SEC Form 10-Q Summary
Filing entity: DFB Healthcare Acquisitions Corp., not Adapthealth Corp. The filing covers the quarter ended June 30, 2018 and was filed August 8, 2018. DFB was a blank-check company formed to pursue a business combination, with an intended focus on healthcare or healthcare-related businesses. The company had not commenced operating activities and had no operating revenue.
Business Context and Reporting Period
- DFB completed its initial public offering on February 21, 2018, selling 25 million units at $10.00 per unit and raising gross proceeds of $250.0 million.
- The sponsor concurrently purchased 4,333,333 private-placement warrants for $6.5 million.
- Substantially all IPO proceeds were placed in a trust account pending a business combination.
- The 45-day over-allotment option expired unexercised on April 2, 2018, resulting in the forfeiture of 937,500 founder shares.
Financial Condition and Results
| Metric | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 |
|---|---|---|
| Operating revenue | None | None |
| Interest income | $1.157 million | $1.522 million |
| General and administrative expense | $163,000 | $213,000 |
| Franchise tax expense | $72,000 | $94,000 |
| Income tax expense | $232,000 | $304,000 |
| Net income | $690,000 | $910,000 |
| Public-share earnings per share | $0.03 | $0.04 |
| Net cash used in operating activities | Not presented | $913,000 |
- Reported net income was generated entirely by interest earned on trust-account investments, less corporate expenses and taxes. Operating margins are not meaningful because the company had no operating revenue.
- At June 30, 2018, cash outside the trust account was $989,000, working capital was approximately $1.179 million, and cash and marketable securities in the trust account totaled $251.070 million.
- Total assets were $252.347 million. Total liabilities were $7.973 million, including $7.875 million of deferred underwriting commissions payable only if a business combination is completed.
- There was no long-term debt. A $270,531 sponsor loan was repaid on February 21, 2018, and no working-capital loans were outstanding at June 30, 2018.
- Stock subject to possible redemption totaled $239.374 million, representing 23,937,395 public shares classified as temporary equity.
Material Changes Versus the Prior Comparable Period
- A meaningful year-over-year comparison is not available because the company was formed in November 2017 and completed its IPO in February 2018.
- Compared with December 31, 2017, cash increased from $120,000 to $989,000, and trust-account investments increased from zero to $251.070 million following the IPO.
- Total assets increased from $311,000 to $252.347 million, while stockholders’ equity increased from $24,000 to $5.000 million.
- The company shifted from formation activities to searching for and evaluating a prospective business combination.
Guidance, Outlook, Risks, and Unusual Items
- Management expected sufficient working capital and borrowing capacity to fund operations through the earlier of a business combination or one year from issuance of the financial statements.
- The company must complete a qualifying business combination by February 21, 2020. If it does not, it must cease operations, redeem public shares using the trust account, and liquidate.
- Management warned that costs for identifying targets, due diligence, and negotiating a transaction could exceed available funds. Additional financing or debt may be required to complete a transaction or satisfy redemption obligations.
- Public shareholders generally may redeem shares for their pro rata share of the trust account upon completion of a business combination, subject to applicable conditions and a 15% redemption limitation for an individual shareholder and affiliates acting as a group.
- Deferred underwriting commissions of $7.875 million become payable upon completion of a business combination and are waived if the company liquidates without completing one.
- Deerfield Management indicated a nonbinding interest in purchasing up to $100 million of shares in a private placement concurrent with a business combination; the filing states that this is not a binding commitment.
- Founder shares, private-placement warrants, and potential working-capital-loan warrants create potential dilution. Public and private warrants generally have an $11.50 exercise price and may expire worthless if the company liquidates.
- No legal proceedings were reported. Management stated that there were no material changes to previously disclosed risk factors.
- Management concluded that disclosure controls were effective and that there were no material changes in internal control over financial reporting.
Investor Verification Items
- Verify the issuer identity: the provided filing is for DFB Healthcare Acquisitions Corp., not Adapthealth Corp.
- Confirm the status and permitted uses of the $251.070 million trust account, including taxes, working-capital withdrawals, redemption obligations, and deferred underwriting commissions.
- Review the February 21, 2020 business-combination deadline and the terms governing liquidation if no transaction is completed.
- Assess redemption risk and the resulting amount of capital available for any business combination.
- Evaluate dilution from founder shares, 25 million public warrants, 4,333,333 private-placement warrants, and any future financing.
- Determine whether the sponsor or Deerfield Management will provide additional financing; the disclosed potential $100 million investment was nonbinding.
- Reconcile the filing entity and period against the requested Adapthealth Corp. information before relying on these figures.