UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended September 30, 2018

 

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                       

 

Commission file number: 001-38186

 

CAPITOL INVESTMENT CORP. IV
(Exact Name of Registrant as Specified in Its Charter)
Cayman Islands		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

509 7th Street, N.W.

Washington, D.C. 20004

(Address of principal executive offices)

 

(202) 654-7060

(Issuer’s telephone number)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
(Do not check if a smaller reporting company)		Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒     No  ☐

 

As of November 9, 2018, 40,250,000 Class A ordinary shares, par value $0.0001 per share, and 10,062,500 Class B ordinary shares, par value $0.0001 per share, were issued and outstanding, respectively.

 

 

 

CAPITOL INVESTMENT CORP. IV

 

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS

 

		Page
Part I. Financial Information
Item 1. Financial Statements		1
Condensed Balance Sheets		1
Condensed Statements of Operations		2
Condensed Statements of Cash Flows		3
Notes to Unaudited Condensed Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		7
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk		9
Item 4. Controls and Procedures		9
Part II. Other Information
Item 5. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities		10
Item 6. Exhibits		10
Part III. Signatures		11

  

 

PART I - FINANCIAL INFORMATION

 

Capitol Investment Corp. IV
Condensed Balance Sheets

 

		September 30, 2018				December 31, 2017
		(Unaudited)
ASSETS
Current Assets
Cash		$	21,360			$	501,925
Prepaid expenses and other current assets			38,698				106,915
Total Current Assets			60,058				608,840
Cash held in Trust Account			406,385,155				402,500,000
Total Assets		$	406,445,213			$	403,108,840
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities – Accounts payable and accrued expenses		$	106,557			$	176,468
Total Current Liabilities			106,557				176,468
Deferred underwriting fee			14,087,500				14,087,500
Total Liabilities			14,194,057				14,263,968
Commitments
Class A Ordinary Shares, subject to possible redemption, 38,341,698 and 38,384,487 shares at redemption value as of September 30, 2018 and December 31, 2017, respectively			387,251,150				383,844,870
Shareholders’ Equity
Preference Shares, $0.0001 par value; 1,000,000 authorized; none issued and outstanding			—				—
Class A Ordinary Shares, $0.0001 par value; 400,000,000 shares authorized; 1,908,302 and 1,865,513 shares issued and outstanding (excluding 38,341,698 and 38,384,487 shares subject to possible redemption) as of September 30, 2018 and December 31, 2017, respectively			191				187
Class B Ordinary Shares, $0.0001 par value; 50,000,000 shares authorized; 10,062,500 shares issued and outstanding as of September 30, 2018 and December 31, 2017			1,006				1,006
Additional paid-in capital			2,369,996				5,776,280
Retained earnings (accumulated deficit)			2,628,813				(777,471	)
Total Shareholders’ Equity			5,000,006				5,000,002
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	406,445,213			$	403,108,840

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

Capitol Investment Corp. IV

Condensed Statements of Operations

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,				For the Period from May 1, 2017 (Inception) through September 30,
		2018				2017				2018				2017
Operating costs		$	324,052			$	167,016			$	1,228,871			$	172,066
Loss from operations			(324,052	)			(167,016	)			(1,228,871	)			(172,066	)
Other income:
Interest income			1,742,255				—				4,622,693				—
Unrealized gain on marketable securities held in Trust Account			12,462				—				12,462				—
Net income (loss)		$	1,430,665			$	(167,016	)		$	3,406,284			$	(172,066	)
Weighted average shares outstanding, basic and diluted (1)			11,922,402				10,098,357				11,919,878				9,566,111
Basic and diluted net income (loss) per ordinary share (2)		$	0.04			$	(0.02	)		$	(0.02	)		$	(0.02	)

 

(1)	Excludes an aggregate of up to 38,341,698 and 38,445,027 shares subject to redemption at September 30, 2018 and 2017, respectively.
(2)	Net income (loss) per ordinary share – basic and diluted excludes interest income attributable to ordinary shares subject to redemption of $957,093 and $3,700,999 for the three and nine months ended September 30, 2018, respectively.

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

Capitol Investment Corp. IV
Condensed Statement of Cash Flows

(Unaudited)

 

		Nine Months Ended September 30, 2018				For the Period from May 1, 2017 (Inception) Through September 30, 2017
Cash Flows from Operating Activities:
Net income (loss)		$	3,406,284			$	(172,066	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Interest earned on marketable securities held in Trust Account			(4,622,693	)			—
Unrealized gain on marketable securities held in Trust Account			(12,462	)			—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			68,217				(164,762	)
Accounts payable and accrued expenses			(69,911	)			69,902
Net cash used in operating activities			(1,230,565	)			(266,926	)
Cash Flows from Investing Activities:
Investment of cash in Trust Account			—				(402,500,000	)
Cash withdrawn from the Trust Account			750,000				—
Net cash provided by (used in) investing activities			750,000				(402,500,000	)
Cash Flows from Financing Activities:
Proceeds from issuance of Class B ordinary shares to initial shareholders			—				25,000
Proceeds from sale of Units, net of underwriting discounts paid			—				394,450,000
Proceeds from sale of Private Placement Warrants			—				9,800,000
Advances from related party			—				5,100
Proceeds from note payable to shareholder			—				250,000
Repayment of note payable to shareholder			—				(250,000	)
Payment of offering costs			—				(565,157	)
Net cash provided by financing activities			—				403,714,943
Net Change in Cash			(480,565	)			948,017
Cash – Beginning			501,925				—
Cash – Ending		$	21,360			$	948,017
Non-cash Investing and Financing Activities:
Deferred underwriting fee payable		$	—			$	14,087,500
Initial classification of ordinary shares subject to redemption		$	—			$	384,612,780
Change in value of ordinary shares subject to redemption		$	3,406,280			$	(162,510	)

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

CAPITOL INVESTMENT CORP. IV
NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(Unaudited)

 

Note 1 — Organization and Plan of Business Operations

 

Capitol Investment Corp. IV (the “Company”) was incorporated in the Cayman Islands on May 1, 2017 as a blank check company whose objective is to acquire, through a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination, one or more businesses or entities (a “Business Combination”). 

 

All activity through September 30, 2018 relates to the Company’s formation, the Company’s initial public offering of 40,250,000 units (the “Offering”), the simultaneous sale of 6,533,333 warrants (the “Private Placement Warrants”) in a private placement to Capitol Acquisition Management IV LLC and Capitol Acquisition Founder IV LLC (collectively, the “Sponsors”), entities affiliated with the Company’s executive officers, and the Company’s directors, and the Company’s search for a target business with which to complete a Business Combination.

 

Liquidity

 

The Company has principally financed its operations from inception using proceeds from the sale of its equity securities to its shareholders prior to the Offering and such amount of proceeds from the Offering that were placed in an account outside of the Trust Account for working capital purposes. As of September 30, 2018, the Company had $21,360 held outside of the Trust Account. In August and November 2018, the Company’s Chief Executive Officer, Mark D. Ein, its President and Chief Financial Officer, L. Dyson Dryden, and the Company’s independent directors collectively committed to provide an aggregate of $377,000 in loans to the Company. The loans, as well as any future loans that may be made by the Company’s officers and directors (or their affiliates), will be evidenced by notes and would either be repaid upon the consummation of a Business Combination or up to $1,500,000 of the notes may be converted into warrants. Based on the foregoing, the Company believes it will have sufficient cash to meet its needs through the earlier of consummation of a Business Combination or August 21, 2019, the date that the Company will be required to cease all operations except for the purpose of winding up, if a Business Combination is not consummated. 

 

Note 2 — Significant Accounting Policies

 

Basis of presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

 

The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC on March 27, 2018, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2017 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The interim results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for any future interim periods.

 

Use of estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from the Company’s estimates.

 

 

CAPITOL INVESTMENT CORP. IV
NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(Unaudited)

 

Cash and marketable securities held in Trust Account

 

At September 30, 2018, the assets held in the Trust Account were held in U.S. Treasury Bills. During the nine months ended September 30, 2018, the Company withdrew $750,000 of interest income from the Trust Account for working capital purposes. In October 2018, the Company withdrew an additional $750,000 of interest income for working capital purposes.

 

Net income (loss) per ordinary share

  

Net income (loss) per ordinary share is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding for the period. The Company applies the two-class method in calculating earnings per share. Ordinary shares subject to possible redemption at September 30, 2018 and 2017, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic income (loss) per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect of warrants to purchase 19,950,000 ordinary shares that were sold in the Initial Public Offering and private placement in the calculation of diluted income (loss) per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted income (loss) per ordinary share is the same as basic income (loss) per ordinary share for the periods presented.

 

Reconciliation of net income (loss) per ordinary share

 

The Company’s net income (loss) is adjusted for the portion of income that is attributable to ordinary shares subject to redemption, as these shares only participate in the income of the Trust Account and not the losses of the Company. Accordingly, basic and diluted income (loss) per ordinary share is calculated as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,				For the Period from May 1, 2017 (Inception) Through September 30,
		2018				2017				2018				2017
Net income (loss)		$	1,430,665			$	(167,016	)		$	3,406,284			$	(172,066	)
Less: Income attributable to ordinary shares subject to redemption			(957,093	)			—				(3,700,999	)			—
Adjusted net income (loss)		$	473,572			$	(167,016	)		$	(294,715	)			(172,066	)
Weighted average shares outstanding, basic and diluted			11,922,402				10,098,357				11,919,878				9,566,111
Basic and diluted net income (loss) per ordinary share		$	0.04			$	(0.02	)		$	(0.02	)		$	(0.02	)

 

Recent accounting pronouncements

 

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

 

Note 3 — Administrative Services Agreement

 

The Company presently occupies office space provided by two affiliates of the Company’s executive officers. Such affiliates have agreed that, until the Company consummates a Business Combination, they will make such office space, as well as certain office and secretarial services, available to the Company, as may be required by the Company from time to time. The Company commenced paying such affiliates an aggregate of up to $20,000 per month for such services on August 15, 2017. For the three and nine months ended September 30, 2018, the Company incurred $60,000 and $180,000, respectively, in fees for these services. For the three months ended September 30, 2017 and for the period from May 1, 2017 (inception) through September 30, 2017, the Company incurred $30,000 in fees for these services. At September 30, 2018 and December 31, 2017, $0 and $10,000 in administrative fees, respectively, are included in accounts payable and accrued expenses in the accompanying condensed balance sheets.

 

 

CAPITOL INVESTMENT CORP. IV
NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(Unaudited)

 

Note 4 — Commitments 

 

The underwriters of the Offering are entitled to a deferred fee of three and one-half percent (3.5%) of the gross proceeds of the Offering, or $14,087,500. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement executed in connection with the Offering.

 

In August and November 2018, the Company’s Chief Executive Officer, Mark D. Ein, its President and Chief Financial Officer, L. Dyson Dryden, and the Company’s independent directors collectively committed to provide an aggregate of $377,000 in loans to the Company (see Note 6). The loans, as well as any future loans that may be made by the Company’s officers and directors (or their affiliates), will be evidenced by notes and would either be repaid upon the consummation of a Business Combination or up to $1,500,000 of the notes may be converted into warrants at a price of $1.50 per warrant at the option of the lender. As of September 30, 2018, there were no amounts outstanding under the loans.

 

The Company’s shareholders prior to the Offering (the “Initial Shareholders”), the holders of the Private Placement Warrants (and underlying Class A ordinary shares) and the holders of any warrants (and underlying Class A ordinary shares) issued upon conversion of working capital loans made by the Company’s Sponsors, officers, directors or their affiliates, if any such loans are issued, are entitled to registration rights with respect to their securities pursuant to an agreement dated as of August 15, 2017. The holders of the majority of the securities are entitled to demand that the Company register these securities at any time commencing after expiration of the transfer restrictions. In addition, the holders have certain “piggy-back” registration rights on registration statements filed after the Company’s consummation of a Business Combination.

 

Subsequent to the consummation of the Offering, the Company entered into three consulting arrangements for services to help identify and introduce the Company to potential targets and provide assistance with due diligence, deal structuring, documentation and obtaining shareholder approval for a Business Combination. These agreements provide for aggregate annual fees of $560,000 and aggregate success fees of $1,090,000 payable upon the consummation of a Business Combination.

 

Note 5 — Shareholders’ Equity

 

Preference Shares 

 

The Company is authorized to issue 1,000,000 preference shares with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s board of directors. As of September 30, 2018 and December 31, 2017, there are no preference shares issued or outstanding.

  

Ordinary Shares  

 

The Company is authorized to issue 400,000,000 Class A ordinary shares and 50,000,000 Class B ordinary shares, both with a par value of $0.0001 per share. As of September 30, 2018 and December 31, 2017, there were 1,908,302 and 1,865,513 Class A ordinary shares issued and outstanding, respectively, excluding 38,341,698 and 38,384,487 ordinary shares subject to possible redemption, respectively, and 10,062,500 Class B ordinary shares issued and outstanding.

 

Note 6 — Subsequent Events

 

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements were issued. Other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

 

In October 2018, the Company withdrew an additional $750,000 of interest income for working capital purposes.

 

On October 3, 2018, the Company received a notice from the staff of NYSE Regulation (the “Staff”) of the New York Stock Exchange (“NYSE”) stating that, based on the Staff’s records, the Company was not currently in compliance with Section 802.01B of the NYSE Listed Company Manual. Section 802.01B of the Listed Company Manual requires listed acquisition companies to maintain at least 300 public stockholders on a continuous basis. The Company must submit to the Staff by November 17, 2018 a plan to regain compliance with Section 802.01B of the Listed Company Manual within 18 months from the date of the notice (or by April 3, 2020). The Company anticipates that it will satisfy this listing requirement within such time period once it locates a target business with which to consummate a Business Combination. The Company’s plan will be reviewed by the Listing Operations Committee of the NYSE (the “Committee”). If the Committee accepts the Company’s plan, the Company’s securities will remain listed on NYSE and will be subject to quarterly monitoring for compliance with its plan during the following 18 months. If the Committee does not accept the Company’s plan, the Staff may commence suspension and delisting procedures.

 

In November 2018, the Company’s Chief Executive Officer, its President and Chief Financial Officer, and the Company’s independent directors collectively committed to provide $116,000 in loans to the Company, bringing the total commitment amount from such parties to an aggregate of $377,000.

 

 

Item 2. Management’s Discussion and Analysis

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings. References to “we”, “us”, “our” or the “Company” are to Capitol Investment Corp. IV, except where the context requires otherwise. The following discussion should be read in conjunction with our condensed financial statements and related notes thereto included elsewhere in this report.

 

Overview

 

We are a blank check company formed in the Cayman Islands on May 1, 2017 for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities.

 

We consummated the Offering on August 21, 2017. All activity through September 30, 2018 relates to our formation, the Offering and simultaneous private placement of Private Placement Warrants (each as described below) and our search for a target business with which to complete an initial business combination.

 

Results of Operations

 

We will not generate any operating revenues until the closing and completion of our initial business combination. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

 

For the three and nine months ended September 30, 2018, we had net income of $1,430,665 and $3,406,284, respectively, which consists of interest income on marketable securities held in the Trust Account of $1,742,255 and $4,622,693, respectively, and an unrealized gain on marketable securities held in the Trust Account of $12,462, offset by operating costs of $324,052 and $1,228,871, respectively.

 

For the three months ended September 30, 2017 and for the period from May 1, 2017 (inception) through September 30, 2017, we had net loss of $167,016 and $172,066, respectively, which consists of operating and formation costs.

 

Liquidity and Capital Resources

 

As of September 30, 2018, we had cash of $21,360 held outside the Trust Account. Until the consummation of the Offering, our only source of liquidity was an initial purchase of ordinary shares by the Sponsors, and loans and advances from related parties.

 

On August 21, 2017, we consummated the Offering of 40,250,000 Units, which included the full exercise by the underwriters of their over-allotment option in the amount of 5,250,000 Units, at a price of $10.00 per Unit, generating aggregate gross proceeds of $402,500,000. Simultaneously with the closing of the Offering, we consummated the sale of 6,533,333 Private Placement Warrants to our Sponsors and directors at a price of $1.50 per warrant, generating aggregate gross proceeds of $9,800,000.

 

Following the Offering and private placement, a total of $402,500,000 was placed in the Trust Account and we had $1,052,665 of cash held outside of the Trust Account, after payment of all costs related to the Offering, and available for working capital purposes. We paid $8,050,000 of underwriting fees at the closing of the Offering (up to an additional $14,087,500 of deferred underwriting fees may be paid upon closing of a business combination) and $565,157 of Offering costs.

 

For the nine months ended September 30, 2018, cash used in operating activities was $1,230,565. Net income of $3,406,284 was impacted by interest earned on marketable securities held in the Trust Account of $4,622,693, an unrealized gain on marketable securities of $12,462 and changes in operating assets and liabilities, which used $1,694 of cash. 

 

For the period May 1, 2017 (inception) through September 30, 2017, cash used in operating activities was $266,926, consisting of a net loss of $172,066 and changes in operating assets and liabilities of $94,860.

 

 

As of September 30, 2018, we had cash and marketable securities held in the Trust Account of $406,385,155. During the nine months ended September 30, 2018, we withdrew $750,000 of interest income from the Trust Account for working capital purposes. In October 2018, we withdrew an additional $750,000 of interest income for working capital purposes. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account not previously released to us (less taxes payable and deferred underwriting commissions) to complete our initial business combination. We may withdraw interest to pay our income taxes, if any, and up to $750,000 annually for our working capital needs. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

 

We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.

 

We have principally financed our operations from inception using proceeds from the sale of our equity securities to our shareholders prior to the Offering and such amount of proceeds from the Offering that were placed in an account outside of the Trust Account for working capital purposes. In August and November 2018, our Chief Executive Officer, Mark D. Ein, our President and Chief Financial Officer, L. Dyson Dryden, and our independent directors collectively committed to provide us an aggregate of $377,000 in loans. The loans, as well as any future loans that may be made by our officers and directors (or their affiliates), will be evidenced by notes and would either be repaid upon the consummation of a Business Combination or up to $1,500,000 of the notes may be converted into warrants at a price of $1.50 per warrant at the option of the lender. Based on the foregoing, we believe we will have sufficient cash to meet our needs through the earlier of consummation of a Business Combination or August 21, 2019, the date that we will be required to cease all operations except for the purpose of winding up, if a Business Combination is not consummated.

 

If our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial business combination. In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our Sponsors, officers and directors or their respective affiliates may, but are not obligated to, except as described above, loan us funds as may be required on a non-interest basis. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants of the post business combination entity at a price of $1.50 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our Sponsors, officers, directors or their respective affiliates as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.

 

Moreover, we may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our trust account or because we become obligated to redeem a significant number of our public shares upon completion of the business combination, in which case we may issue additional securities or incur debt in connection with such business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account.

 

Off-balance sheet financing arrangements

 

We did not have any off-balance sheet arrangements as of September 30, 2018.

 

Contractual obligations

 

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay two affiliates of our executive officers an aggregate monthly fee of $20,000 for office space and office and secretarial support provided to the Company. We began incurring these fees on August 15, 2017 and will continue to incur these fees monthly until the earlier of the completion of a business combination and the Company’s liquidation.

 

Critical Accounting Policies

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The Company has identified the following critical accounting policy: 

 

 

Ordinary shares subject to possible redemption

 

We account for our ordinary shares subject to possible conversion in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, at September 30, 2018 and December 31, 2017, the ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of our balance sheet.

 

Recent accounting standards

 

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Following the consummation of the Offering, the net proceeds of the Offering, including amounts in the Trust Account, may be invested in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in US treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2018, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

Changes in Internal Control Over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the most recently completed fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 5. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities

 

In May 2017, we issued to our Sponsors an aggregate of 10,062,500 founder shares in exchange for a capital contribution of $25,000, or approximately $0.0025 per share. The foregoing issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (“Securities Act”). Our Sponsors then transferred 50,000 founder shares to each of our independent directors in June 2017 and transferred an aggregate of 32,500 founder shares to certain other persons associated with them in August 2017, in each case at the same per-share purchase price paid by our Sponsors.

 

On August 21, 2017, we consummated the Offering of 40,250,000 units, including 5,250,000 units that were subject to the underwriters’ over-allotment option. Each unit consists of one Class A ordinary share and one third of one redeemable warrant (“Warrant”), each whole Warrant to purchase one Class A ordinary share at a price of $11.50 per share. The units were sold at an offering price of $10.00 per unit, generating gross proceeds of $402,500,000. Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC acted as joint book-running managers of the Offering. The securities in the Offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333- 219146). The Securities and Exchange Commission declared the registration statement effective on August 15, 2017.

 

Simultaneous with the consummation of the Offering, we consummated the private placement of 6,533,333 Private Placement Warrants to our Sponsors and directors at a price of $1.50 per Private Placement Warrant, generating total proceeds of $9,800,000. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

 

The Private Placement Warrants are identical to the Warrants included in the units sold in the Offering except that the Private Placement Warrants are exercisable on a cashless basis and, if we call the Warrants for redemption, the Private Placement Warrants will not be redeemable by us so long as they are held by the initial purchasers or their permitted transferees. The purchasers of the Private Placement Warrants have agreed that the Private Placement Warrants will not be sold or transferred by them (except in limited situations) until 30 days after we have completed an initial business combination.

 

Of the gross proceeds received from the Offering and private placement of Private Placement Warrants, $402,500,000 was placed in a Trust Account.

 

We incurred a total of $22,137,500 in underwriting discounts and commissions and $565,157 for other costs and expenses related to our formation and the Offering.

 

For a description of the use of the proceeds generated in our Offering, see our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on March 27, 2018.

 

Item 6. Exhibits

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

	CAPITOL INVESTMENT CORP. IV
Date: November 13, 2018	By:	/s/ Mark D. Ein
	Name:	Mark D. Ein
	Title:	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
	By:	/s/ L. Dyson Dryden
	Name:	L. Dyson Dryden
	Title:	President and Chief Financial Officer (Principal Financial and Accounting Officer)