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American Oncology Network Inc(AONC) - 2022 Q4 - Annual Report

PART I Item 1. Business DTOC, a SPAC, aims to merge with a high-growth healthcare technology company, extending its combination deadline after significant redemptions Company Overview DTOC, a blank check company, completed its IPO, entered a business combination agreement with AON, and extended its deadline after significant redemptions - DTOC is a blank check company that completed its IPO on March 12, 2021, raising gross proceeds of $333.5 million78 - The company entered into a Business Combination Agreement with American Oncology Network, LLC ("AON") on October 5, 2022, which was subsequently amended on January 6, 2023141517 Trust Account Status After Extension and Redemptions | Metric | Value | | :--- | :--- | | Shares Redeemed | 31,502,931 | | Amount Removed from Trust | $321,160,140 (approx. $10.19 per share) | | Remaining in Trust Account | $18,830,151 | - The deadline to complete a business combination was extended from March 12, 2023, to June 30, 2023, with an option for three additional one-month extensions to September 30, 20231118 Management Team and Board of Directors The company's management and board bring extensive healthcare and technology experience, leveraging deep industry relationships and a robust target pipeline - The management team and board possess extensive experience as entrepreneurs, operators, and investors in the healthcare and technology sectors19 - Kevin Nazemi, Chairman and CEO, co-founded healthcare technology companies Oscar Health and Renew Health20 - The team's strengths include deep industry relationships, a differentiated approach to value creation, a robust pipeline of targets, and experience positioning private companies for public markets2728 Business Strategy and Acquisition Criteria DTOC seeks to merge with high-growth, technology-leveraged healthcare companies benefiting from secular trends, applying specific acquisition criteria - The company's strategy is to merge with a high-growth, technology-leveraged company making significant improvements in the healthcare industry30 - DTOC is particularly focused on targets benefiting from long-term secular tailwinds, such as the shift to consumer-driven and value-based healthcare32 - Key acquisition criteria include an entrepreneurial management team, a technology-first model, strong customer value, a competitive moat, and attractive unit economics3334 Initial Business Combination The company's initial business combination must meet an 80% trust account value threshold and secure a controlling interest, with potential conflicts of interest noted - The initial business combination must be with a target business having an aggregate fair market value of at least 80% of the Trust Account's value at the time of signing the definitive agreement36 - The company will only complete a business combination if it acquires 50% or more of the target's outstanding voting securities or otherwise gains a controlling interest37 - The company's certificate of incorporation renounces interest in corporate opportunities offered to directors or officers in their personal capacity, potentially creating conflicts of interest, though management does not believe this will materially impact their ability to find a target4243 Corporate Information DTOC qualifies as an emerging growth and smaller reporting company, facing intense competition with limited full-time employees - The company is an "emerging growth company" and a "smaller reporting company," which allows for certain exemptions from standard public company reporting requirements4448 - DTOC faces significant competition from other SPACs, private equity funds, and strategic acquirers in identifying and completing a business combination49 - The company has two executive officers who are not obligated to devote a specific number of hours to company matters and does not intend to have full-time employees before its initial business combination52 Item 1A. Risk Factors The company faces significant risks including failure to complete the AON combination, going concern issues, dilution from founder shares, and potential Nasdaq delisting Risks Related to Business and Initial Business Combination Key risks include liquidation if the combination deadline is missed, a going concern warning, difficulty meeting the AON deal's minimum cash, and new excise tax impacts - The company must complete its initial business combination by June 30, 2023 (or September 30, 2023, if extended), or it will be forced to liquidate, potentially returning only $10.08 per share or less to public stockholders6772 - The company's independent registered public accounting firm has issued a report with an explanatory paragraph expressing substantial doubt about the company's ability to continue as a "going concern" due to its working capital deficit and the need to consummate a business combination81 - The AON Business Combination has a minimum cash condition of $60 million, and the ability of public stockholders to redeem their shares may make it difficult to meet this condition61 - A new 1% U.S. federal excise tax on stock repurchases (including redemptions) that took effect after December 31, 2022, will likely apply to redemptions and could reduce the cash available for a business combination112113114 Risks Related to Ownership of Our Securities Risks include potential Nasdaq delisting, limited warrant exercise, reduced interest income from trust funds, and dilution from future stock issuances - The company's securities may be delisted from Nasdaq if it fails to meet continued listing requirements, such as minimum stockholders' equity ($2.5 million) and a minimum of 300 public holders, which could reduce liquidity160161 - The company has converted its investments in the Trust Account into cash and intends to hold them in an interest-bearing demand deposit account, which will result in lower interest income compared to U.S. government securities156157 - Stockholders will not be permitted to exercise their warrants unless the company has an effective registration statement for the underlying Class A common stock, and there is no guarantee such a statement will be maintained164165 - The company may issue a substantial number of additional common or preferred shares to complete its business combination, which could significantly dilute the equity interest of investors169171172 Risks Related to Management Management risks include dependence on key personnel, conflicts of interest due to other commitments, the Sponsor's financial incentives, and a material weakness in internal controls - The company's ability to effect a business combination is totally dependent on its key personnel, and their loss could negatively impact operations189190 - Officers and directors are not required to commit their full time to the company's affairs, creating potential conflicts of interest in allocating their time and business opportunities200201202 - The Sponsor and its affiliates will lose their entire at-risk investment if a business combination is not completed, creating a conflict of interest that may influence their motivation in selecting a target208209 - A material weakness in internal control over financial reporting has been identified related to the accounting for complex financial instruments213214 General Risk Factors General risks include past performance not guaranteeing future success, reduced attractiveness due to disclosure exemptions, increased SPAC competition, and charter provisions discouraging lawsuits - Past performance of the management team and their affiliates is not a guarantee of future success, and investors should not rely on it as an indicator218219 - The company is an emerging growth company and smaller reporting company, which allows for reduced disclosure requirements that could make its securities less attractive to investors220221223 - An increasing number of SPACs has led to more competition for attractive targets, which could increase the cost of an initial business combination or result in an inability to find a suitable target224225 - The company's amended and restated certificate of incorporation requires derivative actions to be brought in the Court of Chancery in Delaware, which may discourage lawsuits against directors and officers235236 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None238 Item 2. Properties The company's executive offices are located in Los Angeles, California, and are considered adequate for current operations - The company maintains its executive offices at 10250 Constellation Blvd, Suite 23126, Los Angeles, CA 90067238 Item 3. Legal Proceedings The company reports that it is not involved in any legal proceedings - None238 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable238 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's securities trade on Nasdaq, with three Class A common stock holders, no cash dividends paid, and IPO proceeds held in a trust account - The company's securities trade on Nasdaq under the symbols DTOCU (Units), DTOC (Class A common stock), and DTOCW (warrants)239 - As of March 30, 2023, there were three holders of record of the Class A common stock240 - The company has not paid and does not intend to pay cash dividends prior to completing its initial business combination241 - Following the IPO, $333.5 million was deposited into the Trust Account, and as of the report date, approximately $803,309 of cash was held outside the Trust Account for working capital245 Item 6. Selected Financial Data This section is reserved and contains no information - [Reserved]249 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported a net income of $10.5 million for 2022, but faces a working capital deficit and going concern doubt, having extended its business combination deadline after redemptions Results of Operations For 2022, the company reported a net income of approximately $10.5 million, primarily from a gain on warrant liabilities and interest income, offset by operating costs Results of Operations Summary (Years Ended Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income | $10.5 million | $8.39 million | | Gain on Warrant Liability | $8.7 million | $10.67 million | | Interest Income | $5.1 million | $0.02 million | | Formation & Operating Costs | $2.4 million | $1.63 million | Liquidity and Capital Resources As of December 31, 2022, the company had limited cash and a significant working capital deficit, raising substantial doubt about its ability to continue as a going concern Financial Position (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Cash | $374,304 | | Working Capital Deficit (net of taxes) | ($1,655,967) | - The company's financial condition and the impending deadline to complete a business combination raise substantial doubt about its ability to continue as a going concern269 Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide the information otherwise required under this item285 Item 8. Financial Statements and Supplementary Data This section refers to the financial statements located after Item 15 of the report - This information appears following Item 15 of this report and is included herein by reference285 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None285 Item 9A. Controls and Procedures Management concluded that disclosure controls were ineffective due to a material weakness in accounting for complex financial instruments, with remediation steps underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022287 - The ineffectiveness is due to a material weakness in internal control over financial reporting related to the accounting for complex financial instruments287 - Remediation steps include improving the review process for complex securities and enhancing access to accounting expertise291 Item 9B. Other Information The company reports no other information - None292 PART III Item 10. Directors, Executive Officers and Corporate Governance The company is led by its Chairman and CEO, with a four-member board divided into two classes, and has established independent audit and compensation committees - The executive officers are Kevin Nazemi (Chairman & CEO) and Kyle Francis (CFO & Secretary)295 - The board of directors consists of four members and is divided into two classes with two-year terms300 - The company has two standing committees: an audit committee and a compensation committee, both composed of independent directors304 Item 11. Executive Compensation No cash compensation was paid to executive officers or directors in 2021-2022, though Class B common stock was issued, and out-of-pocket expenses will be reimbursed - No compensation of any kind, including finders fees, will be paid to the Sponsor, officers, or directors prior to or for services rendered to effectuate a business combination310 - In March 2021, each independent director received 25,000 shares of Class B common stock, and the CFO received 150,000 shares of Class B common stock310 - Individuals will be reimbursed for out-of-pocket expenses incurred on the company's behalf, such as for identifying and performing due diligence on potential targets310 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Officers and directors collectively own 81.9% of common stock, with the Sponsor holding 79.7%, giving initial stockholders significant influence over company matters Beneficial Ownership as of March 30, 2023 | Beneficial Owner | Approximate Percentage of Outstanding Common Stock | | :--- | :--- | | Kevin Nazemi (via Sponsor) | 79.7% | | All officers and directors as a group | 81.9% | | Glazer Capital, LLC | 15.6% | - The initial stockholders' ownership block allows them to effectively influence the outcome of all matters requiring stockholder approval, including the initial business combination318 Item 13. Certain Relationships and Related Transactions, and Director Independence The company has related party transactions primarily with its Sponsor, including founder shares and private placement warrants, with independent directors overseeing such transactions - The Sponsor purchased 8,625,000 Founder Shares for $25,000 and subsequently transferred shares to independent directors and the CFO321 - The Sponsor purchased 6,113,333 Private Placement Warrants for approximately $9.2 million simultaneously with the IPO322 - The Sponsor, officers, or directors may provide up to $2,000,000 in working capital loans, which are convertible into warrants at $1.50 per warrant325 - The board has determined that Bradley Fluegel, Jim Moffatt, and Heather Zynczak are independent directors as defined by Nasdaq listing rules330 Item 14. Principal Accounting Fees and Services Marcum LLP served as the principal accountant, billing $77,250 in audit fees for 2022, with the audit committee pre-approving all services Fees Paid to Marcum LLP | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $77,250 | $118,965 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements and key exhibits, including the business combination agreement and charter documents - The report includes the company's financial statements for the years ended December 31, 2022 and 2021336 - Key exhibits filed include the business combination agreement, charter documents, warrant agreement, and related party agreements337338 Item 16. Form 10-K Summary This item is not applicable - None340 Financial Statements Report of Independent Registered Public Accounting Firm The auditor's report includes an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern due to its financial condition and combination deadline - The auditor's report contains an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern348 - The going concern uncertainty is based on the requirement to complete a business combination by June 30, 2023, and insufficient cash and working capital as of December 31, 2022348 Financial Statements Data The 2022 financial statements show total assets of $338.9 million, total liabilities of $15.7 million, and a net income of $10.5 million, with significant cash in the Trust Account Balance Sheet Highlights (as of Dec 31, 2022) | Account | Value | | :--- | :--- | | Cash and securities held in Trust Account | $338,422,091 | | Total Assets | $338,883,014 | | Warrant liability | $875,083 | | Deferred underwriting fee | $11,672,500 | | Total Liabilities | $15,728,108 | | Class A Common Stock subject to possible redemption | $337,358,456 | | Total Stockholders' Deficit | ($14,203,550) | Statement of Operations Highlights (Year ended Dec 31, 2022) | Account | Value | | :--- | :--- | | Net Income | $10,532,439 | | Loss from Operations | ($2,389,899) | | Change in fair value of warrant liability | $8,680,492 | | Interest income | $5,128,585 | Notes to Financial Statements The notes detail the company's organization, accounting policies, and related party transactions, also disclosing significant redemptions and the combination period extension post-year-end - The company has until June 30, 2023 (or September 30, 2023, if extended) to complete a business combination, and this condition raises substantial doubt about its ability to continue as a going concern372378 - Warrants are accounted for as derivative liabilities and are re-measured to fair value at each reporting period, with changes recognized in the statement of operations392 - All Class A common stock is classified as temporary equity due to redemption features outside of the company's control393 - Subsequent to year-end, in March 2023, stockholders approved an extension of the combination period, resulting in the redemption of 31,502,931 public shares for approximately $321.2 million453