Business context and reporting period
Atlantic Acquisition Corp. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2018. Although the request identifies HF Foods Group Inc., this filing is Atlantic’s, not HF Foods’ operating-company financial report. Atlantic was a shell company with no revenue or operating business, formed to complete a business combination. On March 28, 2018, it agreed to merge with HF Group Holding Corporation, a foodservice distributor serving primarily Chinese and Asian restaurants in the southeastern United States. Atlantic expected to close the transaction in August 2018; the filing does not report a completed transaction.
Financial results and liquidity
- Revenue and margins: No operating revenue; margins are not applicable. The company said it would not generate operating revenue until a business combination.
- Quarter ended June 30, 2018: Net income was $47,482, including $184,020 of trust-account interest, offset by $92,781 of general and administrative expense, $21,263 of state franchise taxes, and $22,494 of income taxes. Adjusted loss attributable to common shares was reported as $75,002 in the statement of operations, with loss per share of $0.04. The EPS note instead reports adjusted loss of $75,171.
- Six months ended June 30, 2018: Net income was $28,311, including $318,370 of trust-account interest, offset by $225,040 of general and administrative expense, $42,525 of state franchise taxes, and $22,494 of income taxes. Adjusted loss was $193,232, or $0.10 per share.
- Cash flow: Six-month operating cash use was $243,756; investing cash inflow was $42,841, from trust interest withdrawn to pay franchise taxes; financing cash flow was zero. Cash outside the trust fell by $200,915 to $359,289.
- Balance sheet at June 30: Assets totaled $45.98 million, including $45.59 million in trust cash and investments. Liabilities were $1.17 million, including $1.11 million of deferred underwriting compensation payable only if a business combination closes. No borrowing debt was reported. Stockholders’ equity was $5.00 million; 3.87 million shares were classified as subject to possible redemption.
- Liquidity: Management said the $359,289 held outside the trust was expected to fund operations for 12 months from the filing date if no business combination occurred, but warned actual due-diligence costs could exceed estimates and additional financing might be needed. Trust funds were principally held in short-term U.S. Treasury securities.
Changes, outlook, and risks
Compared with the prior-year quarter and six-month periods, when losses were only $57 and $82, respectively, 2018 results reflected trust interest and higher administrative, franchise-tax, and income-tax costs. The trust held $45.59 million at June 30, versus $45.32 million at December 31, 2017. Cash outside the trust declined from $560,204 to $359,289.
The proposed HF Group merger was subject to completion and shareholder-related processes; the filing points to the definitive proxy statement filed July 18, 2018 for transaction details. The company had 18 months from its August 2017 offering to complete a business combination, through February 14, 2019, with up to two optional three-month extensions requiring insider deposits into the trust. If it failed to complete a transaction, public shares would be redeemed from the trust; rights would expire worthless. Trust funds may also be exposed to third-party claims despite efforts to obtain waivers. Management reported no off-balance-sheet arrangements, no material market or interest-rate exposure, effective disclosure controls, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the merger’s subsequent status, closing date, final consideration, financing, and any changes to terms using later filings and the proxy materials.
- Reconcile the filing’s differing adjusted-loss figures for the quarter ($75,002 versus $75,171) and share-count disclosures (including 3,869,439 versus 3,869,140 redeemable shares in different sections).
- Verify redemption elections, the final trust balance available at closing, and the deferred underwriting fee of $1,106,250.
- Assess whether cash outside the trust was sufficient for transaction expenses and whether additional financing or an extension was required.