Business Context and Reporting Period
Despite the request metadata identifying Adapthealth Corp., the filing is for DFB Healthcare Acquisitions Corp., a Delaware special purpose acquisition company and emerging growth company. The unaudited Form 10-Q covers the quarter and nine months ended September 30, 2018, and was filed November 8, 2018.
The Company had not commenced operating activities and was searching for a healthcare or healthcare-related business combination. It would not generate operating revenue until completion of a business combination.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 |
|---|---|---|
| Operating revenue | None | None |
| Interest income | $1.205 million | $2.726 million |
| General and administrative expense | $391,000 | $605,000 |
| Franchise taxes | $54,000 | $147,000 |
| Income tax expense | $242,000 | $546,000 |
| Net income | $518,000 | $1.428 million |
| Net income per Public Share | $0.03 | $0.07 |
| Net loss per Founder Share | $0.02 | $0.06 |
At September 30, 2018, cash outside the Trust Account was $846,716, working capital was approximately $707,000, and cash and marketable securities held in the Trust Account totaled $252.061 million. Total assets were $253.147 million, total liabilities were $8.255 million, and stockholders’ equity was $5.000 million. Public shares subject to possible redemption were recorded as temporary equity at $239.892 million.
The Company had no long-term debt. Current liabilities totaled $380,000, including $254,000 of accrued expenses and $112,000 of franchise tax payable. Deferred underwriting commissions were $7.875 million and would become payable only if a business combination were completed.
Net cash used in operating activities for the nine months was $1.270 million. Net cash used in investing activities was $249.334 million, primarily reflecting the $250.000 million deposit into the Trust Account. Net cash provided by financing activities was $251.331 million, including the $250.000 million public offering and $6.500 million private placement proceeds.
Material Changes Versus Prior Comparable Period
- The filing does not provide a prior-year comparable quarterly or nine-month operating period; the Company was formed on November 22, 2017.
- Compared with December 31, 2017, cash increased from $120,000 to $847,000 and total assets increased from $311,000 to $253.147 million, primarily because of the February 2018 initial public offering and Trust Account funding.
- The Company completed a $250.000 million initial public offering of 25.000 million units and a $6.500 million private placement of 4.333 million warrants on February 21, 2018.
- The underwriters’ over-allotment option expired unexercised on April 2, 2018, resulting in forfeiture of 937,500 Founder Shares.
- Interest income became the Company’s primary source of earnings; there was no operating revenue.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected available working capital to fund operations through the earlier of a business combination or one year from issuance of the financial statements and did not believe additional funds were immediately necessary.
- The Company had until February 21, 2020 to complete a business combination. If unsuccessful, it would cease operations, redeem the Public Shares using Trust Account proceeds, and liquidate.
- A business combination generally had to involve a target or targets with aggregate fair market value of at least 80% of Trust Account assets, excluding deferred underwriting commissions and applicable taxes.
- Public stockholders could redeem all or part of their shares in connection with a business combination, subject to applicable conditions and a 15% redemption limitation for an individual stockholder and affiliated group without Company consent.
- The Trust Account was invested in short-term U.S. government securities or qualifying money market funds. Management reported no material market or interest-rate risk.
- The Company’s primary risks were failure to identify or complete a suitable transaction, insufficient funds to continue searching or complete a transaction, substantial shareholder redemptions, and potential liquidation if the deadline were missed.
- Deerfield Management had indicated interest in purchasing up to $100 million of shares in a private placement concurrent with a business combination, but the indication was nonbinding and could not be relied upon as committed financing.
- Related-party arrangements included 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. The Company recorded $52,000 and $130,000 of related-party expense in the quarter and nine-month period, respectively.
- The Company had no legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements.
- Management concluded that disclosure controls were effective and that there were no material changes in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the correct registrant: this filing is for DFB Healthcare Acquisitions Corp., not an operating Adapthealth Corp. entity.
- Verify the status, permitted investments, and accessibility of the approximately $252.1 million Trust Account.
- Monitor whether a qualifying healthcare-related business combination was identified and completed by February 21, 2020.
- Assess the effect of potential Public Share redemptions and any additional equity or debt financing on post-transaction ownership and capitalization.
- Review the $7.875 million deferred underwriting commission and related-party fees when evaluating transaction economics.
- Do not treat reported net income as operating profitability; it was primarily generated by interest earned on Trust Account assets.