Adapthealth Corp. quarterly report, Q2 FY2018

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

MetricThree Months Ended June 30, 2018Six Months Ended June 30, 2018
Operating revenueNoneNone
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 activitiesNot 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

  1. Verify the issuer identity: the provided filing is for DFB Healthcare Acquisitions Corp., not Adapthealth Corp.
  2. Confirm the status and permitted uses of the $251.070 million trust account, including taxes, working-capital withdrawals, redemption obligations, and deferred underwriting commissions.
  3. Review the February 21, 2020 business-combination deadline and the terms governing liquidation if no transaction is completed.
  4. Assess redemption risk and the resulting amount of capital available for any business combination.
  5. Evaluate dilution from founder shares, 25 million public warrants, 4,333,333 private-placement warrants, and any future financing.
  6. Determine whether the sponsor or Deerfield Management will provide additional financing; the disclosed potential $100 million investment was nonbinding.
  7. Reconcile the filing entity and period against the requested Adapthealth Corp. information before relying on these figures.