Business Context and Reporting Period
Registrant: DFB Healthcare Acquisitions Corp. (the filing text does not identify Adapthealth Corp. as the registrant). This unaudited Form 10-Q covers the three months ended March 31, 2018. DFB was incorporated on November 22, 2017 as a blank-check company seeking a business combination, primarily in healthcare or healthcare-related industries. It had not commenced operating activities and will not generate operating revenue until, at the earliest, completion of a business combination.
On February 21, 2018, DFB completed an initial public offering of 25,000,000 units at $10.00 per unit and a private placement of 4,333,333 warrants. The company is an emerging growth company and has elected the JOBS Act extended transition period for new accounting standards.
Key Financial Metrics
| Metric | March 31, 2018 / Three Months Ended |
|---|---|
| Revenue | No operating revenue |
| Interest income | $364,909 |
| General and administrative expense | $50,709 |
| State franchise taxes | $21,818 |
| Income tax expense | $72,049 |
| Net income | $220,333 |
| Basic and diluted net income per public share | $0.01 |
| Cash and cash equivalents outside the Trust Account | $1,070,677 |
| Cash and cash equivalents held in Trust Account | $250,364,909 |
| Working capital | Approximately $1.2 million |
| Total liabilities | $7,950,833, including $7,875,000 of deferred underwriting commissions |
| Long-term debt | None reported |
| Net cash used in operating activities | $380,187 |
| Net cash used in investing activities | $250,000,000 deposited into the Trust Account |
| Net cash provided by financing activities | $251,331,043 |
There is no meaningful operating margin comparison because the company had no operating revenue. Net income primarily reflected interest earned on Trust Account investments rather than business operations.
Material Changes Versus the Prior Comparable Period
- The company was formed on November 22, 2017, so the filing does not provide a prior comparable quarterly operating period.
- Compared with December 31, 2017, total assets increased from $310,616 to $251.6 million, principally because of the February IPO and the deposit of $250 million into the Trust Account.
- Cash outside the Trust Account increased from $119,821 to $1.1 million, while deferred offering costs were reclassified to equity upon completion of the IPO.
- Public shares subject to possible redemption totaled 23,868,412 shares with a carrying value of $238.7 million at March 31, 2018.
- The underwriters’ 45-day option to purchase up to 3,750,000 additional units expired on April 2, 2018. As a result, 937,500 Founder Shares were forfeited after quarter-end.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects expenses to increase as the company conducts target identification, due diligence, negotiations, and public-company compliance activities.
- Management believes available working capital and borrowing capacity are sufficient through the earlier of a business combination or one year from issuance of the financial statements. The filing text does not provide formal revenue or earnings guidance.
- DFB must complete a qualifying business combination within 24 months after the IPO closing. If it fails to do so, it must cease operations, redeem the public shares using the Trust Account, and liquidate.
- The business combination must generally have an aggregate fair market value of at least 80% of the assets held in the Trust Account, excluding deferred underwriting commissions and certain taxes.
- Public stockholders may redeem their shares in connection with a business combination. Redemption rights are generally limited to no more than 15% of the public shares for any stockholder, affiliate, or group without company consent.
- The Trust Account is invested in short-term U.S. government securities or qualifying money market funds. Management reported no material market or interest-rate risk.
- The $7.875 million deferred underwriting commission is payable only if a business combination is completed. The underwriters agreed to waive this amount if the company liquidates without completing a business combination.
- The Sponsor may provide working capital loans, but no such loans were outstanding at March 31, 2018. Previously advanced Sponsor loans of $270,531 were fully repaid on February 21, 2018.
- Related-party arrangements include a $10,000 monthly administrative support fee to the Sponsor and a $7,500 monthly payment to the Chief Financial Officer before completion of a business combination. Related-party agreements generated $25,300 of general and administrative expense during the quarter.
- Deerfield Management indicated non-binding interest in purchasing up to $100 million of shares in a private placement concurrent with a future business combination; the indication is not a commitment.
- No legal proceedings, defaults, material changes to disclosed risk factors, or off-balance-sheet arrangements were reported. Management concluded that disclosure controls were effective and that there were no material changes to internal control over financial reporting.
Facts an Investor Should Verify
- Confirm the correct registrant and filing attribution: the supplied filing is for DFB Healthcare Acquisitions Corp., while the request metadata identifies Adapthealth Corp.
- Verify the status, timing, and terms of any proposed healthcare business combination, since none had been completed as of March 31, 2018.
- Reconcile the $250.4 million Trust Account balance, the $238.7 million redeemable-share balance, and the $7.875 million deferred underwriting commission.
- Confirm the April 2, 2018 expiration of the over-allotment option and the resulting forfeiture of 937,500 Founder Shares.
- Assess redemption, liquidation, warrant-expiration, dilution, and financing risks if a business combination is not completed within the 24-month period.
- Review related-party fees, potential working capital loans, Sponsor indemnification obligations, and the non-binding nature of the proposed Deerfield Management investment.