SEC Filing Summary
Filing: Form 10-K for the fiscal year ended December 31, 2018, filed March 29, 2019. The supplied filing is for DFB Healthcare Acquisitions Corp., not Adapthealth Corp.; investors should verify the issuer and filing selection. The filing covers fiscal 2018 rather than a standalone 2018 fourth quarter.
Business Context and Reporting Period
DFB Healthcare Acquisitions Corp. was a blank check company formed in November 2017 to pursue a merger, acquisition, reorganization or similar business combination. It had not commenced operating activities and had generated no operating revenue as of December 31, 2018. Its initial target focus was healthcare and healthcare-related businesses, although its charter permitted broader opportunities subject to Deerfield Management’s consent rights.
The company completed its initial public offering on February 21, 2018, issuing 25.0 million units at $10.00 per unit. It also sold 4.33 million private placement warrants to its sponsor.
Financial Metrics and Liquidity
| Metric | Fiscal 2018 | Prior comparable period |
|---|---|---|
| Operating revenue | None | None |
| Net income | $2.086 million | Net loss of $693 for the period from inception through December 31, 2017 |
| Interest income | $4.150 million | None |
| General and administrative expense | $1.036 million | $693 |
| State franchise tax expense | $198 thousand | None |
| Income tax expense | $830 thousand | None |
| Cash flow from operating activities | $(1.634) million | None |
| Cash flow from investing activities | $(248.870) million | None |
| Cash flow from financing activities | $251.331 million | $120 thousand |
| Cash outside the trust account | $947 thousand | $120 thousand |
| Trust account balance | $253.019 million | None |
| Working capital | Approximately $406 thousand | Not clearly provided |
| Deferred underwriting commissions | $7.875 million | None |
| Debt | No outstanding debt at year-end | Notes payable to related parties were outstanding |
The company classified 24.055 million public shares, with a carrying value of $240.550 million, as temporary equity because of possible redemption. Stockholders’ equity was $5.000 million. The company withdrew approximately $1.130 million from the trust account during 2018, primarily for taxes and working capital purposes.
Material Changes Versus the Prior Period
- The company completed its $250.0 million IPO and $6.5 million private placement in February 2018; no comparable financing occurred in the 2017 inception period.
- Net results improved from a $693 loss to $2.086 million of net income, principally because of $4.150 million of trust-account interest income.
- Cash outside the trust account increased from $120 thousand to $947 thousand, while $253.019 million was held in the trust account at year-end.
- Public shares subject to possible redemption and deferred underwriting commissions were recognized following the IPO.
- The sponsor loan of $270,531 was fully repaid on February 21, 2018. No working capital loans were outstanding at December 31, 2018.
- The IPO over-allotment option expired unexercised on April 2, 2018, and 937,500 founder shares were forfeited.
Outlook, Risks, Contingencies and Unusual Items
- The company was required to complete an initial business combination by February 21, 2020. If unsuccessful, it would cease operations, redeem public shares and liquidate; public warrants would expire worthless.
- Management and the auditor stated that the mandatory liquidation provision raises substantial doubt about the company’s ability to continue as a going concern. The financial statements were not adjusted for a potential liquidation.
- A proposed target generally had to have a fair market value equal to at least 80% of the trust-account balance, excluding deferred underwriting commissions and certain taxes.
- Public stockholders could redeem shares for a pro rata share of the trust account, subject to minimum net tangible asset requirements and other transaction-specific cash conditions.
- Deerfield Management had indicated a nonbinding interest to purchase up to $100 million of common stock in a private placement concurrent with a business combination. Any such transaction could dilute public stockholders.
- The sponsor, officers and directors had conflicts of interest, including competing fiduciary obligations, sponsor ownership, founder shares, private placement warrants and potential reimbursement or post-combination compensation.
- Third-party creditor claims could reduce the trust account and the amount available to public stockholders. The sponsor’s indemnification obligation was subject to significant limitations, and its ability to satisfy that obligation was not independently verified.
- The company was an emerging growth company and elected extended accounting-standard transition provisions, which could reduce comparability with other public companies.
- There was no material pending litigation reported. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.
Facts Investors Should Verify
- Confirm that the intended issuer is DFB Healthcare Acquisitions Corp. rather than Adapthealth Corp.
- Verify whether a business combination was subsequently completed by the February 21, 2020 deadline and whether the company’s securities or corporate name changed.
- Reconcile the $253.019 million trust-account balance with the approximately $245.1 million amount described as available for a business combination after deferred underwriting commissions.
- Review the redemption, liquidation and creditor-claim provisions, including the possibility that distributions could be below $10.00 per public share.
- Assess potential dilution from founder shares, public and private warrants, the proposed Deerfield private placement and any working capital loans convertible into warrants.
- Review Deerfield Management’s disclosed SEC proceedings and evaluate related governance, reputational and transaction-execution risks.