its stockholders’ equity was $9.826 million, while $187.982 million of common stock was classified as subject to possible redemption. No traditional operating-company debt or profitability outlook was provided.
Material changes versus prior comparable period
- Operating expenses increased to $1.412 million from $265,000, and net loss widened to $1.410 million from $242,000. Management attributed costs principally to professional and consulting fees, rent, administrative costs, and franchise tax.
- Cash used in operations increased to $841,000 from $186,000. Financing included $991,000 of proceeds from related-party notes.
- Accounts payable and accrued expenses rose to $976,000 from $82,000 at year-end; total amounts due to related parties rose to $1.461 million from $470,000.
- Capitol paid its delinquent Delaware franchise taxes in full on March 3, 2015.
Outlook, risks, contingencies, and unusual items
- Capitol’s business-combination deadline was May 15, 2015. It was seeking stockholder approval to extend the deadline to July 31, 2015 in connection with the Lindblad transaction. If it failed to complete a combination within the applicable period, it would liquidate and distribute the trust account to public shareholders.
- Management said available funds and committed potential loans were sufficient to meet needs through the anticipated Lindblad closing, but Capitol had recurring losses and negative operating cash flow and relied on additional insider financing. Officers and directors were not required to provide further loans.
- The proposed transaction remained conditional on stockholder approval and other closing conditions. The merger consideration, redemption activity, and transaction costs could affect the cash and share amounts ultimately delivered.
- Capitol faced Nasdaq listing-compliance conditions, including completing a business combination and meeting initial listing criteria. Failure to meet the conditions could result in delisting; the filing said no assurance could be given that an extension or compliance would be obtained.
- Transaction-related costs included approximately $890,000 of legal fees incurred by March 31, potentially subject to an additional premium upon closing. A finder fee was payable at 1% of trust cash released after shareholder conversions, subject to a $1 million minimum. Deferred underwriting commissions of $8 million were payable only upon a business combination.
- Capitol reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the filing entity and period: this filing is for Capitol Acquisition Corp. II, not Lindblad Expeditions Holdings, Inc.
- Verify whether the proposed merger closed, whether the deadline extension was approved, and the final merger consideration and share issuance.
- Check public-shareholder redemptions, resulting trust cash available at closing, and payment of deferred underwriting and finder fees.
- Review subsequent financing, transaction expenses, and any changes to Nasdaq listing status or compliance.