HF Foods Group Inc. quarterly report, Q1 FY2018

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Business context and reporting period

This is Atlantic Acquisition Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2018—not an operating-company quarterly report for HF Foods Group. Atlantic was a blank-check company seeking a business combination and reported no operating revenue or business operations. On March 28, 2018, Atlantic signed a merger agreement to acquire HF Group Holding Corporation, a foodservice distributor serving Chinese/Asian restaurants, primarily in the southeastern United States. HF shareholders were to receive 19,969,833 Atlantic shares at closing.

Financial performance and position

  • Revenue: None. The company reported no operating revenue.
  • Quarterly results: General and administrative expenses were $132,259, state franchise taxes were $21,262, and trust-account interest income was $134,350. Net loss was $19,171; adjusted net loss attributable to common shares, after allocating trust income to redeemable shares, was $118,230. Basic and diluted loss per share was $0.06.
  • Cash flow: Operating cash used was $149,850; investing cash provided was $34,280, from a trust-account interest withdrawal to pay franchise taxes. Cash outside the trust account fell by $115,570 to $444,634.
  • Assets and liquidity: Total assets were $45.9 million, including $45.4 million held in trust. Current assets outside the trust were $504,467 versus current liabilities of $1,157,546; liabilities included $1,106,250 of deferred underwriting compensation. The filing reports no borrowings outstanding.
  • Trust and redeemable shares: Trust assets were $45,418,255. Shares subject to possible redemption totaled 3,876,047, recorded at $39,765,175.
  • Margins: Not meaningful because Atlantic had no revenue.

Changes versus the prior-year quarter and year-end

Compared with Q1 2017, net loss increased from $25 to $19,171, primarily reflecting public-company and transaction-related administrative costs, franchise taxes, and interest income. Cash outside the trust declined from $560,204 at December 31, 2017 to $444,634 at March 31, 2018. Trust assets increased from $45,318,185 to $45,418,255. Deferred underwriting compensation remained $1,106,250 in total but moved from noncurrent to current liabilities.

Outlook, risks, and unusual items

  • Management expected outside-trust funds to support operations for 12 months from the filing date if no business combination closed, but warned that actual due-diligence and negotiation costs could exceed estimates and require additional financing.
  • The business combination had to meet the stated 80% trust-value test, and Atlantic required at least $5,000,001 in net tangible assets upon completion. Public shareholders could seek redemption, potentially affecting cash available for the transaction.
  • The company’s stated deadline to complete a business combination was 18 months after the August 2017 offering, or February 14, 2019, with possible extensions of up to two three-month periods subject to insider funding. If no transaction closed, public shares would be redeemed; rights would expire without value.
  • A $1,106,250 deferred underwriting fee was payable only if a business combination closed; the underwriter waived it if no transaction closed. Trust assets could also face third-party claims despite the company’s efforts to obtain waivers.
  • Management said expenses would increase as a public company and with transaction due diligence. It reported no off-balance-sheet arrangements and no material market or interest-rate risk. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.

Important facts for investors to verify

  1. Confirm the current status, terms, required approvals, financing, redemption effects, and eventual outcome of the March 28, 2018 merger agreement; this filing does not report a completed transaction.
  2. Verify the business-combination deadline and any extension deposits, and assess whether outside-trust cash was sufficient to fund operations and deal costs.
  3. Reconcile the trust balance, redeemable share count, deferred underwriting fee, and net tangible asset requirement against transaction documents and subsequent filings.
  4. Review the merger agreement and proxy materials for final consideration, dilution, closing conditions, and risks; the 19,969,833-share consideration stated here was proposed.