Filing summary
Entity and period: The supplied filing is Avista Healthcare Public Acquisition Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018—not an Organogenesis Holdings Inc. 10-Q. Avista was a blank-check company seeking a business combination; it had not begun operating or generating operating revenue.
Financial results and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Operating costs | $2.25 million | $2.85 million | $4.35 million | $3.29 million |
| Trust interest/dividend income | $1.46 million | $0.74 million | $3.79 million | $1.70 million |
| Gain on extinguishment of deferred underwriting fee | $5.72 million | — | $5.72 million | — |
| Net income/(loss) | $4.94 million | $(2.12) million | $5.16 million | $(1.60) million |
| Basic and diluted earnings/(loss) per share | $0.36 | $(0.30) | $0.16 | $(0.34) |
- Revenue and margins: No operating revenue; the filing does not present operating margins. Reported profit primarily reflects trust investment income and a one-time $5.72 million underwriting-fee extinguishment gain, not operating performance.
- Cash flow: Nine-month operating cash use was $723,181, versus $494,762 in 2017. Financing provided $600,000 from sponsor borrowing; cash declined to $2,705 from $125,886 at year-end 2017.
- Liquidity and debt: At September 30, cash outside the trust was $2,705, working capital deficit was $7.98 million, current liabilities were $8.01 million, and sponsor-note borrowings were $700,000. The trust held $316.28 million, but was designated for the business combination and shareholder redemptions. Deferred underwriting commissions were $5.13 million. Management said failure to complete the proposed combination could require additional capital and raised substantial doubt about going concern.
- Balance sheet: Total assets were $316.31 million and total liabilities $13.14 million. Redeemable Class A shares of $298.17 million were classified outside permanent equity.
Material developments and outlook
- Compared with 2017, operating costs fell in Q3 but rose for the nine-month period. Net income replaced losses in both comparisons, largely due to the unusual underwriting-fee gain and higher trust income.
- Avista terminated its proposed Envigo transaction in February 2018 and signed a merger agreement with Organogenesis on August 17, 2018, amended October 5. A proposed $46 million equity financing was intended to fund the transaction and general corporate purposes. The filing describes a proposed transaction, not completed Organogenesis operating results.
- At an October 4 shareholder meeting, the extension proposal failed. The filing says Avista initially misapplied the voting standard and prematurely redeemed 30,798,019 public shares for approximately $314.3 million. It subsequently redeemed the remaining 201,981 public shares for approximately $2.1 million at about $10.30 per share, and liquidated the trust. These are post-quarter events.
- NASDAQ notified Avista that its securities faced delisting following the redemptions and listing-rule deficiencies. Avista appealed on November 9; the filing says the suspension and delisting process would be stayed pending the hearing, with no assurance of continued listing.
- Warrants had no redemption or liquidating distribution; the filing states private placement warrants would expire worthless if no business combination occurred. The sponsor note was non-interest-bearing, capped at $850,000, and payable by January 31, 2019 or at transaction closing; an additional $150,000 was borrowed after quarter-end.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No legal proceedings were reported.
Important facts for investors to verify
- Confirm the issuer: this is Avista’s filing, not an Organogenesis Holdings filing.
- Verify the Organogenesis merger’s subsequent status and whether the proposed $46 million financing closed; this filing does not establish completion.
- Review the shareholder vote, early redemption error, trust liquidation, and actual redemption payments and dates.
- Check the outcome of Avista’s NASDAQ appeal and the trading/listing status of its securities.
- Reconcile the deferred underwriting commission: the balance sheet and notes state $5,128,205, while a proceeds discussion elsewhere gives $5,218,205.
- Assess the company’s post-redemption liquidity, sponsor funding, deferred expenses, going-concern uncertainty, and the terms and status of outstanding warrants.