Business Context and Reporting Period
DFB Healthcare Acquisitions Corp. (the SPAC expected to become AdaptHealth Holding Corporation) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The company had not commenced operating activities and was focused on identifying and completing a healthcare-related business combination. It had no operating revenue.
Financial Position and Results
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Interest income | $1.48 million in 2019; $1.16 million in 2018 | $2.95 million in 2019; $1.52 million in 2018 |
| General and administrative expense | $1.80 million in 2019; $0.16 million in 2018 | $2.09 million in 2019; $0.21 million in 2018 |
| Loss from operations | $1.85 million loss | $2.19 million loss |
| Net income (loss) | $0.67 million loss in 2019; $0.69 million income in 2018 | $0.16 million income in 2019; $0.91 million income in 2018 |
| Net cash used in operating activities | Not separately presented | $1.17 million in 2019; $0.91 million in 2018 |
At June 30, 2019, cash outside the Trust Account was $878,071, compared with $947,098 at December 31, 2018. Cash and marketable securities held in the Trust Account totaled $254.86 million, compared with $253.02 million at year-end. Current liabilities were $2.28 million, including $2.22 million of accrued expenses. Stockholders’ equity was $5.00 million, while $240.71 million of common stock was classified as subject to possible redemption.
The company had no long-term debt, capital leases, operating leases, purchase obligations, or off-balance-sheet arrangements. Deferred underwriting commissions totaled $7.875 million and would become payable only if a business combination is completed. Interest income earned in the Trust Account was the principal source of reported income and liquidity.
Material Changes Versus the Prior Comparable Period
- Second-quarter general and administrative expense increased to $1.80 million from $162,633, primarily reflecting public-company compliance, due diligence, and transaction-related costs.
- Second-quarter results shifted from $689,830 of net income to a $667,488 net loss despite higher interest income.
- Six-month net income declined to $158,110 from $910,163 because expense growth substantially exceeded the increase in Trust Account interest income.
- Accrued expenses increased to $2.22 million from $500,379 at December 31, 2018.
- The Trust Account increased by approximately $1.84 million, primarily from interest income, while operating cash declined by approximately $69,000.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
On July 8, 2019, after the reporting period, DFB entered into a merger agreement with AdaptHealth Holdings LLC and related parties. The proposed transaction provides for aggregate merger consideration of up to $515 million, consisting of up to 51.5 million shares of DFB common stock, with cash consideration of up to $50 million potentially reducing the shares issued. Closing remained subject to stockholder approval and other conditions. Adapt was described as a provider of respiratory and mobility equipment, including CPAP and oxygen equipment, wheelchairs, walkers, and hospital beds, serving more than 1.0 million patients across 49 states.
The company must complete a qualifying business combination by February 21, 2020. If it does not, it must cease operations, redeem the public shares using the Trust Account, and liquidate. Management stated that this mandatory liquidation creates substantial doubt about the company’s ability to continue as a going concern.
Public stockholders may redeem shares in connection with a business combination, subject generally to a 15% redemption limitation for an individual stockholder and its affiliates or group. Warrants may expire worthless if no business combination is completed. The company also disclosed that a Deerfield affiliate had indicated interest in purchasing up to $100 million of shares in a private placement, but that indication was nonbinding.
Management reported effective disclosure controls and no material change in internal control over financial reporting. No legal proceedings or material changes to previously disclosed risk factors were reported.
Most Important Facts for Investors to Verify
- Whether the July 8, 2019 AdaptHealth transaction closed, on what terms, and whether the contemplated name change occurred.
- The final mix of stock and cash consideration and the resulting ownership, dilution, and redemption levels.
- The amount ultimately available in the Trust Account after taxes, permitted withdrawals, redemptions, and deferred underwriting commissions.
- Whether the company completed a business combination before the February 21, 2020 deadline and avoided liquidation.
- The financial statements and operating metrics of AdaptHealth, which were not included as historical operating results in this SPAC quarterly filing.
- The increase in accrued expenses and the availability of additional working-capital funding if transaction costs exceeded cash outside the Trust Account.