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
- 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.
- Verify the business-combination deadline and any extension deposits, and assess whether outside-trust cash was sufficient to fund operations and deal costs.
- Reconcile the trust balance, redeemable share count, deferred underwriting fee, and net tangible asset requirement against transaction documents and subsequent filings.
- 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.