American Oncology Network Inc(AONC) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the unaudited condensed financial statements and management's discussion for Digital Transformation Opportunities Corp Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed financial statements for Digital Transformation Opportunities Corp. for the periods ended June 30, 2023, and December 31, 2022, including balance sheets, statements of operations, changes in stockholders' deficit, and cash flows, along with comprehensive notes detailing the company's organization, accounting policies, and significant transactions Condensed Balance Sheets Presents the company's financial position with key asset, liability, and equity figures as of June 30, 2023, and December 31, 2022 Condensed Balance Sheet Highlights | Asset/Liability Category | June 30, 2023 (Unaudited) | December 31, 2022 | | :----------------------- | :------------------------ | :------------------ | | Cash | $2,044 | $374,304 | | Cash and securities held in Trust Account | $19,303,902 | $338,422,091 | | Total Assets | $19,397,814 | $338,883,014 | | Accounts payable and accrued expenses | $3,871,117 | $2,605,527 | | Total current liabilities | $8,643,973 | $2,605,527 | | Warrant liability | $2,250,975 | $875,083 | | Total Liabilities | $10,894,948 | $15,728,108 | | Total Stockholders' Deficit | $(10,167,824) | $(14,203,550) | Condensed Statements of Operations Details the company's net loss and per-share performance for the three and six months ended June 30, 2023 and 2022 Condensed Statements of Operations Highlights | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(1,712,369) | $1,861,876 | $(1,532,961) | $5,383,569 | | Basic and diluted net (loss) income per share, Class A common stock subject to possible redemption | $(0.17) | $0.04 | $(0.07) | $0.13 | Condensed Statements of Changes in Stockholders' Deficit Outlines the changes in stockholders' deficit for the six months ended June 30, 2023, including net loss and underwriting fee adjustments Changes in Stockholders' Deficit (Six Months Ended June 30, 2023) | Item | Amount ($) | | :---------------------------------- | :--------- | | Balance as of January 1, 2023 | (14,203,550) | | Conversion of Class B shares to Class A | 0 | | Excise tax payable | (3,211,601) | | Net income (Q1 2023) | 179,408 | | Reduction of underwriting fee payable | 11,252,662 | | Net loss (Q2 2023) | (1,712,369) | | Balance as of June 30, 2023 | (10,167,824) | Condensed Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Condensed Statements of Cash Flows Highlights (Six Months Ended June 30) | Cash Flow Activity | 2023 ($) | 2022 ($) | | :---------------------------------- | :----------- | :----------- | | Net (loss) income | (1,532,961) | 5,383,569 |\ | Net cash used in operating activities | (1,259,310) | (512,600) | | Net cash provided by investing activities | 321,540,190 | — | | Net cash used in financing activities | (320,653,140) | — | | Net Change in Cash | (372,260) | (512,600) | | Cash, end of period | 2,044 | 290,709 | Notes to Unaudited Condensed Financial Statements Provides detailed explanations of the company's financial statements, accounting policies, and significant transactions Note 1 — Organization and Business Operations DTOC is a blank check company formed in 2020 for a business combination, focusing on its IPO and target identification, facing a liquidation deadline - Company was incorporated on November 17, 2020, as a blank check company for the purpose of effecting a business combination[22] - Consummated Initial Public Offering (IPO) on March 12, 2021, selling 33,350,000 units at $10.00 per unit, generating gross proceeds of $333,500,000[24] - Following the IPO, $333,500,000 was placed in a Trust Account, invested in U.S. government securities or money market funds[27] - The deadline to complete an initial business combination was extended from March 12, 2023, to June 30, 2023, with options for further extensions up to September 30, 2023[29] - In March 2023, 31,502,931 public shares were redeemed for $321,160,140 (approximately $10.19 per share) from the trust account[29] - On June 6, 2023, Barclays Capital Inc. waived its entitlement to $11,672,500 in deferred underwriting commissions[34] Liquidity and Working Capital | Metric | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Cash | $2,044 | $374,304 | | Working Capital Deficit | $7,916,849 | $1,655,967 | - The company's liquidity condition and mandatory liquidation date raise substantial doubt about its ability to continue as a going concern[40] - As of June 30, 2023, the company recorded $3,211,601 of excise tax liability, calculated as 1% of shares redeemed on March 8, 2023, under the Inflation Reduction Act of 2022[46] Note 2 — Significant Accounting Policies Outlines significant accounting policies for unaudited condensed financial statements, covering GAAP, emerging growth company status, fair value measurements, and warrant liabilities - Unaudited condensed financial statements are presented in conformity with US GAAP for interim financial information[47] - The company is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[49][50] - Assets held in the Trust Account are classified as trading securities and presented at fair value[53] - Fair value measurements utilize a three-tier hierarchy (Level 1, 2, 3) based on observable and unobservable inputs[54][55][57] - Public Warrants and Private Placement Warrants are recorded as derivative liabilities at fair value, with changes recognized in the Statements of Operations[61][70] - Class A common stock subject to possible redemption is classified as temporary equity at redemption value due to redemption rights outside the company's control[62][65] Effective Tax Rates | Period | 2023 (%) | 2022 (%) | | :----------------------------------- | :------- | :------- | | Three months ended June 30 | (2.10) | 0.93 | | Six months ended June 30 | (46.65) | 0.32 | - Net income (loss) per common share is computed using the two-class method; warrants are anti-dilutive and not included in diluted EPS[75][76] Note 3 — Initial Public Offering Details the IPO of DTOC, including unit sales, Public Warrant terms, exercise price, and redemption triggers based on Class A common stock price - On March 12, 2021, the Company sold 33,350,000 Units at $10.00 per Unit[83] - Each Unit consists of one share of Class A common stock and one-fourth of one redeemable warrant[83] - Public Warrants are exercisable at $11.50 per share, becoming exercisable on the later of 12 months from IPO closing or 30 days after business combination, and expire five years after business combination[84] - The Company may redeem outstanding warrants at $0.01 per warrant if the Class A common stock price equals or exceeds $18.00 per share for a specified period[87][88] - The Company may also redeem outstanding warrants at $0.10 per warrant if the Class A common stock price equals or exceeds $10.00 per share for a specified period, with holders able to exercise on a cashless basis[88] Note 4 — Private Placement Describes the private placement of Private Placement Warrants to the Sponsor, generating $9.17 million and outlining their non-redeemable terms - Simultaneously with the IPO closing, the Sponsor purchased 6,113,333 Private Placement Warrants at $1.50 per warrant[91] - The private placement generated gross proceeds of $9,170,000[91] - Private Placement Warrants are non-redeemable while held by the Sponsor or its permitted transferees and have identical terms to Public Warrants[92] Note 5 — Related Party Transactions Details related party transactions with the Sponsor, including Founder Shares, promissory notes for extensions, and working capital advances - On January 8, 2021, the Sponsor purchased 7,187,500 shares of Class B common stock (Founder Shares) for $25,000, which increased to 8,625,000 after a stock dividend, with some later forfeited[93] - 25,000 Founder Shares were transferred to each independent director and 150,000 to the CFO as inducement, vesting upon consummation of an initial business combination[94] - The Sponsor, officers, and directors agreed to waive their redemption rights with respect to their Founder Shares and public shares[95] - On March 6, 2023, an unsecured promissory note for $150,000 was issued to the Sponsor for a Trust Account deposit to fund an extension[98] - On June 26, 2023, an unsecured promissory note for $50,000 was issued to the Sponsor for an extension payment[98] - For the six months ended June 30, 2023, the Sponsor advanced $307,000 for working capital purposes[100] - On May 1, 2023, the Company issued a promissory note to the Sponsor for up to $700,000 (Working Capital Facility) to fund operating expenses, non-interest bearing and due upon business combination or liquidation[102] Note 6 — Commitments and Contingencies Details commitments and contingencies, including registration rights, waived deferred underwriting fees, and the AON Business Combination Agreement with recent amendments - Holders of Founder Shares, Private Placement Warrants, and warrants from Working Capital Loans have certain 'piggy-back' registration rights[103] - Underwriters were entitled to $11,672,500 in deferred underwriting fees[104] - On June 6, 2023, Barclays Capital Inc. waived its entitlement to the $11,672,500 deferred underwriting commissions[105] - On October 5, 2022, the Company entered into a Business Combination Agreement with American Oncology Network, LLC (AON) to form a combined company[106] - The Business Combination Agreement was amended multiple times, including on January 6, 2023, April 27, 2023, and June 14, 2023, to modify terms such as board composition, employee unit exchanges, and the introduction of New AON Series A preferred stock[108][142] - The Third Amended and Restated Business Combination Agreement (June 14, 2023) removed the PIPE financing and minimum cash requirement due to a $65 million Class C Investment[142] - The Company received a Public Float Notice from Nasdaq on April 20, 2023, but was notified on June 9, 2023, that it complies with the minimum publicly held shares requirement[114][115] Note 7 — Stockholders' Deficit Details authorized and outstanding shares for Preferred, Class A, and Class B Common Stock, including conversion mechanisms and voting rights - Authorized 1,000,000 shares of preferred stock; none issued or outstanding[116] Common Stock Outstanding | Class of Stock | June 30, 2023 | December 31, 2022 | | :------------- | :------------ | :---------------- | | Class A | 10,109,569 | 33,350,000 | | Class B | 75,000 | 8,337,500 | - Class B common stock automatically converts into Class A common stock on a one-for-one basis at the time of the initial business combination, subject to adjustment[117] - Holders of Class A and Class B common stock vote together as a single class, with each share entitling the holder to one vote[118] Note 8 — Fair Value Measurements Provides fair value measurements for marketable securities and warrant liabilities, classifying them within the fair value hierarchy and detailing Monte Carlo simulation inputs Fair Value Hierarchy of Assets and Liabilities (June 30, 2023) | Asset/Liability Category | Fair Value ($) | Level 1 ($) | Level 2 ($) | Level 3 ($) | | :----------------------- | :------------- | :---------- | :---------- | :---------- | | U.S. Money Market held in Trust Account | 19,303,902 | 19,303,902 | — | — | | Public Warrants Liability | 1,285,643 | 1,285,643 | — | — | | Private Placement Warrants Liability | 965,332 | — | — | 965,332 | - The fair value of Private Placement Warrants is estimated using a Monte Carlo simulation model and classified as Level 3[121] Key Inputs for Private Warrants Valuation (June 30, 2023) | Input | Value | | :---------------------------------------- | :-------- | | Probability of completing a business combination | 30% | | Risk-free interest rate | 5.43% | | Expected term remaining (years) | 0.76 | | Expected volatility | 11.3% | | Stock price | $10.32 | | Dividend yield | 0.00% | | Exercise price | $11.50 | Changes in Fair Value of Level 3 Warrant Liabilities (Six Months Ended June 30) | Period | 2023 ($) | 2022 ($) | | :----------------------------------- | :---------- | :---------- | | Fair Value as of December 31 | 374,833 | 4,053,659 | | Change in valuation (Q1) | 242,757 | (1,596,851) |\ | Fair Value as of March 31 | 617,590 | 2,456,808 | | Change in valuation (Q2) | 347,742 | (761,608) | | Fair Value as of June 30 | 965,332 | 1,695,200 | Note 9 — Subsequent Events Discloses subsequent events, specifically the Sponsor's exercise of an option to extend the business combination deadline to August 31, 2023 - On July 24, 2023, the Sponsor exercised its option to extend the business combination deadline from July 31, 2023, to August 31, 2023[125] - The Sponsor deposited $50,000 into the trust account for this extension, evidenced by a non-interest bearing, unsecured promissory note[125] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, highlighting its status as a blank check company focused on a business combination. It details the IPO, private placement, and the significant reduction in trust account funds due to redemptions. The discussion covers recent developments regarding the AON Business Combination, financial performance (net losses in H1 2023), liquidity challenges, and critical accounting policies, emphasizing the going concern uncertainty Overview Provides a high-level summary of the company's formation, IPO, trust account activities, and the ongoing business combination efforts - Digital Transformation Opportunities Corp. is a blank check company formed on November 17, 2020, to effect a business combination[128] - The IPO on March 12, 2021, generated $333.5 million, and a private placement of 6,113,333 warrants generated $9.2 million[129][130] - $333.5 million from the IPO and private placement was placed in a Trust Account[131] - Stockholders approved an extension to June 30, 2023 (with options to September 30, 2023), leading to the redemption of 31,502,931 public shares for $321,160,140[132] - The Sponsor deposited $150,000 into the Trust Account for the extension, evidenced by an unsecured promissory note, with $200,000 outstanding as of June 30, 2023[133] - The CFO and Sponsor converted 8,262,500 Class B shares into Class A common stock, which are not entitled to Trust Account funds[134] - Failure to complete a business combination by the deadline will result in mandatory liquidation and dissolution[135] Recent Developments Highlights key events including amendments to the AON Business Combination Agreement and waiver of deferred underwriting commissions - On October 5, 2022, the Company entered into a Business Combination Agreement with American Oncology Network, LLC (AON)[136] - The Business Combination Agreement was amended on January 6, 2023, to modify the AON board of managers and allow AON unitholders to elect warrants[137] - Further amendments on April 27, 2023, and June 14, 2023, introduced an employee unit exchange offer, New AON Series A preferred stock, and removed the PIPE financing and minimum cash requirement due to a $65 million Class C Investment[142] - On March 2, 2023, a $150,000 unsecured promissory note was issued to the Sponsor for an extension payment[143] - On June 6, 2023, Barclays Capital Inc. waived its entitlement to $11,672,500 in deferred underwriting commissions[144] Results of Operations Analyzes the company's financial performance, detailing net losses for the periods ended June 30, 2023, and net income for 2022 - For the three months ended June 30, 2023, the company reported a net loss of approximately $1.7 million, primarily due to $1.5 million in operating costs, $35,000 in income taxes, and an $0.8 million loss from warrant liabilities, partially offset by $0.2 million interest income and $0.4 million reduction of deferred underwriting fee[145] - For the six months ended June 30, 2023, the company reported a net loss of approximately $1.5 million, including $2.5 million loss from operations, $0.1 million unrealized loss on marketable securities, a $1.4 million loss from the change in fair value of warrant liabilities, and $0.5 million income tax provision, offset by $0.4 million reduction in deferred underwriting fee and $2.6 million interest income[13][146][148] - For the three and six months ended June 30, 2022, the company reported net incomes of approximately $1.9 million and $5.4 million, respectively, primarily driven by gains from the change in fair value of warrant liabilities ($1.8 million and $5.6 million, respectively) and interest income[149] Liquidity and Capital Resources Assesses the company's cash position, working capital, and ability to fund operations and a business combination, noting going concern issues Cash and Working Capital | Metric | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Cash | $2,044 | $374,304 | | Working Capital Deficit | $7,916,849 | $1,655,967 | - The company expects to incur significant costs and needs to raise additional funds to meet operating expenditures and consummate a business combination[151] - The liquidity condition and mandatory liquidation date raise substantial doubt about the company's ability to continue as a going concern[152] - The company does not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations, or long-term liabilities[153] Critical Accounting Policies and Estimates Discusses key accounting judgments, including fair value measurements for warrants and classification of redeemable common stock - Critical accounting estimates include the estimated fair values of warrant liability and the redemption value of Class A common stock subject to possible redemption[157] - The company uses a three-tier fair value hierarchy (Level 1, 2, 3) for classifying assets and liabilities, prioritizing observable inputs[157] - Warrants are recorded as derivative liabilities at fair value, with changes recognized in the Statements of Operations, due to specific provisions in the Warrant Agreement[158] - Class A common stock subject to possible redemption is classified as temporary equity at redemption value, with changes recognized immediately, due to redemption provisions outside the company's control[159][160] - Net income (loss) per share is computed using the two-class method; warrants are anti-dilutive and not included in diluted EPS[161][164] Recent Accounting Pronouncements Reviews the impact of new accounting standards on the company's financial statements - ASU 2020-06 (Debt-Debt with Conversion and Other Options) and ASU 2022-03 (Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions) are not expected to have a material impact on the company's financial statements[165][166][167] Off-Balance Sheet Arrangements Confirms the absence of any off-balance sheet arrangements for the reported periods - As of June 30, 2023, and December 31, 2022, the company did not have any off-balance sheet arrangements[168] JOBS Act Explains the company's status as an emerging growth company and its election to utilize extended transition periods for accounting standards - The company qualifies as an 'emerging growth company' under the JOBS Act[169] - The company elects to delay the adoption of new or revised accounting standards based on private company effective dates, which may affect comparability[169] - The company is evaluating relying on other reduced reporting requirements provided by the JOBS Act, such as exemptions from auditor attestation on internal controls and certain executive compensation disclosures[170] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Digital Transformation Opportunities Corp. is exempt from providing detailed quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[172] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2023, due to a material weakness in internal control over financial reporting related to accounting for complex financial instruments. Despite this, management believes the financial statements fairly present the company's financial position. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were not effective as of June 30, 2023[173] - A material weakness was identified in internal control over financial reporting related to the interpretation and accounting for certain complex equity and equity-linked instruments[173] - Management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects the company's financial position, results of operations, and cash flows[173] - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[175] PART II. OTHER INFORMATION Covers legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits Item 1. Legal Proceedings Digital Transformation Opportunities Corp. has no legal proceedings to report - No legal proceedings to report[177] Item 1A. Risk Factors The company refers to the significant risk factors previously disclosed in its Annual Report on Form 10-K filed on March 31, 2023, and Quarterly Report on Form 10-Q filed on May 15, 2023. No material changes to these risk factors have occurred as of the date of this report - Significant risk factors are described in the Annual Report on Form 10-K filed on March 31, 2023, and Quarterly Report on Form 10-Q filed on May 15, 2023[178] - No material changes from the previously disclosed risk factors as of the date of this Quarterly Report on Form 10-Q[178] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Digital Transformation Opportunities Corp. reports no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities and use of proceeds to report[179] Item 3. Defaults Upon Senior Securities Digital Transformation Opportunities Corp. reports no defaults upon senior securities - No defaults upon senior securities to report[179] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to Digital Transformation Opportunities Corp - Mine Safety Disclosures are not applicable[179] Item 5. Other Information Digital Transformation Opportunities Corp. has no other information to report under this item - No other information to report[179] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Third Amended and Restated Business Combination Agreement, promissory notes, and certifications from the CEO and CFO - Key exhibits include the Third Amended and Restated Business Combination Agreement (June 14, 2023), Promissory Notes (June 26, 2023, and July 24, 2023), and Certifications of Chief Executive Officer and Chief Financial Officer[182]