PREM14A 1 fooh20190719_prem14a.htm FORM PREM14A fooh20190719_pre14a.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

         
 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

 

Check the appropriate box:

   

 

Preliminary Proxy Statement

   

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

   

 

Definitive Proxy Statement

   

 

Definitive Additional Materials

   

 

Soliciting Material under §240.14a-12

 


HF FOODS GROUP INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

   

 

No fee required.

   

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

     
 

 

(1)

 

Title of each class of securities to which transaction applies:

 

Common stock, par value $.0001 per share (“Common Stock”)

 

 

 

 

 

 

 

(2)

 

Aggregate number of securities to which transaction applies:

 

30,700,000 shares of common stock of HF Foods Group Inc. to be issued to the B&R Global Holdings, Inc. stockholders pursuant to that certain Merger Agreement, dated as of June 21, 2019, by and among HF Foods Group Inc., B&R Merger Sub Inc., B & R Global Holdings, Inc. (“B&R Global”), the stockholders of B&R Global, and Xiao Mou Zhang, as representative of the stockholders.

 

 

 

 

 
 

 

(3)

 

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): The proposed maximum aggregate value of the transaction was calculated based on $19.435 per share (the average of the high and low prices reported on the Nasdaq Stock Market on July 17, 2019.
 

 

 

 

 
 

 

(4)

 

Proposed maximum aggregate value of transaction:

 

$596,654,500

 

 

 

 

 
 

 

(5)

 

Total fee paid: $72,314.53

 

 

 

 

 

 

 

 

 

 

Fee paid previously with preliminary materials.

   

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

     
 

 

(1)

 

Amount Previously Paid:

 

 

 

 

 

 

 

 

 

(2)

 

Form, Schedule or Registration Statement No.:

 

 

 

 

 

 

 

 

 

(3)

 

Filing Party:

 

 

 

 

 

 

 

    (4)   Date Filed:

 

 

 

 

PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
OF HF FOODS GROUP INC.

 

Proxy Statement dated [●], 2019
and first mailed to shareholders on or about [●], 2019

 

Dear Shareholders:

 

You are cordially invited to attend the special meeting of the HF Foods Group Inc. (“HF Group”) shareholders. HF Group is a Delaware corporation incorporated on May 19, 2016.

 

Holders of shares of HF Group’s common stock will be asked to approve the merger agreement dated as of June 21, 2019, or the “Merger Agreement,” by and among HF Group, B&R Merger Sub Inc., a Delaware corporation, or “Merger Sub”, B & R Global Holdings, Inc., a Delaware corporation, or “B&R Global”, the stockholders of B&R Global, and Xiao Mou Zhang, as representative of the stockholders, and other related proposals. We refer to the stockholders of B&R Global as the B&R Global stockholders.

 

The issuance of shares of HF Group to the B&R Global stockholders is being consummated on a private placement basis pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The aggregate value of the consideration to be paid by HF Group in the merger is approximately $[408,310,000] million (calculated as follows: 30,700,000 shares of common stock of HF Group to be issued to the B&R Global stockholders multiplied by $13.30 (the deemed value of the shares in the Merger Agreement). The transactions contemplated under the Merger Agreement relating to the merger are referred to in this proxy statement as the Business Combination.

 

On [●], 2019, the record date for the special meeting of shareholders, the last sale price of HF Group’s common stock was $[●].

 

Each shareholder’s vote is very important. Whether or not you plan to attend the HF Group special meeting in person, please submit your proxy card without delay. Shareholders may revoke proxies at any time before they are voted at the meeting. Voting by proxy will not prevent a shareholder from voting in person if such shareholder subsequently chooses to attend the HF Group special meeting.

 

We encourage you to read this proxy statement carefully. In particular, you should review the matters discussed under the caption “Risk Factors” beginning on page 11.

 

HF Groups board of directors unanimously recommends that HF Group shareholders vote “FOR” approval of each of the proposals.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in the Business Combination or otherwise, or passed upon the adequacy or accuracy of this proxy statement. Any representation to the contrary is a criminal offense.

 

                                                           
Zhou Min Ni
Chief Executive Officer
HF Foods Group Inc.

 


[●], 2019

 

 

 

 

HOW TO OBTAIN ADDITIONAL INFORMATION

 

This proxy statement incorporates important business and financial information about HF Group that is not included or delivered herewith. If you would like to receive additional information or if you want additional copies of this document, agreements contained in the appendices or any other documents filed by HF Group with the Securities and Exchange Commission, such information is available without charge upon written or oral request. Please contact the following:

 

US Office (Principal Executive Office):

6001 W. Market Street

Greensboro, NC 27409

Attn: Zhou Min Ni
Telephone: 336-268-2080

 

If you would like to request documents, please do so no later than [●], 2019 to receive them before HF Group’s special meeting. Please be sure to include your complete name and address in your request. Please see “Where You Can Find Additional Information” to find out where you can find more information about HF Group and B&R Global. You should rely only on the information contained in this proxy statement in deciding how to vote on the Business Combination. Neither HF Group nor B&R Global has authorized anyone to give any information or to make any representations other than those contained in this proxy statement. Do not rely upon any information or representations made outside of this proxy statement. The information contained in this proxy statement may change after the date of this proxy statement. Do not assume after the date of this proxy statement that the information contained in this proxy statement is still correct.

 

USE OF CERTAIN TERMS

 

Unless otherwise stated in this proxy statement:

 

References to “HF Group,” “we,” “us” or “our company” refers to HF Foods Group Inc. and its subsidiaries.

 

References to “B&R Global” or “B&R” in this proxy statement refer to B&R Global Holdings, Inc. and its subsidiaries.

 

References to “Merger Sub” means B&R Merger Sub Inc., a wholly-owned subsidiary of HF Group.

 

References to “US Dollars” and “$” refer to the legal currency of the United States.

 

 

 

 

HF FOODS GROUP INC.

 

US Office (Principal Executive Office):

6001 W. Market Street

Greensboro, NC 27409

Attn: Zhou Min Ni
Telephone: 336-268-2080

 

NOTICE OF SPECIAL MEETING OF
HF FOODS GROUP INC. SHAREHOLDERS


To Be Held on [●], 2019

 

To HF Foods Group Inc. (“HF Group”) Shareholders:

 

A special meeting of shareholders of HF Group will be held at [●], on [●], 2019, at [●] a.m., for the following purposes:

 

 

To approve the authorization for HF Group’s board of directors to complete the merger of Merger Sub into B&R Global, resulting in B&R Global becoming a wholly owned subsidiary of HF Group, as provided for in the Merger Agreement, or the “Business Combination.” This proposal is referred to as the Business Combination Proposal. Holders of HF Group’s common stock as of the record date are entitled to vote on the Business Combination Proposal.

 

 

To approve the amendment of the amended and restated certificate of incorporation of HF Group to increase the number of authorized shares of common stock from 30,000,000 to [•] and to add provisions requiring that certain actions of the Board of Directors require a two-thirds vote of the Board of Directors to approve. This proposal is referred to as the Amendment Proposal.

 

 

To approve the issuance of more than 20% of the issued and outstanding shares of common stock of HF Group pursuant to the terms of the Merger Agreement, as required by Nasdaq Listing Rules 5635(a) and (d). This proposal is referred to as the Nasdaq Proposal.

 

 

To approve the adjournment of the special meeting in the event HF Group does not receive the requisite shareholder vote to approve the Business Combination. This proposal is called the Business Combination Adjournment Proposal.

 

Proposals 1 through 4 are sometimes collectively referred to herein as the “Proposals.”

 

As of [●], 2019, there were [●] shares of HF Group common stock issued and outstanding and entitled to vote. Only HF Group common shareholders who hold shares of record as of the close of business on [●], 2019 are entitled to vote at the special meeting or any adjournment of the special meeting. This proxy statement is first being mailed to shareholders on or about [●], 2019. Approval of the Business Combination Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal will each require the affirmative vote of the holders of a majority of the outstanding shares of common stock present in person or by proxy and entitled to vote at the special meeting. Approval of the Amendment Proposal will require the affirmative vote of the holders of a majority of the outstanding shares of HF Group common stock. Attending the special meeting either in person or by proxy and abstaining from voting will have the same effect as voting against all the proposals and, assuming a quorum is present, broker non-votes will have no effect on the Business Combination Proposal, the Nasdaq Proposal, and the Adjournment Proposal, but will be the same as a vote against the Amendment Proposal.

 

 

 

 

HF Group currently has authorized share capital of 31,000,000 shares, consisting of 30,000,000 shares of common stock with a par value of $0.0001 per share and 1,000,000 preferred shares with a par value of $0.0001 per share.

 

Whether or not you plan to attend the special meeting in person, please submit your proxy card without delay. Voting by proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting. If you fail to return your proxy card and do not attend the meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. You may revoke a proxy at any time before it is voted at the special meeting by executing and returning a proxy card dated later than the previous one, by attending the special meeting in person and casting your vote by ballot or by submitting a written revocation to HF Group at HF Foods Group Inc., 6001 W. Market Street, Greensboro, NC 27409, Attention: Zhou Min Ni, Telephone: 336-268-2080, that is received by us before we take the vote at the special meeting. If you hold your shares through a bank or brokerage firm, you should follow the instructions of your bank or brokerage firm regarding revocation of proxies.

 

HF Group’s board of directors unanimously recommends that HF Group shareholders vote “FOR” approval of each of the proposals.

 

By order of the Board of Directors,

 

                                                                 
Zhou Min Ni
Chief Executive Officer of
HF Foods Group Inc.

 

 

 

[__________], 2019

 

 

 

 

TABLE OF CONTENTS

 

PAGE

 

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR HF GRoup shareholders

1

   

DELIVERY OF DOCUMENTS TO HF GROUP shareholders

3

   

SUMMARY OF THE PROXY STATEMENT

4

   

PRICE RANGE OF SECURITIES AND DIVIDENDS

10

   

RISK FACTORS

11

   

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

23

   

SPECIAL MEETING OF HF Group SHAREHOLDERS

25

   

THE BUSINESS COMBINATION PROPOSAL

27

   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF B&R GLobal holdings, Inc.

40

   

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

41

   

B&R GLOBAL’S BUSINESS

47

   

SELECTED HISTORICAL FINANCIAL INFORMATION OF HF GROUP

68

   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

69

   

HF GrouP’s BUSINESS

80

   

DIRECTORS, EXECUTIVE OFFICERS, EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE

90

   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

98

   

Security Ownership of the Combined Company after the BUSINESS COMBINATION

99

   

CERTAIN TRANSACTIONS

100

   

EXPERTS

108

   

SHAREHOLDER PROPOSALS AND OTHER MATTERS

108

   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

108

 

ANNEX A – MERGER AGREEMENT

ANNEX B – TAG-ALONG AGREEMENT

ANNEX C – REGISTRATION RIGHTS AGREEMENT

ANNEX D – VOTING AGREEMENT

ANNEX E – AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 

 

i

 

 

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR HF GRoup shareholders

 

Q:

What is the purpose of this document?

 

A:          HF Foods Group Inc., a Delaware corporation, or HF Group, and B&R Global Holdings, Inc., a Delaware corporation, have agreed to a business combination under the terms of a merger agreement, dated as of June 21, 2019, which we refer to as the Merger Agreement, by and among HF Foods Group Inc., B&R Merger Sub Inc., or “Merger Sub,” B & R Global Holdings, Inc., or “B&R Global,” the B&R Global stockholders, and Xiao Mou Zhang, as representative of the stockholders, and the other related proposals. The consummation of the transactions contemplated by the Merger Agreement relating to the business combination with B&R Global are referred to as the Business Combination and the proposal to approve the Business Combination is referred to as the Business Combination Proposal. The Merger Agreement is attached to this proxy statement as Annex A, and is incorporated into this proxy statement by reference. You are encouraged to read this proxy statement, including the section titled “Risk Factors” and all the annexes hereto.

 

HF Group shareholders are being asked to consider and vote upon a proposal to adopt the Merger Agreement, pursuant to which, through a series of transactions, Merger Sub will be merged with and into B&R Global, with B&R Global surviving the merger and becoming a wholly-owned subsidiary of HF Group.

 

This proxy statement contains important information about the proposed Business Combination and the other matters to be acted upon at the special meeting of HF Group shareholders. You should read it carefully.

 

Q:

What is being voted on?

 

A:

Below are the proposals on which HF Group shareholders are being asked to vote:

 

 

To approve the authorization for HF Group’s board of directors to complete the merger of Merger Sub into B&R Global, resulting in B&R Global becoming a wholly owned subsidiary of HF Group, as provided for in the Merger Agreement, or the “Business Combination.” This proposal is referred to as the Business Combination Proposal. Holders of HF Group’s common stock as of the record date are entitled to vote on the Business Combination Proposal.

 

 

To approve the amendment of the amended and restated certificate of incorporation of HF Group to increase the number of authorized shares of common stock from 30,000,000 to [•]and to add provisions requiring that certain actions of the Board of Directors require a two-thirds vote of the Board of Directors to approve. This proposal is referred to as the Amendment Proposal. 

 

 

To approve the issuance of more than 20% of the issued and outstanding shares of common stock of HF Group pursuant to the terms of the Merger Agreement, as required by Nasdaq Listing Rules 5635(a) and (d). This proposal is referred to as the Nasdaq Proposal.

 

 

To approve the adjournment of the special meeting in the event HF Group does not receive the requisite shareholder vote to approve the Business Combination. This proposal is called the Business Combination Adjournment Proposal. For details, see “The Business Combination Adjournment Proposal.”

 

Q:

When and where is the special meeting of HF Group shareholders?

 

A:

The special meeting of HF Group shareholders will take place at [●] on [●], 2019, at [●] a.m.

 

Q:

Who may vote at the special meeting of shareholders?

 

A:           Only holders of record of HF Group common stock as of the close of business on [●], 2019 may vote at the special meeting of shareholders. As of [●], 2019, there were [●] shares of HF Group common stock outstanding and entitled to vote. Please see “Special Meeting of HF Group Shareholders — Record Date; Who is Entitled to Vote” for further information.

 

1

 

 

Q:

What is the quorum requirement for the special meeting of shareholders?

 

A:           Shareholders representing a majority of the HF Group common stock issued and outstanding as of the record date and entitled to vote at the special meeting must be present in person or represented by proxy in order to hold the special meeting and conduct business. This is called a quorum. HF Group common stock will be counted for purposes of determining if there is a quorum if the shareholder (i) is present and entitled to vote at the meeting, or (ii) has properly submitted a proxy card. In the absence of a quorum, shareholders representing a majority of the votes present in person or represented by proxy at such meeting may adjourn the meeting until a quorum is present. Broker non-votes will not be considered present for the purposes of establishing a quorum.

 

Q:

What vote is required to approve the Proposals?

 

A:           Approval of the Business Combination Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal will each require the affirmative vote of the holders of a majority of the issued and outstanding shares of common stock of HF Group present and entitled to vote at the special meeting. Approval of the Amendment Proposal will require the affirmative vote of the holders of a majority of the issued and outstanding shares of common stock of HF Group. Attending the special meeting either in person or by proxy and abstaining from voting will have the same effect as voting against all the proposals and, assuming a quorum is present, broker non-votes will have no effect on the Business Combination Proposal, the Nasdaq Proposal, and the Adjournment Proposal, but will be the same as a vote against the Amendment Proposal.

 

Q:

If my shares are held in “street name” by my bank, brokerage firm or nominee, will they automatically vote my shares for me?

 

A:           No. Under the rules of various national and regional securities exchanges, your broker, bank or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. HF Group believes the Proposals are non-discretionary and, therefore, your broker, bank or nominee cannot vote your shares without your instruction. Broker non-votes will not be considered present for the purposes of establishing a quorum and will have no effect on the Proposals, except will be the same as a vote against the Amendment Proposal. If you do not provide instructions with your proxy, your bank, broker or other nominee may submit a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank, broker or nominee is not voting your shares is referred to as a “broker non-vote.” Your bank, broker or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your HF Group shares in accordance with directions you provide.

 

Q:

How can I vote?

 

A:           If you were a holder of record HF Group common stock on [●], 2019, the record date for the special meeting of HF Group shareholders, you may vote with respect to the applicable proposals in person at the special meeting of HF Group shareholders, or by submitting a proxy by mail so that it is received prior to 9:00 a.m. on [●], 2019, in accordance with the instructions provided to you under “Special Meetings of HF Group Shareholders.” If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, your broker or bank or other nominee may provide voting instructions (including any telephone or Internet voting instructions). You should contact your broker, bank or nominee in advance to ensure that votes related to the shares you beneficially own will be properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the special meeting of HF Group shareholders and vote in person, obtain a proxy from your broker, bank or nominee.

 

Q:

What if I abstain from voting or fail to instruct my bank, brokerage firm or nominee?

 

A:           HF Group will count a properly executed proxy marked “ABSTAIN” with respect to a particular Proposal as present for the purposes of determining whether a quorum is present at the special meeting of HF Group shareholders. For purposes of approval, an abstention on any Proposals will have the same effect as a vote “AGAINST” such Proposal.

 

2

 

 

Q:

Can I change my vote after I have mailed my proxy card?

 

A:           Yes. You may change your vote at any time before your proxy is voted at the special meeting. You may revoke your proxy by executing and returning a proxy card dated later than the previous one, or by attending the special meeting in person and casting your vote by ballot or by submitting a written revocation stating that you would like to revoke your proxy that we receive prior to the special meeting. If you hold your shares through a bank, brokerage firm or nominee, you should follow the instructions of your bank, brokerage firm or nominee regarding the revocation of proxies. If you are a record holder, you should send any notice of revocation or your completed new proxy card, as the case may be, to:

 

HF Foods Group Inc.

6001 W. Market Street

Greensboro, NC 27409

Telephone: 336-268-2080

 

Q:

When is the Business Combination expected to occur?

 

A:           Assuming the requisite shareholder approvals are received, HF Group expects that the Business Combination will occur no later than December 31, 2019.

 

DELIVERY OF DOCUMENTS TO HF GROUP shareholders

 

Pursuant to the rules of the SEC, HF Group and services that it employs to deliver communications to its shareholders are permitted to deliver to two or more shareholders sharing the same address a single copy of the proxy statement, unless HF Group has received contrary instructions from one or more of such shareholders. Upon written or oral request, HF Group will deliver a separate copy of the proxy statement to any shareholder at a shared address to which a single copy of the proxy statement was delivered and who wishes to receive separate copies in the future. Shareholders receiving multiple copies of the proxy statement may likewise request that HF Group deliver single copies of the proxy statement in the future. Shareholders may notify HF Group of their requests by contacting HF Group as follows:

 

HF Foods Group Inc.

6001 W. Market Street

Greensboro, NC 27409

Attn: Zhou Min Ni
Telephone: 336-268-2080

 

3

 

 

SUMMARY OF THE PROXY STATEMENT

 

This summary highlights selected information from this proxy statement but may not contain all of the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, including the Merger Agreement attached as Annex A. Please read these documents carefully as they are the legal documents that govern the Business Combination and your rights in the Business Combination.

 

The Parties

 

HF Foods Group Inc.

 

HF Foods Group Inc.

6001 W. Market Street

Greensboro, NC 27409

Attn: Zhou Min Ni
Telephone: 336-268-2080

 

HF Group, headquartered in Greensboro, North Carolina, is a leading marketer and distributor of fresh produce, frozen and dry food, and non-food products to primarily Asian/Chinese restaurants and other foodservice customers throughout the Southeast region of the United States. With three distribution centers along the U.S. eastern seaboard, HF Group aims to supply the increasing demand for Asian American restaurant cuisine. With an in-house proprietary ordering and inventory control network, more than 3,200 established customers in 10 states, and strong relations with growers and suppliers of food products in the U.S. and China, HF Group is able to offer fresh, high-quality specialty restaurant foods and supplies at competitive prices to a growing base of customers.

 

In the past 20 years of operation, HF Group has developed distribution channels throughout the southeastern United States. It has three distribution centers which are located in Greensboro, North Carolina, Ocala, Florida, and Atlanta Georgia, and which together comprise 400,000 square feet of total storage space. HF Group also maintains a fleet of 105 refrigerated vehicles for short-distance delivery, 12 tractors and 17 trailers for long-haul operations, and centralized inventory management and procurement, supported by an outsourced call center located in China for customer relationship management.


HF Group offers one-stop service to Chinese restaurants with over 1,000 types of products, including fresh and frozen meats, Chinese specialty vegetables, sauces, and packaging materials for takeout restaurants. Chinese restaurants, especially small or takeout restaurants, can find almost all the products they need in our product lists, which helps reduce the time and effort needed to manage and purchase their inventory. HF Group uses an outsourced call center in Fuzhou, China, with 24 hour availability for sales and marketing, order placement and post-sales service, which reduces its operating costs, and offers service in Mandarin and Fuzhou dialect, in addition to English.

 

HF Group has established a large supplier network and it maintains long-term relationships with many major suppliers. The procurement team is led by Zhou Min Ni, Chief Executive Officer of the Company, who has deep insight into the industry. HF Group’s centralized procurement management system gives us negotiating power given our large procurement quantities, improves our inventory turnover and account payables, and reduces our operating costs.

 

HF Group plans to strategically consolidate its market segment by acquiring competitors, including other distributors and wholesalers, to expand our business into untapped regions around the United States and to eventually grow into a nationwide foodservice distributor. HF Group will continue to invest in the management technology system to further improve its operational efficiency, accuracy and customer satisfaction, and will further explore value-added products, such as semiprepared products, to help our customers upgrade their service.

 

4

 

 

B&R Global Holdings, Inc.

 

B&R Global Holdings, Inc.

19319 Arenth Avenue

City of Industry, CA 91748

Attn: Xiao Mou Zhang

Telephone: 626-338-1090

 

B&R Global Holdings, Inc., which began operations in 1999, is a food wholesaler and distributor for Asian restaurants in the United States. It is the largest Asian food supplier in the western United States, serving approximately 6,800 restaurants in 11 western states.

 

B&R Global Holdings, Inc., acting through its subsidiaries (sometimes referred to in this proxy statement as “B&R Global” or the “Group”), started its business as a Chinese food wholesaler and distributor. B&R Global was founded in 1999 by Xiao Mou Zhang, aka Peter Zhang and its partners, who are originally from China. Like many Chinese immigrants, Peter and his partners found their first jobs in the United States in Chinese restaurants, and eventually transitioned into opening their own restaurants. Through operating their own Chinese restaurants, Peter and partners realized vast business potential in food distribution business.


In the past 20 years, B&R Global has developed distribution channels throughout the Western United States. The Group has eleven distribution centers located in Arizona, California, Colorado, Montana, Utah, and Washington. The Group spent several years in developing its proprietary ERP system for inventory, sales, and customer management. B&R Global outsources most of its sales functions to a call-center in China. This allows the Group to serve its customers around-the-clock in their native language, while lowering the administrative costs in the United States. Supported by a call center in China, B&R Global has been able to grow its customer base and, at the same time, keep its operating costs low. The utilization of private networks has allowed an integrated system facilitating real time information sharing between its headquarters in California, various subsidiaries throughout the Western United States, the call center in China and its customers.

 

B&R’s management believes in pursuing growth through innovation and service. Although the main clientele of B&R Global is Chinese restaurants, it is actively expanding into Pan-Asian restaurants, high-end seafood restaurants, and Japanese restaurants.

 

The Business Combination and Merger Agreement

 

Business Combination with B&R Global; Business Combination Consideration

 

Merger Sub will merger with and into B&R Global, resulting in B&R Global becoming a wholly owned subsidiary of HF Group. The issuance of shares of HF Group to the post-Business Combination shareholders is being consummated on a private placement basis pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The aggregate value of the consideration to be paid by HF Group in the business combination is approximately $408,310,000 million (calculated as follows: 30,700,000 shares of common stock of HF Group to be issued to the B&R Global shareholders multiplied by $13.30 (the deemed value of the shares in the Merger Agreement)).

 

After the Business Combination, HF Group’s current public shareholders will own approximately [•]% of HF Group, HF Group’s current directors, officers and affiliates will own approximately [•]% of HF Group, and the B&R Global stockholders will own approximately [•]% of HF Group. Upon consummation of the Business Combination, B&R Global will be a wholly owned subsidiary of HF Group.

 

The consummation of the Business Combination is conditioned upon the majority of the common stock voted by HF Group’s shareholders present and entitled to vote at the special meeting voting in favor of the Business Combination.

 

Management

 

Immediately following the closing of the Business Combination, HF Group’s board of directors will consist of no more than five directors. The parties will enter into a five year voting agreement, in the form attached as Exhibit D to the Merger Agreement, which will provide that, immediately after the closing of the Business Combination, (i) Zhou Min Ni, the current Chief Executive Officer of HF Group, shall serve as a director and the chairman of the board; (ii) Xiao Mou Zhang, the current Chief Executive Officer of B&R Global, shall serve as a director; (iii) Zhou Min Ni shall select one person to serve as an independent director, (iv) Xiao Mou Zhang shall select one person to serve as an independent director, and (v) Zhou Min Ni and Xiao Mou Zhang shall jointly select one person to serve as an independent director. See “Directors and Executive Officers after the Business Combination” elsewhere in this proxy statement for additional information.

 

The Merger Agreement

 

On June 21, 2019, HF Group, Merger Sub, B&R Global, the B&R Global stockholders, and Xiao Mou Zhang, as representative of the stockholders, entered into the Merger Agreement, pursuant to which Merger Sub will merge into B&R Global, resulting in B&R Global becoming a wholly-owned subsidiary of HF Group. See “The Merger Agreement — Business Combination with B&R Global; Business Combination Consideration” for more detailed information.

 

The merger consideration consists of 30,700,000 shares of HF Group common stock. Upon consummation of the Business Combination, B&R Global will be a wholly owned subsidiary of HF Group.

 

5

 

 

Consummation of the Merger Agreement is conditioned on, among other things, (a) holders of a majority of the outstanding shares of common stock approving the Business Combination in accordance with HF Group’s Amended and Restated Certificate of Incorporation; (b) the absence of any proceeding pending or threatened to enjoin or otherwise restrict the acquisition and (c) the representations and warranties of the other parties being true on and as of the closing date of the Merger Agreement, and compliance with all required covenants in the Merger Agreement. To the knowledge of the parties to the Business Combination, none of the events in (b) above have occurred.

 

The obligations of HF Group to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described above, are conditioned upon each of the following (none of which have been satisfied as of the date hereof), among other things:

 

 

there having been no material adverse effect to B&R Global’s business; and

 

 

B&R Global’s completion of the Restructuring (as defined in the Merger Agreement).

 

The obligations of B&R Global to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described above, are conditioned upon, among other things, there having been no material adverse effect to HF Group’s business.

 

See “The Merger Agreement — Conditions to Closing” for more details.

 

Other Agreements Relating to the Business Combination

 

Escrow Agreement

 

In connection with the Merger, HF Group, B&R Global, Xiao Mou Zhang, as representative of the B&R Global stockholders, and [•], as escrow agent, will enter into an Escrow Agreement, pursuant to which HF Group shall deposit shares of HF Group common stock representing 5% of the aggregate amount of shares to be issued to the B&R Global stockholders pursuant to the Merger, to secure the indemnification obligations of the B&R Global stockholders as contemplated by the Merger Agreement.

 

Tag-Along Agreement

 

In connection with the Merger, HF Group and the B&R Global stockholders will enter into a Tag-Along Agreement, which will provide the B&R Global stockholders with tag-along rights in the event a B&R Global stockholder desires to sell his or her HF Group securities in a sale transaction. The form of Tag-Along Agreement that was attached as an exhibit to the Merger Agreement is attached to this proxy statement as Annex B.

 

Registration Rights Agreement 

 

In connection with the Merger, HF Group and the B&R Global stockholders will enter into a Registration Rights Agreement to provide for the registration of the common stock being issued to the B&R Global stockholders in connection with the Business Combination. The B&R Global stockholders will be entitled to “piggy-back” registration rights with respect to registration statements filed following the consummation of the Business Combination, as well as certain demand rights. HF Group will bear the expenses incurred in connection with the filing of any such registration statements. The form of Registration Rights Agreement that was attached as an exhibit to the Merger Agreement is attached to this proxy statement as Annex C.

 

Voting Agreement

 

In connection with the Merger, HF Group, B&R Global, and certain of the B&R Global stockholders will enter into a five year Voting Agreement, which will provide that, immediately after the closing of the Business Combination, (i) Zhou Min Ni, the current Chief Executive Officer of HF Group, shall serve as a director and the chairman of the board; (ii) Xiao Mou Zhang, the current Chief Executive Officer of B&R Global, shall serve as a director; (iii) Zhou Min Ni shall select one person to serve as an independent director, (iv) Xiao Mou Zhang shall select one person to serve as an independent director, and (v) Zhou Min Ni and Xiao Mou Zhang shall jointly select one person to serve as an independent director. The form of Voting Agreement that was attached as an exhibit to the Merger Agreement is attached to this proxy statement as Annex D.

 

6

 

 

Employment Agreements

 

In connection with the Merger, HF Group will enter into separate employment agreements with each of Xiao Mou Zhang, Ling Fang Yang and Sha J. Zhang.

 

Recommendations of the Boards of Directors and Reasons for the Business Combination

 

After careful consideration of the terms and conditions of the Merger Agreement, the board of directors of HF Group has determined that the Business Combination and the transactions contemplated thereby are fair to and in the best interests of HF Group and its shareholders. In reaching its decision with respect to the Business Combination and the transactions contemplated thereby, the board of directors of HF Group reviewed various industry and financial data and the due diligence and evaluation materials provided by B&R Global. The board of directors did not obtain a fairness opinion on which to base its assessment. HF Group’s board of directors recommends that HF Group shareholders vote:

 

FOR the Business Combination Proposal;

FOR the Amendment Proposal;

FOR the Nasdaq Proposal; and

FOR the Business Combination Adjournment Proposal.

 

Voting Securities

 

As of [●], 2019, there were [•] shares of HF Group common stock issued and outstanding. Only HF Group shareholders who hold common stock of record as of the close of business on [●], 2019 are entitled to vote at the special meeting of shareholders or any adjournment of the special meeting. Approval of the Business Combination Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposals will require the affirmative vote of the holders of a majority of the issued and outstanding HF Group common stock entitled to vote thereon as of the record date present in person or represented by proxy at the special meeting. Approval of the Amendment Proposal will require the approval of a majority of the issued and outstanding shares of common stock of HF Group. Abstentions are considered present for the purposes of establishing a quorum but will have the same effect as a vote “AGAINST” a Proposal. Broker non-votes will not be considered present for the purposes of establishing a quorum. A broker non-vote will have no effect on any of the Proposals except for the Amendment Proposal; a broker non-vote will be the same as a vote against the Amendment Proposal.

 

Emerging Growth Company

 

HF Group is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (or JOBS Act). It is anticipated that after the consummation of the transactions, HF Group will continue to be an “emerging growth company.” As an emerging growth company, HF Group will be eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and the requirement to obtain shareholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. Each of HF Group and B&R Global have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, HF Group, as an emerging growth company, may not adopt the new or revised standard until the time private companies are required to adopt the new or revised standard. This may make comparison of HF Group’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

 

7

 

 

HF Group could remain an emerging growth company until the last day of its fiscal year following December 31, 2022 (the fifth anniversary of the consummation of its predecessor’s initial public offering). However, if HF Group’s non-convertible debt issued within a three-year period or its total revenues exceed $1 billion or the market value of its shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, HF Group would cease to be an emerging growth company as of the following fiscal year.

 

Anticipated Accounting Treatment

 

The Business Combination will be accounted for using the acquisition method of accounting under the provisions of Accounting Standards Codification 805, “Business Combinations”. HF Group will be considered the accounting acquirer.  The assets and liabilities and results of operations of B&R Global will be consolidated into the results of operations of HF Group as of the completion of the Business Combination.

 

Regulatory Approvals

 

The Business Combination and the other transactions contemplated by the Merger Agreement are not subject to any additional federal or state regulatory requirements or approvals, except for (1) the Hart-Scott Rodino Antitrust Improvements Act of 1976 and (2) filings with the State of Delaware necessary to effectuate the transactions contemplated by the Merger Agreement.

 

8

 

 

B&R GLOBAL HOLDINGS, INC. SUMMARY FINANCIAL INFORMATION

 

The data below as for the years ended December 31, 2018 and 2017 has been derived from B&R Global’s audited consolidated financial statements for such years, and for each of the 3-month periods ending March 31, 2019 and March 31, 2018 has been derived from B&R Global’s unaudited condensed consolidated financial statements for such periods, which are included in this proxy statement.

 

The information presented below should be read in conjunction with “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and B&R Global’s audited and unaudited financial statements and notes thereto included elsewhere in this proxy statement.

 

   

For the Three Months Ended

   

For the Years Ended

 
    March 31,    

December 31,

 
   

2019

   

2018

   

2018

   

2017

 
                                 

Net revenue

  $ 134,154,344     $ 136,379,467     $ 526,974,506     $ 503,362,450  

Cost of sales

    112,379,345       115,500,002       441,917,690       427,717,346  

Gross profit

    21,774,999       20,879,465       85,056,816       75,645,104  

Distribution, selling and administrative expenses

    15,906,481       14,936,281       63,074,257       55,079,623  

Income from operations

    5,868,518       5,943,184       21,982,559       20,565,481  

Interest expenses and bank charges

    (461,319 )     (580,763 )     (1,368,627 )     (1,423,933 )

Other income (expense)

    115,913       (33,464 )     188,726       (1,103,817 )

Income before income tax provision

    5,523,112       5,328,957       20,802,658       18,037,731  

Provision for income taxes

    1,669,733       47,865       151,806       85,527  

Net income

    3,853,379       5,281,092       20,650,852       17,952,204  

Less: net income attributable to noncontrolling interest

    125,258       19,839       272,595       248,605  

Net income attributable to HF Group Holding Corporation

  $ 3,728,121     $ 5,261,253     $ 20,378,257     $ 17,703,599  
                                 

Cash Flow Data:

                               

Net cash provided by operating activities

  $ 12,225,543     $ 11,817,158     $ 15,301,659     $ 5,737,571  

Net cash used in investing activities

  $ (497,122 )   $ (1,325,951 )   $ (2,790,802 )   $ (4,246,304 )

Net cash used in financing activities

  $ (8,229,792 )   $ (10,266,761 )   $ (12,401,355 )   $ (3,058,627 )

 

   

March 31,

   

December 31,

 

Balance Sheet Data:

 

2019

   

2018

   

2017

 

Cash

  $ 11,800,733     $ 8,302,104     $ 8,192,602  

Total assets

  $ 138,470,023     $ 122,438,924     $ 112,278,385  

Total liabilities

  $ 109,083,069     $ 96,869,600     $ 88,652,137  

Total shareholders’ equity

  $ 29,386,954     $ 25,569,324     $ 23,626,248  

 

9

 

 

PRICE RANGE OF SECURITIES AND DIVIDENDS 

 

HF Group’s shares are quoted on the Nasdaq Stock Market under the symbol “HFFG.” The table below sets forth the high and low bid prices of HF Group’s common stock as reported on the Nasdaq Stock Market for the period from September 7, 2017 (the date on which our common stock was first quoted on the Nasdaq Stock Market) through March 31, 2019.

 

   

Common Stock

 
   

High

   

Low

 

Quarter ended:

               

March 31, 2019*

  $ 13.37     $ 13.24  
                 

Period ended:

               

31-Dec-18

  $ 13.44     $ 13.30  

31-Dec-17**

  $ 9.86     $ 9.86  

 

*Through March 29, 2019.

**Commencing September 7, 2017.

 

[HF Group has not paid any cash dividends on its common stock to date and does not intend to pay cash dividends prior to the completion of a business combination. The payment of cash dividends in the future will be dependent upon HF Group’s revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of its then board of directors. It is the present intention of HF Group’s board of directors to retain all earnings, if any, for use in its business operations and, accordingly, HF Group’s board does not anticipate declaring any dividends in the foreseeable future.]

 

B&R Global’s securities are not publicly traded.

 

10

 

 

RISK FACTORS

 

You should consider carefully the following risk factors, as well as the other information set forth in this proxy statement, before making a decision on the Merger.

 

Risk Factors Related to HF Group’s Business

 

The following risk factors apply to the business and operations of HF Group, as well as to the business and operations of HF Group following the completion of the Business Combination. Any of the risk factors described below could significantly and adversely affect HF Group’s business, prospects, sales, revenues, gross profit, cash flows, financial condition, and results of operations.

 

Unfavorable macroeconomic conditions in the U.S. may adversely affect the results of operations and financial condition of HF Group.

 

The operating results of HF Group are substantially affected by the operating and economic conditions in the regions in which we operate. Economic conditions can affect us in the following ways:

 

 

Decrease in discretionary spending of consumers could adversely impact sales of Chinese/Asian restaurants, and their purchases from us. Future economic conditions affecting disposable consumer income, such as employment levels, business conditions, changes in housing market conditions, the availability of consumer credit, interest rates, tax rates and fuel and energy costs, could reduce overall consumer spending.

 

 

Food cost and fuel cost inflation experienced by consumers can lead to reductions in the frequency of and the amount spent by consumers for food-away-from-home purchases, which could negatively impact our business by reducing demand for our products.

 

 

Heightened uncertainty in the financial markets negatively affects consumer confidence and discretionary spending, which can cause disruptions with our customers and suppliers.

 

 

Liquidity issues and the inability of our customers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to conduct day-to-day transactions involving the collection of funds from such customers.

 

 

Liquidity issues and the inability of suppliers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to obtain the foodservice products and supplies needed by us in the quantities and at the prices requested.

 

In addition, our existing operations are mainly located in the Southeastern United States. The geographic concentration of our operations creates an exposure to the economy of the Southeastern United States and any downturn in this region could materially adversely affect our financial condition and results of operations.

 

Competition may increase intensively in the future, which may adversely impact our margins and ability to retain customers, and make it difficult to maintain our market share, growth rate and profitability.

 

The foodservice distribution industry in the United States is fragmented and highly competitive, with local, regional and multi-regional distributors, and specialty competitors. However, we believe that the market participants serving Chinese restaurants are highly fragmented. Currently, we face competition from smaller and/or dispersed competitors focusing on the niche market serving Chinese/Asian restaurants, especially Chinese takeout restaurants. However, with the growing demand for Chinese cuisines, others may also begin operating in this niche market in the future. Those potential competitors include: (i) national and regional foodservice distributors, (ii) local wholesalers and brokers, (iii) food retailers, and (iv) farmers’ markets. The national and regional distributors are experienced in operating multiple distribution locations and expanding management, and they have greater marketing and financial resources than we do. Even though they currently offer only a limited selection of Chinese and Asian specialty foods, they may be able to devote greater resources to sourcing, promoting and selling their products if they choose to do so. On the contrary, the local wholesalers and brokers are small in size with a deep understanding of local preferences, but their lack of scale results in high risk and limited growth potential.

 

11

 

 

If more competitors enter this market segment aiming to serve Chinese/Asian restaurants in the future, our operating results may be negatively impacted through a loss of sales, reduction in margins from competitive price changes, and/or greater operating costs, such as marketing costs, due to the increase of competition.

 

We may not be able to fully compensate for increases in fuel costs when the fuel price experiences highly volatility, and its operating results would be adversely affected.

 

Volatile fuel prices have a direct impact on the industry served by us. We require significant quantities of fuel for delivery vehicles and are exposed to the risk associated with fluctuations in the market price for fuel. The price and supply of fuel can fluctuate significantly based on international, political and economic circumstances, as well as other factors outside our control, such as actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, regional production patterns, weather conditions and environmental concerns. The cost of fuel affects the price paid by us for products, as well as the costs we incur to deliver products to our customers. Although we have been able to pass along a portion of increased fuel costs to our customers in the past, there is no guarantee that we will be able to do so in the future. If fuel costs increase in the future, we may experience difficulties in passing all or a portion of these costs along to our customers, which may have a negative impact on our results of operations.

 

Disruption of relationships with vendors could negatively affect our business. Suppliers may increase product prices, which could increase product costs.

 

We purchase our foodservice and related products from third-party suppliers. Although our purchasing volume can provide benefits when dealing with suppliers, suppliers may not provide the foodservice products and supplies needed by us in the quantities and at the prices requested. The cancellation of our supply arrangement with any of our suppliers or the disruption, delay or inability to supply the requested product from our suppliers could adversely affect our sales. If our suppliers fail to comply with food safety or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted. We cannot assure you that we would be able to find replacement suppliers on commercially reasonable terms.

 

In addition, we purchase seasonal Chinese specialties of vegetables and fruits from farms and other vendors. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or impact demand for its products. Input costs could increase at any point in time for a large portion of the products that we sell for a prolonged period. Our inability to obtain adequate supplies of foodservice and related products as a result of any of the foregoing factors or otherwise could mean that we are unable to fulfill our obligations to customers, and customers may turn to other distributors.

 

The purchasing prices of our products vary from time to time, which is subject to market conditions and negotiation with suppliers. The prices of some of our products, especially seasonal products, such as vegetables and fruits, have significant fluctuations. We can mitigate the risk of fluctuation in the purchasing and distribution costs by either fixing a price for a certain supply period through negotiation with our suppliers, streamlining our inventory turnover, and passing portions of the price fluctuation to our customers. However, we may not always be able to do that if there are significant and frequent fluctuations. If we are unable to mitigate these price fluctuations, our performance results will be adversely affected.

 

As a foodservice distributor, it is necessary for us to maintain an inventory of products that may have declines in product pricing levels between the time we purchase the product from suppliers and the time we sell the product to customers, which could reduce the margin on that inventory, adversely affecting our results of operations.

 

Our relationships with customers may be materially diminished or terminated. The loss of customers could adversely affect our business, financial condition, and results of operations.

 

We have maintained long-standing relationships with a number of our customers. However, those customers could unilaterally terminate their relationship with us or materially reduce the amount of business they conduct with us at any time. Our customers may shift their purchase order from us to other competitors due to the market competition, change of customer requirements and preferences, or because of the customer’s financial condition. There is no guarantee that we will be able to maintain relationships with any of our customers on acceptable terms, or at all. The loss of a number of customers could adversely affect our business, financial condition, and results of operations.

 

12

 

 

Changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations.

 

We provide foodservice distribution to Chinese/Asian restaurants, primarily Chinese takeout restaurants, which focus on serving Chinese food to non-Chinese Americans. Changes in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes, or a shift in preferences toward western foods) could reduce demand for our products. Consumer eating habits could be affected by a number of factors, including attitudes regarding diet and health or new information regarding the health effects of consuming certain foods. If consumer eating habits change significantly, we may be required to modify or discontinue sales of certain items in our product portfolio, and we may experience higher cost and/or supply shortages associated with our efforts to accommodate those changes as our suppliers adapt to new eating preferences. Additionally, changes in consumer eating habits may result in the enactment or amendment of laws and regulations that impact the ingredients and nutritional content of our food products, or laws and regulations requiring us to disclose the nutritional content of our food products. Compliance with these laws and regulations, as well as others regarding the ingredients and nutritional content of food products, may be costly and time-consuming. We cannot make any assurances regarding our ability to effectively respond to changes in consumer culture preference, health perceptions or resulting new laws or regulations or to adapt our product offerings to trends in eating habits.

 

We may be unable to protect or maintain our intellectual property, which could result in customer confusion, a negative perception of its brand and adversely affect its business.

 

We believe that our intellectual property has substantial value and has contributed significantly to the success of our business. In particular, our trademarks of Han Feng, Inc., are valuable assets that reinforce our customers’ favorable perception of our products. Our trademark rights and related registrations may be challenged in the future and could be canceled or narrowed. Failure to protect our trademark rights could cause customer confusion or negatively affect customers’ perception of our brand and products, and eventually adversely affect our sales and profitability. Moreover, intellectual property disputes and proceedings and infringement claims may result in a significant distraction for management and significant expense, which may not be recoverable regardless of whether we are successful. Such proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liabilities, force us to cease use of certain trademarks or other intellectual property or force us to enter into licenses with others. Any one of these occurrences may have a material adverse effect on our business, results of operations and financial condition.

 

If we are unable to renew or replace the current lease of our warehouse located in Georgia on favorable terms, or the current lease is terminated prior to expiration of its stated term, and we cannot find suitable alternate locations, our operations and profitability could be negatively impacted.

 

We currently lease one of our warehouses for the distribution center located in Georgia. Our ability to re-negotiate favorable terms on an expiring lease or to negotiate favorable terms for a suitable alternate location, and our ability to negotiate favorable lease terms for additional locations, could depend on conditions in the real estate market, competition for desirable properties, its relationships with current and prospective landlords, or other factors that are not within our control. Any or all of these factors and conditions could negatively impact our growth and profitability.

 

Failure to retain our senior management and other key personnel may adversely affect our operations.

 

Our success is substantially dependent on the continued service of our senior management and other key personnel. These executives, and in particular Zhou Min Ni, our Executive Chairman and Chief Executive Officer, and Chan Sin Wong, our President, have been primarily responsible for determining the strategic direction of our business and for executing our growth strategy and are integral to our brand and culture, and the reputation the Company enjoys with suppliers and consumers. The loss of the services of any of these executives and other key personnel could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause our stock price to decline. The loss of key employees could negatively affect our business.

 

13

 

 

If we are unable to attract, train and retain employees, we may not be able to grow or successfully operate its business.

 

The foodservice distribution industry is labor intensive. Our success depends in part upon our ability to attract, train and retain a sufficient number of employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers. Our ability to meet our labor needs, while controlling wage and labor-related costs, is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force of the regions in which we are located, unemployment levels within those regions, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation. In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer service to suffer, while increasing our wages could cause our earnings to decrease. If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business, results of operations and financial condition.

 

Changes in and enforcement of immigration laws could increase our costs and adversely affect our ability to attract and retain qualified employees.

 

Federal and state governments from time to time implement immigration laws, regulations or programs that regulate our ability to attract or retain qualified foreign employees. Some of these changes may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability of potential employees. Although we have implemented, and are in the process of enhancing, procedures to ensure our compliance with the employment eligibility verification requirements, there can be no assurance that these procedures are adequate and some of our employees may, without our knowledge, be unauthorized workers. The employment of unauthorized workers may subject us to fines or civil or criminal penalties, and if any of our workers are found to be unauthorized, we could experience adverse publicity that negatively impacts our brand and make it more difficult to hire and keep qualified employees. We may be required to terminate the employment of certain of our employees who were determined to be unauthorized workers. The termination of a significant number of employees may disrupt our operations, cause temporary increases in our labor costs as we train new employees and result in additional adverse publicity. Our financial performance could be materially harmed as a result of any of these factors.

 

Potential labor disputes with employees and increases in labor costs could adversely affect our business.

 

A considerable amount of our operating costs are attributable to labor costs and, therefore, our financial performance is greatly influenced by increases in wage and benefit costs. As a result, we are exposed to risks associated with a competitive labor market. Rising health care costs and the nature and structure of work rules will be important issues. Any work stoppages or labor disturbances as a result of employees’ dissatisfaction of their current employment terms could have a material adverse effect on our financial condition, results of operations and cash flows. We also expect that in the event of a work stoppage or labor disturbance, we could incur additional costs and face increased competition.

 

If we fail to comply with requirements imposed by applicable law or other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.

 

We are subject to regulation by various federal, state, and local governments, such as food safety and sanitation, ethical business practices, transportation, minimum wage, overtime, wage payment, wage and hour and employment discrimination, immigration, and human health and safety. While we attempt to comply with all applicable laws and regulations, we cannot represent that it is in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or that we will be able to comply with any future laws, regulations or interpretations of these laws and regulations. If we fail to comply with applicable laws and regulations, we may be subject to investigations, criminal sanctions or civil remedies, including fines, injunctions, and prohibitions on exporting. The cost of compliance or the consequences of non-compliance, including debarments, could have an adverse effect on our results of operations. In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require us to incur substantial increases in costs in order to comply with such laws and regulations.

 

14

 

 

If the products distributed by us are alleged to have caused injury or illness, or to have failed to comply with governmental regulations, we may need to recall our products and may experience product liability claims.

 

We, like any other foodservice distributor, may be subject to product recalls, including voluntary recalls or withdrawals, if the products we distribute are alleged to have caused injury or illness, to have been mislabeled, misbranded, or adulterated or to otherwise have violated applicable governmental regulations. We may also choose to voluntarily recall or withdraw products that we determine do not satisfy our quality standards, whether for taste, appearance, or otherwise, in order to protect our brand and reputation. Any future product recall or withdrawal that results in substantial and unexpected expenditures, destruction of product inventory, damage to our reputation, and/or lost sales due to the unavailability of the product for a period of time, could materially adversely affect our results of operations and financial condition.

 

We also face the risk of exposure to product liability claims in the event that the use of products sold by us are alleged to have caused injury or illness. We cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Further, even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image.

 

With respect to product liability claims, we believe we have sufficient insurance coverage. However, this insurance may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities. We generally seek contractual indemnification and insurance coverage from parties supplying products to us, but this indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by such suppliers. If we do not have adequate insurance or contractual indemnification available, product liability relating to defective products could materially adversely affect our results of operations and financial condition.

 

We could be subject to claims from third parties or members of our workforce that are harmed by the daily operation of our trucking transportation of goods, which could adversely affect our business, brand, financial condition and results of operations.

 

We are from time to time subject to claims lawsuits, investigations and other legal proceedings relating to injuries to, or deaths of, or property damage incurred by, third parties or members of our workforce that are attributable to the occurrence of vehicular accidents arising from our daily operations of delivery trucks in commercial transport of our goods. We have incurred expenses to settle personal injury or property damage claims, which we sometimes choose to settle for reasons including expediency, protection of our reputation and to prevent the uncertainty of litigating, and we expect that such expenses will continue to increase as our business grows and we operate more trucks on public roadways and in deliveries to our customers’ places of business. Regardless of the outcome of any legal proceeding, any injuries to, or deaths of, or property damage incurred by, any third parties or members of our workforce could result in significant legal, regulatory or financial exposure and negative publicity and harm to our brand, reputation, business, financial condition and results of operations. Our insurance policies and programs may not provide sufficient coverage to adequately mitigate the potential liability we face, especially where any one incident, or a group of incidents, could cause disproportionate harm, and we may have to pay high premiums or deductibles for our coverage and, for certain situations, we may not be able to secure coverage at all.

 

Our actual losses may exceed our insurance coverages, which could adversely affect our financial condition and results of operations.

 

We acquire liability insurance indemnification for claims incurred and we periodically evaluate and, as necessary, adjust our insurance coverages as our experience develops or new information is learned. Estimating the number and severity of claims, as well as related judgment or settlement amounts, is inherently difficult, subjective and speculative. A number of external factors can affect the actual losses incurred for any given claim, including the length of time the claim remains open, fluctuations in healthcare costs, legislative and regulatory developments and judicial developments. For any of the foregoing reasons, our actual losses for claims and related expenses may deviate, individually or in the aggregate, from the insurance coverages we have acquired. If we determine that our insurance coverages are inadequate in an individual claim or in aggregate, we may be required to increase loss contingency reserves at the time of the determination, which could result in a decrease to our net profit in the period in which the deficiency is determined and negatively impact our financial condition and results of operations.

 

We may incur significant costs to comply with environmental laws and regulations, and we may be subject to substantial fines, penalties or third-party claims for non-compliance.

 

Our operations are subject to various federal, state, and local laws, rules and regulations relating to the protection of the environment, including those governing:

 

 

the discharge of pollutants into the air, soil, and water;

     
 

the management and disposal of solid and hazardous materials and wastes;

     
 

employee exposure to hazards in the workplace; and

     
 

the investigation and remediation of contamination resulting from releases of petroleum products and other regulated materials.

 

In the course of operations, we operate, maintain, and fuel vehicles; store fuel in on-site above ground containers; operate refrigeration systems; and use and dispose of hazardous substances and food waste. We could incur substantial costs, including fines or penalties and third-party claims for property damage or personal injury, as a result of any violations of environmental or workplace safety laws and regulations or releases of regulated materials into the environment. In addition, we could incur investigation, remediation or other costs related to environmental conditions at our currently or formerly owned or operated properties.

 

Litigation may materially adversely affect our business, financial condition and results of operations.

 

Our operations carry an exposure to litigation risk from consumers, customers, our labor force and others, and may be a party to individual personal injury, product liability and other legal actions in the ordinary course of its business, including litigation arising from food-related illness. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that may decrease consumer confidence in our businesses, regardless of whether the allegations are valid or whether we me ultimately found liable. As a result, litigation may materially adversely affect our businesses, financial condition, results of operations and cash flows.

 

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Increased commodity prices and availability may impact profitability.

 

Many of our products include ingredients such as wheat, com, oils, sugar, and other commodities. Commodity prices worldwide have been increasing. While commodity price inputs do not typically represent the substantial majority of our product costs, any increase in commodity prices may cause our vendors to seek price increases from us. Although we are typically able to mitigate vendor efforts to increase our costs, we may be unable to continue to do so, either in whole or in part. In the event we me unable to continue mitigating potential vendor price increases, we may in turn consider raising our prices, and our customers may be deterred by any such price increases. Our profitability may be impacted through increased costs to us which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

 

The U.S. government is currently imposing increased tariffs on certain products imported into the U.S., including products imported from China, which may have an adverse impact on our future operating results.

 

We sell our products based on the cost of such products plus a percentage markup. We import approximately 20% of our products from other countries, including China. The U.S. government is currently imposing and proposing increased tariffs on certain products imported into the U.S., including products imported from China. Some of our imported products may be subject to these increased tariffs and accordingly, our purchasing costs will be increased. We may determine to increase our sales prices in order to pass these increased costs to our customers. In the event we determine to take such action, our customers may reduce their orders from us, which could negatively affect our profitability and operating results.

 

Severe weather, natural disasters and adverse climate changes may materially adversely affect our financial condition and results of operations.

 

Severe weather conditions and other natural disasters in areas where our distribution network covers or from which we obtain the products we sell may materially adversely affect our operations or our product offerings and, therefore, our results of operations. Such conditions may result in physical damage to, or temporary or permanent closure of, one or more of our distribution centers, an insufficient work force in our market regions and/or temporary disruption in the supply of products, including delays in the delivery of goods to our warehouses or a reduction in the availability of products in our offerings. In addition, adverse climate conditions and adverse weather patterns, such as drought or flood, that impact growing conditions and the quantity and quality of crops may materially adversely affect the availability or cost of certain products within our supply chain. Any of these factors may disrupt our businesses and materially adversely affect our financial condition, results of operations and cash flows.

 

We rely on technology in our business and any cybersecurity incident, other technology disruption or delay in implementing new technology could negatively affect our business and our relationships with customers.

 

We use technology in our business operations, and our ability to serve customers most effectively depends on the reliability of our technology systems. We use software and other technology systems, among other things, to generate and select orders, to make purchases, to manage warehouses and to monitor and manage our business on a day-to-day basis. Further, our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ and suppliers’ personal information, private information about employees, and financial and strategic information about the company and its business partners.

 

These technology systems are vulnerable to disruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, espionage, cyber-attacks, viruses, theft and inadvertent release of information. Any such disruption to these software and other technology systems, or the technology systems of third parties on which we rely, the failure of these systems to otherwise perform as anticipated, or the theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential liability and competitive disadvantage, any or all of which would potentially adversely affect Our customer service, decrease the volume of our business and result in increased costs and lower profits.

 

Further, as we pursue our strategy to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, we are also expanding and improving our information technology, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. If we fail to assess and identify cybersecurity risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks. Information technology systems continue to evolve and, in order to remain competitive, we need to implement new technologies in a timely and efficient manner. If our competitors implement new technologies more quickly or successfully than we do, such competitors may be able to provide lower cost or enhanced services of superior quality compared to those we provide, which could have an adverse effect on our results of operations.

 

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Our current indebtedness may adversely affect our liquidity position and ability of future financing.

 

As of December 31, 2018, we have $8.19 million of debt borrowed from a bank credit lines and $14.56 million of long-term mortgage loans, which could adversely affect our cash flow, our ability to raise additional capital or obtain financing in the future, react to changes in business and repay other debts. These bank loans contain covenants that restrict the ability of us to incur additional debt and operate our business. We may not be able to generate the significant amount of cash needed to pay interest and principal on its debt facilities or refinance all or a portion of its indebtedness, due to the factors, including significant change of economic condition, market competition, whether conditions, outbreak of disaster, and failure of execution of its business plan.

 

Risk Factors Relating to HF Group’s Acquisition Strategy

 

Our continued growth depends on future acquisitions of other distributors or wholesalers and enlarge its customer bases. The failure to achieve these goals could negatively impact our results of operations and financial condition.

 

Historically, a portion of our growth has come through acquisitions, and our growth strategy depends, in large part, on acquiring other distributors or wholesalers to access the untapped market regions and enlarge our customer base. Successful implementation of this strategy is dependent on sufficient capital support from financing, finding suitable targets to acquire, identifying suitable locations and negotiating acceptable acquisition prices. There can be no assurance that we will continue to grow through acquisitions. We may not be able to obtain sufficient capital support for the expansion plan, or successfully implement the plan to acquire other competitors timely or within budget or operate them successfully.

 

If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our earnings may be materially adversely affected. A significant expansion of our business and operations, in terms of geography or magnitude, could strain our administrative and operational resources. Significant acquisitions may also require the issuance of material additional amounts of debt or equity, which could materially alter our debt-to-equity ratio, increase the interest expense and decrease net income, and make it difficult for us to obtain favorable financing for other acquisitions or capital investments.

 

Our operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful.

 

There is a scarcity of and competition for acquisition opportunities.

 

There are a limited number of operating companies available for acquisition that we deem to be desirable targets. In addition, there is a very high level of competition among companies seeking to acquire these operating companies. Many established and well- financed entities are active in acquiring interests in companies that we may find to be desirable acquisition candidates. Many of these entities have significantly greater financial resources, technical expertise and managerial capabilities than us. Consequently, we will be at a competitive disadvantage in negotiating and executing possible acquisitions of these businesses. Even if we are able to successfully compete with these entities, this competition may affect the terms of completed transactions and, as a result, we may pay more or receive less favorable terms than we expected for potential acquisitions. We may not be able to identify operating companies that complement our strategy, and even if we identify a company that complements our strategy, we may be unable to complete an acquisition of such a company for many reasons, including:

 

 

failure to agree on the terms necessary for a transaction, such as the purchase price;

 

 

incompatibility between our operational strategies or management philosophies with those of the potential acquiree;

 

 

competition from other acquirers of operating companies;

 

 

lack of sufficient capital to acquire a profitable distribution company; and

 

 

unwillingness of a potential acquiree to work with our management.

 

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Risks related to acquisition financing.

 

We have a limited amount of financial resources and our ability to make additional acquisitions without securing additional financing from outside sources is limited. In order to continue to pursue our acquisition strategy, we may be required to obtain additional financing. We may obtain such financing through a combination of traditional debt financing or the placement of debt and equity securities. We may finance some portion of our future acquisitions by either issuing equity or by using shares of our common stock for all or a portion of the purchase price for such businesses. In the event that our common stock does not attain or maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept our common stock as part of the purchase price for the sale of their businesses, we may be required to use more of our cash resources, if available, in order to maintain our acquisition program. If we do not have sufficient cash resources, we will not be able to complete acquisitions and our growth could be limited unless we are able to obtain additional capital through debt or equity financings. The terms of our credit facility require that we obtain the consent of our lenders prior to securing additional debt financing. There could be circumstances in which our ability to obtain additional debt financing could be constrained if we are unable to secure such consent.

 

To the extent we make any material acquisitions, our earnings may be adversely affected by non-cash charges relating to the amortization of intangible assets.

 

Under applicable accounting standards, purchasers are required to allocate the total consideration paid in a business combination to the identified acquired assets and liabilities based on their fair values at the time of acquisition. The excess of the consideration paid to acquire a business over the fair value of the identifiable tangible assets acquired must be allocated among identifiable intangible assets including goodwill. The amount allocated to goodwill is not subject to amortization. However, it is tested at least annually for impairment. The amount allocated to identifiable intangible assets, such as customer relationships and the like, is amortized over the life of these intangible assets. We expect that this will subject us to periodic charges against our earnings to the extent of the amortization incurred for that period. Because our business strategy focuses, in part, on growth through acquisitions, our future earnings may be subject to greater non-cash amortization charges than a company whose earnings are derived solely from organic growth. As a result, we may experience an increase in non-cash charges related to the amortization of intangible assets acquired in our acquisitions. Our financial statements will show that our intangible assets are diminishing in value, even if the acquired businesses are increasing (or not diminishing) in value.

 

We are not obligated to follow any particular criteria or standards for identifying acquisition candidates.

 

We are not obligated to follow any particular operating, financial, geographic or other criteria in evaluating candidates for potential acquisitions or business combinations. We will determine the purchase price and other terms and conditions of acquisitions. Our stockholders will not have the opportunity to evaluate the relevant economic, financial and other information that our management team will use and consider in deciding whether or not to enter into a particular transaction.

 

We may be required to incur a significant amount of indebtedness in order to successfully implement our acquisition strategy.

 

Subject to the restrictions contained under our current credit facilities, we may be required to incur a significant amount of indebtedness in order to complete future acquisitions. If we are not able to generate sufficient cash flow from the operations of acquired businesses to make scheduled payments of principal and interest on the indebtedness, then we will be required to use our capital for such payments. This will restrict our ability to make additional acquisitions. We may also be forced to sell an acquired business in order to satisfy indebtedness. We cannot be certain that we will be able to operate profitably once we incur this indebtedness or that we will be able to generate a sufficient amount of proceeds from the ultimate disposition of such acquired businesses to repay the indebtedness incurred to make these acquisitions.

 

We may experience difficulties in integrating the operations, personnel and assets of acquired businesses that may disrupt our business, dilute stockholder value and adversely affect our operating results.

 

A core component of our business plan is to acquire businesses and assets in the food distribution industry. There can be no assurance that we will be able to identify, acquire or profitably manage businesses or successfully integrate acquired businesses into the Company without substantial costs, delays or other operational or financial problems. Such acquisitions also involve numerous operational risks, including:

 

 

difficulties in integrating operations, technologies, services and personnel;

 

 

the diversion of financial and management resources from existing operations;

 

 

the risk of entering new markets;

 

18

 

 

 

the potential loss of existing or acquired strategic operating partners following an acquisition;

 

 

the potential loss of key employees following an acquisition and the associated risk of competitive efforts from such departed personnel;

 

 

possible legal disputes with the acquired company following an acquisition; and

 

 

the inability to generate sufficient revenue to offset acquisition or investment costs.

 

As a result, if we fail to properly evaluate and execute any acquisitions or investments, our business and prospects may be seriously harmed.

 

Risk Factors Relating to HF Group’s Common Stock

 

A trading market for our common stock may not be sustained and our common stock prices could decline.

 

Although our common stock is listed on the Nasdaq Capital Market under the symbol “HFFG”, an active trading market for the shares of our common stock may not be sustained. Accordingly, no assurance can be given as to the following:

 

 

the likelihood that an active trading market for shares of our common stock will be sustained;

 

 

the liquidity of any such market;

 

 

the ability of our stockholders to sell their shares of common stock; or

 

 

the price that our stockholders may obtain for their common stock.

 

In addition, our common stock has experienced price and volume volatility over the past year. The market price and volume of our common stock may continue to experience fluctuations not only due to general stock market conditions but also due to government regulatory action, tax laws, interest rates, the condition of the U.S. economy and a change in sentiment in the market regarding our industry, operations or business prospects. In addition to other factors, the price and volume volatility of our common stock may be affected by:

 

 

factors influencing consumer food choices;

 

 

the operating and securities price performance of companies that investors consider comparable to us;

 

 

announcements of strategic developments, acquisitions and other material events by us or our competitors;

 

 

changes in global financial markets and global economies and general market conditions, such as tariffs, interest rates, commodity and equity prices and the value of financial assets;

 

 

additions or departures of key personnel;

 

 

operating results that vary from the expectations of securities analysts and investors;

 

 

sales of our equity securities by stockholders or managements or sales of additional equity securities by us;

 

 

actions by stockholders; and

 

 

passage of legislation or other regulatory developments that adversely affect us or our industry.

 

If an active market is not maintained, or if our common stock continues to experience price and volume volatility, the market price of our common stock may decline.

 

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Stockholders of a public company sometimes bring securities class action suits against the company following periods of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our results of operations and financial condition.

 

Furthermore, our ability to raise funds through the issuance of equity or otherwise use our common stock as consideration is impacted by the price of our common stock. A low stock price may adversely impact our ability to reduce our financial leverage, as measured by the ratio of total debt to total capital. Continued high levels of leverage or significant increases may adversely affect our credit ratings and make it more difficult for us to access additional capital. These factors may limit our ability to implement our operating and growth plans.

 

Zhou Min Ni beneficially owns approximately 31% of our outstanding common stock and has the ability to control our business and affairs, which may prevent us from taking actions that may be favorable to our other stockholders.

 

As of December 31, 2018, Zhou Min Ni, who is our Chief Executive Officer and Chairman of our board of directors, beneficially owned approximately 6,689,896 of our outstanding common stock, representing approximately 31% of the voting power of our capital stock. As a result, Zhou Min Ni has the ability to control all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control of us or impeding a merger or consolidation, takeover or other business combination involving us that could be favorable to you.

 

Our current management does not have corporate governance experience, and we may need to recruit expertise on corporate governance and capital markets to comply with the regulations and communicate with the capital markets, which may increase our operating expenses.

 

Our current management doesn’t have experience in running a public company and conducting corporate governance required of a public company. It may take time for our management team to learn to comply with the reporting, disclosure and corporate governance requirements and listing standards of the Nasdaq Stock Market. We may need to recruit expertise on corporate governance and capital markets to comply with applicable regulations and communicate with the capital markets, which may increase our operating expenses.

 

We have identified material weaknesses in our internal control over financial reporting, which could affect our ability to ensure timely and reliable financial reports, affect the ability of our auditors to attest to the effectiveness of our internal controls should we become an accelerated filer in the future, and weaken investor confidence in our financial reporting.

 

The Sarbanes-Oxley Act of 2002 requires, among other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. Our management has concluded that (i) our internal controls over financial reporting were not effective as of December 31, 2018, (ii) there existed a material weaknesses in our internal control over financial reporting as of December 31, 2018, and (iii) our disclosure controls and procedures were not effective as of December 31, 2018. Please see the discussion of these conclusions below under Item 9A. “Controls and Procedures” of our most recent Annual Report on Form 10-K filed with the SEC.

 

We believe we are taking appropriate actions to remediate such material weakness and inadequate disclosure controls and procedures; however, such measures may not be sufficient to address the material weaknesses identified or ensure that our disclosure controls and procedures are effective. We may also discover other material weaknesses in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in the implementation of such controls, could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements and affect the ability of our auditors to attest to the effectiveness of our internal control over financing reporting to the extent we become an accelerated filer in the future. In addition, substantial costs and resources may be required to rectify any internal control deficiencies. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the market price of our common stock could decline significantly, and our business and financial condition could be adversely affected.

 

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We are not required to obtain an attestation report on our assessment of our internal control over financial reporting from an independent registered public accounting firm, which may cause investors to lose confidence in us and cause the price of our common stock to be negatively impacted.

 

Under rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are not required to obtain from our independent registered public accounting firm an attestation report on our assessment of our internal control over financial reporting, and we have not voluntarily sought such a report in the past. If we do not voluntarily seek to obtain an unqualified attestation report on our assessment of our internal control over financial reporting from our independent registered public accounting firm in the future, or if we seek to obtain such a report but our independent registered public accounting firm is unable to provide one to us, investors may lose confidence in us and the price of our common stock may be negatively impacted.

 

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

 

We are an “emerging growth company”, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an emerging growth company. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.07 billion of revenues in a fiscal year, have more than $700 million in market value of our common stock held by non-affiliates as of any June 30 or issue more than $1.0 billion of non-convertible debt over a rolling three-year period.

 

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies.

 

Future sales of our common stock may cause our stock price to decline.

 

As of March 27, 2019, there were 22,167,486 shares of our common stock outstanding. Of this number, 2,137,653 shares of common stock were freely tradable without restriction, unless the shares are purchased by our affiliates. The remaining 20,029,833 shares of common stock were “restricted securities” as that term is defined under Rule 144 of the Securities Act. None of our directors, executive officers or employees, except Zhou Min Ni, are subject to lock-up agreements or market stand-off provisions that limit their ability to sell shares of our common stock. The sale of a large number of shares of our common stock, or the belief that such sales may occur, could cause a drop in the market price of our common stock.

 

If securities analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, the price of our common stock and trading volume could decline.

 

The trading market for our common stock could be influenced by any research and reports that securities or industry analysts publish about us, our business or our market. If one or more of the analysts who covers us downgrades our common stock or publishes inaccurate or unfavorable research about us, our business or our market, the price of our common stock would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause the price of our common stock and trading volume to decline.

 

We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

 

We have not declared or paid dividends on our common stock and we do not intend to do so in the near term. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock in the near term, and capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

 

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Risk Factors Relating to B&R Global’s Business

 

See the section titled “Risk Factors Relating to HF Group’s Business,” above, for a discussion of the risk factors that are also applicable to B&R Global’s business, as B&R Global and HF Group operate in the same industry.

 

Risk Factors Relating to the Business Combination

 

HF Group and B&R Global have incurred and expect to incur significant costs associated with the Business Combination. Whether or not the Business Combination is completed, the incurrence of these costs will reduce the amount of cash available to be used for other corporate purposes by HF Group, whether or not the Business Combination is completed.

 

HF Group and B&R Global expect to incur significant costs associated with the Business Combination. Whether or not the Business Combination is completed, HF Group expects to incur approximately $[●] in expenses. These expenses will reduce the amount of cash available to be used for other corporate purposes by HF Group if the Business Combination is completed or by HF Group if the Business Combination is not completed.

 

HF Group may waive one or more of the conditions to the Business Combination without resoliciting shareholder approval for the Business Combination.

 

HF Group may agree to waive, in whole or in part, some of the conditions to its obligations to complete the Business Combination, to the extent permitted by applicable laws. The board of directors of HF Group will evaluate the materiality of any waiver to determine whether amendment of this proxy statement and resolicitation of proxies is warranted. In some instances, if the board of directors of HF Group determines that a waiver is not sufficiently material to warrant resolicitation of shareholders, HF Group has the discretion to complete the Business Combination without seeking further shareholder approval. For example, it is a condition to HF Group’s obligations to close the Business Combination that there be no restraining order, injunction or other order restricting B&R Global’s conduct of its business; however, if the board of directors of HF Group determines that any such order or injunction is not material to the business of B&R Global, then the board may elect to waive that condition and close the Business Combination.

 

If HF Group’s due diligence investigation of B&R Global was inadequate, then shareholders of HF Group following the Business Combination could lose some or all of their investment.

 

Even though HF Group conducted a due diligence investigation of B&R Global, it cannot be sure that this diligence uncovered all material issues that may be present inside B&R Global or its business, or that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of B&R Global and its business and outside of its control will not later arise.

 

HF Group will not obtain an opinion from an unaffiliated third party as to the fairness of the Business Combination to its shareholders.

 

HF Group is not required to obtain an opinion from an unaffiliated third party that the price it is paying is fair to its public shareholders from a financial point of view. HF Group’s public shareholders therefore, must rely solely on the judgment of HF Group’s board of directors.

 

If the Business Combination’s benefits do not meet the expectations of financial or industry analysts, the market price of HF Group’s securities may decline.

 

The market price of HF Group’s securities may decline as a result of the Business Combination if:

 

 

HF Group does not achieve the perceived benefits of the acquisition as rapidly as, or to the extent anticipated by, financial or industry analysts; or

 

 

The effect of the Business Combination on the financial statements is not consistent with the expectations of financial or industry analysts.

 

Accordingly, investors may experience a loss as a result of decreasing stock prices.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Examples of forward-looking statements in this proxy statement include, but are not limited to, statements regarding our disclosure concerning B&R Global’s operations, cash flows, financial position and dividend policy.

 

Forward-looking statements appear in a number of places in this proxy statement including, without limitation, in the sections entitled “Dividend Policy,” “Management’s Discussion and Analysis of Financial Conditions and Results of Operations of B&R Global,” and “B&R Global’s Business”. The risks and uncertainties include, but are not limited to:

 

 

future operating or financial results;

 

 

future payments of dividends and the availability of cash for payment of dividends;

 

 

B&R Global’s expectations relating to dividend payments and forecasts of its ability to make such payments;

 

 

future acquisitions, business strategy and expected capital spending;

 

 

assumptions regarding interest rates and inflation;

 

 

the combined company’s financial condition and liquidity, including its ability to obtain additional financing in the future to fund capital expenditures, acquisitions and other general corporate activities;

 

 

estimated future capital expenditures needed to preserve HF Group’s capital base;

 

 

ability of the combined company to effect future acquisitions and to meet target returns; and

 

 

other factors discussed in “Risk Factors.”

 

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in “Risk Factors” in this proxy statement. Accordingly, you should not rely on these forward-looking statements, which speak only as of the date of this proxy statement. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this proxy statement or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission after the date of this proxy statement.

 

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CAPITALIZATION

 

The following table sets forth the capitalization on an unaudited, historical basis of each of HF Group and B&R Global as of March 31, 2019 after giving effect to the Business Combination.

 

 

   

Historical

   

As

Adjusted

 

 

 

HF Group

   

B&R Global

   

 

 
As of March 31, 2019  

(unaudited)

   

(unaudited)

    Combined  
                         

Cash and cash equivalents

  $ 6,897,354     $ 11,800,733     $ 18,698,087  

Lines of credit

    7,094,146       34,846,359       41,940,505  

Long-term debt, including current portion

    16,114,865       6,269,423       22,384,288  

Obligations under capital leases, including current portion

    1,535,750             1,535,750  

Obligations under operating leases, including current portion

    95,931       20,127,160       20,223,091  

Total shareholders’ equity

    36,255,054       29,386,954       65,642,008  

Total capitalization

  $ 61,095,746     $ 90,629,896     $ 151,725,642  

 

 

24

 

 

SPECIAL MEETING OF HF Group SHAREHOLDERS

 

General

 

We are furnishing this proxy statement to the HF Group shareholders as part of the solicitation of proxies by our board of directors for use at the special meeting of HF Group shareholders to be held on [●], 2019, and at any adjournment or postponement thereof. This proxy statement is first being furnished to our shareholders on or about [●], 2019 in connection with the vote on the Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal. This document provides you with the information you need to know to be able to vote or instruct your vote to be cast at the special meeting.

 

Date, Time and Place

 

The special meeting of shareholders will be held on [●], 2019 at [●] a.m., at [●], or such other date, time and place to which such meeting may be adjourned or postponed.

 

Purpose of the Special Meeting of HF Group Shareholders

 

At the special meeting of shareholders, we are asking holders of HF Group common stock to approve the following proposals:

 

 

The authorization for HF Group’s board of directors to complete the merger of Merger Sub into B&R Global, resulting in B&R Global becoming a wholly owned subsidiary of HF Group, as provided for in the Merger Agreement, or the “Business Combination.” This proposal is referred to as the Business Combination Proposal.

 

 

The amendment of the amended and restated certificate of incorporation of HF Group to increase the number of authorized shares of common stock from 30,000,000 to [•]and to add provisions requiring that certain actions of the Board of Directors require a two-thirds vote of the Board of Directors to approve. This proposal is referred to as the Amendment Proposal.

 

 

The issuance of more than 20% of the issued and outstanding shares of common stock of HF Group pursuant to the terms of the Merger Agreement, as required by Nasdaq Listing Rules 5635(a) and (d). This proposal is referred to as the Nasdaq Proposal.

 

 

The adjournment of the special meeting in the event HF Group does not receive the requisite shareholder vote to approve the Business Combination. This proposal is called the Business Combination Adjournment Proposal.

 

Proposals 1 through 4 are sometimes collectively referred to herein as the “Proposals.”

 

Recommendation of HF Group’s Board of Directors

 

HF Group’s board of directors:

 

 

has determined that each of the Business Combination Proposal, and the other Proposals is fair to, and in the best interests of, HF Group and its shareholders;

 

 

has approved the Business Combination Proposal and the other Proposals; and

 

 

recommends that HF Group’s shareholders vote “FOR” each of the Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal.

 

Record Date; Who is Entitled to Vote

 

We have fixed the close of business on [●], 2019, as the “record date” for determining those HF Group shareholders entitled to notice of and to vote at the special meeting. As of the close of business on [●], 2019, there were [●] shares of HF Group common stock outstanding and entitled to vote. Each holder of HF Group common stock is entitled to one vote per share on each of the Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal.

 

25

 

 

Quorum and Required Vote for Shareholder Proposals

 

A quorum of HF Group shareholders is necessary to hold a valid meeting. A quorum will be present at the special meeting of HF Group shareholders if a majority of the HF Group common stock issued and outstanding and entitled to vote at the special meeting is represented in person or by proxy. Abstentions present in person and by proxy will count as present for the purposes of establishing a quorum but broker non-votes will not.

 

Approval of the Business Combination Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal will require the affirmative vote of the holders of a majority of the issued and outstanding shares of HF Group common stock entitled to vote thereon as of the record date present in person or represented by proxy at the special meeting, and approval of the Amendment Proposal will require the affirmative vote of the holders of a majority of the issued and outstanding shares of common stock of HF Group. Abstentions present in person and by proxy are considered present for the purposes of establishing a quorum but will have the same effect as a vote “AGAINST” all of the Proposals and, assuming a quorum is present, broker non-votes will have no effect on the Business Combination Proposal and the Nasdaq Proposal, but will be the same as a vote against the Amendment Proposal.

 

Voting Your Shares

 

Each share of HF Group common stock that you own in your name entitles you to one vote for each proposal on which such shares are entitled to vote at the special meeting. Your proxy card shows the number of shares of our common stock that you own.

 

There are two ways to ensure that your shares of HF Group common stock are voted at the special meeting:

 

You can cause your shares to be voted by signing and returning the enclosed proxy card. If you submit your proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted, as recommended by our board, “FOR” the adoption of the Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal. Votes received after a matter has been voted upon at either of the special meetings will not be counted.

 

You can attend the special meetings and vote in person. We will give you a ballot when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your shares.

 

IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF THE BUSINESS COMBINATION PROPOSAL (AS WELL AS THE OTHER PROPOSALS).

 

Revoking Your Proxy

 

If you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:

 

you may send another proxy card with a later date;

 

if you are a record holder, you may notify our corporate secretary in writing before the special meeting that you have revoked your proxy; or

 

you may attend the special meeting, revoke your proxy, and vote in person, as indicated above.

 

Who Can Answer Your Questions About Voting Your Shares

 

If you have any questions about how to vote or direct a vote in respect of your shares of our common stock, you may call [•], our proxy solicitor, at [•], or HF Group at [•].

 

No Additional Matters May Be Presented at the Special Meeting

 

This special meeting has been called only to consider the approval of the Business Combination. Under HF Group’s Amended and Restated Certificate of Incorporation, other than procedural matters incident to the conduct of the special meeting, no other matters may be considered at the special meeting if they are not included in the notice of the special meeting.

 

Proxies and Proxy Solicitation Costs

 

We are soliciting proxies on behalf of our board of directors. This solicitation is being made by mail but also may be made by telephone or in person. HF Group and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. Any solicitation made and information provided in such a solicitation will be consistent with the written proxy statement and proxy card. [•], a proxy solicitation firm that HF Group has engaged to assist it in soliciting proxies, will be paid its customary fee of approximately $[●] and out-of-pocket expenses.

 

HF Group will ask banks, brokers and other institutions, nominees and fiduciaries to forward its proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. HF Group will reimburse them for their reasonable expenses.

 

If you send in your completed proxy card, you may still vote your shares in person if you revoke your proxy before it is exercised at the special meeting.

 

26

 

 

THE BUSINESS COMBINATION PROPOSAL

 

The discussion in this proxy statement of the Business Combination and the principal terms of the Merger Agreement, is subject to, and is qualified in its entirety by reference to, the Merger Agreement. The full text of the Merger Agreement is attached hereto as Annex A, which is incorporated by reference herein.

 

General Description of the Business Combination

 

Business Combination with B&R Global; Business Combination Consideration

 

Merger Sub will merger with and into B&R Global, resulting in B&R Global becoming a wholly owned subsidiary of HF Group. The issuance of shares of HF Group to the post-Business Combination shareholders is being consummated on a private placement basis pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The aggregate value of the consideration to be paid by HF Group in the business combination is approximately $408,310,000 million (calculated as follows: 30,700,000 shares of common stock of HF Group to be issued to the B&R Global shareholders multiplied by $13.30 (the deemed value of the shares in the Merger Agreement)).

 

HF Group currently has authorized share capital of 31,000,000, shares consisting of 30,000,000 shares of common stock with a par value of $0.0001 per share and 1,000,000 shares of preferred stock with a par value of $0.0001 per share.

 

After the Business Combination, HF Group’s current public shareholders will own approximately [●]% of HF Group, HF Group’s current directors, officers and affiliates will own approximately [●]% of HF Group, and the former stockholders of B&R Global will own approximately 58.1% of HF Group.

 

Assuming the Business Combination Proposal is approved, the parties to the transaction expect to close the Business Combination as soon as practicable after the special meeting.

 

Background of the Business Combination

 

Background of the Merger

 

HF Group, previously Atlantic Acquisition Corp., or “Atlantic,” was incorporated in Delaware on May 19, 2016 for the purpose of acquiring, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities. On August 14, 2017, Atlantic completed its initial public offering (“IPO”) of 4,000,000 units, with each unit consisting of one share of common stock, par value $.0001 per share, and one right (“Right”) to receive one-tenth of one share of common stock upon consummation of an initial business combination. Promptly after Atlantic’s IPO, the officers and directors of Atlantic commenced the process of locating potential targets. As more fully described in Atlantic’s proxy statement dated July 16, 2018, pursuant to a merger agreement, Atlantic and HF Group consummated a business combination, whereby HF Group became a wholly-owned subsidiary of Atlantic, the shareholders of HF Group became the holders of a majority of the shares of common stock of Atlantic, and Atlantic changed its name to HF Group.

 

As described herein, HF Group has continually sought to consolidate its market segment by acquiring competitors, including other distributors and wholesalers, to expand its business into untapped regions around the United States, with the goal of eventually growing into a nationwide foodservice distributor. On or about October 1, 2018, Zhou Min Ni, the CEO of HF Group, made an initial telephone call to Peter Zhang, the CEO of B&R Global, to discuss the possibility of a business combination between HF Group and B&R Global. After initial discussions, the parties engaged in several follow up telephone discussions during the next two weeks to determine how best to proceed. HF Group began internal discussions among management regarding the notion of a business combination with B&R Global and what would be necessary to move forward. HF Group’s then CFO, Jian Ming Ni, met to discuss the matter with HF Group’s outside general counsel and longtime corporate counsel, David B. Puryear, Jr. and Robert J. Lingle (“HF Group General Counsel”), of the law firm of Puryear and Lingle, P.L.L.C.

 

On or about November 27, 2018, HF Group and B&R Global entered into a mutual nondisclosure agreement which would allow them to share confidential information in furtherance of considering a business combination. During the following weeks, the parties had numerous discussions and shared financial data allowing them to explore a preliminary formula for a merger, including merger structure and the consideration to be paid. The discussions included the parties’ intent for B&R Global to merge with HF Group and to calculate the consideration to be paid the B&R Global stockholders based upon the ratio of HF Group’s annual EBIDTA to B&R Global’s EBIDTA at the time of the merger.

 

27

 

 

On or about December 21, 2018, Zhou Min Ni and Peter Zhang developed a nonbinding term sheet regarding a possible business combination between HF Group and B&R Global, meant to serve as a letter of intent between the parties. The term sheet was discussed among HF Group’s management team and with the HF Group General Counsel on a number of occasions, and numerous considerations were discussed, including merger structure, consideration, procedures, timeline, and the engagement of specialized counsel.

 

On January 9, 2019, B&R Global engaged Friedman LLP (“Friedman”) as its auditor to audit its financial statements to be provided to HF Group in furtherance of negotiations.

 

On January 10, 2019, B&R Global engaged Musick, Peeler & Garrett LLP (“MPG”) as its legal counsel for the negotiation of the Merger Agreement with HF Group and consummation of the Business Combination.

 

On April 15, 2019, HF Group engaged Loeb and Loeb LLP (“Loeb”) as its legal representative to perform legal due diligence, draft definitive agreements and prepare applicable securities filings relating to the Business Combination.

 

On May 3, 2019, Loeb circulated an internal draft of the Merger Agreement among HF Group management and HF General Counsel. The draft agreement was reviewed and various revisions were made.

 

On May 4, 2019, B&R Global began sharing due diligence documents with HF Group, after which the HF Group team and Loeb began conducting due diligence on B&R Global.

 

On May 14, 2019, Loeb distributed a draft of the Merger Agreement to B&R Global. Comments and revisions between the parties were exchanged on a number of occasions. Loeb also forwarded to B&R Global drafts of ancillary documents and exhibits as they were generated and approved, and the parties exchanged comments and revisions as to these documents on a number of occasions as well.

 

An execution version of the Merger Agreement was prepared by Loeb on or about June 19, 2019. The next day, the HF Group Board of Directors (the “HF Group Board”) unanimously entered a consent resolution authorizing HF Group to enter into the Merger Agreement, which had been reviewed by the board in substantially final form, and approving all the terms and provisions thereof, declaring the advisability of the transactions contemplated by the Merger Agreement and finding that same were in the best interests of the HF Group shareholders.

 

On June 20, 2019, Loeb forwarded the final version of the Merger Agreement to B&R Global.

 

On June 21, 2019, B&R Global’s Board of Directors executed a unanimous written consent approving the terms and provisions of the Merger Agreement and authorizing B&R Global to enter into the Merger Agreement.

 

That same day, the Merger Agreement was formally executed by all parties.

 

HF Group filed a Current Report on Form 8-K with the SEC on June 25, 2019, which detailed the Merger Agreement and summarized the key terms of the deal.

 

On July 25, 2019, B&R Global’s auditor, Friedman, issued an audit report for B&R Global’s financial statements and footnotes for the two years ended December 31, 2017 and 2018.

 

The combined business will serve more than 10,000 restaurants in 21 states and had revenues in excess of $800 million in 2018. The closing of the Merger Agreement is subject to customary closing conditions and is expected to close in the third quarter of 2019.

 

HF Group’s Board’s Reasons for the Approval of the Merger

 

In the course of evaluating the Merger Agreement and the transactions contemplated thereby, including the issuance of HF Group common stock, the HF Group Board consulted with HF Group management and HF Group’s legal advisors and considered a number of factors in reaching its decision to approve the Merger Agreement and the transactions contemplated thereby, including the issuance of HF Group common stock, which included the following (not in order of relative importance):

 

 

Establishes a Leading Asian Food Distribution Company with Enhanced Position and Large Market Opportunity. Combining HF Group and B&R Global is expected to create a sustainable, Asian cuisine focused food and restaurant supplies distribution leader that is well positioned to be a partner of choice throughout the Asian restaurant community on a nationwide basis.

 

28

 

 

 

Expanded and Complementary Asian Restaurants Clientele Portfolio. Upon consummation of the Merger, the combined company will have the potential to offer food and supply distribution options to Asian restaurant owners across a wide swath of US territory.

 

 

Financial Strength and Opportunities. Based on the unaudited pro forma cash and cash equivalent balance as of March 31, 2019, the combined company is expected to have a balance of approximately $18.7 million in cash and cash equivalents. This cash and cash equivalent balance, along with the expected cost synergies to be realized following closing, and the potential for increasing revenues from new products, are expected to provide the combined company with significant financial strength and flexibility to enable continued growth.

 

 

Significant Synergy Potential. The combined company will bring together HF Group, with operations serving Asian restaurant customers throughout the southeastern United States, with B&R Global, with operations serving Asian restaurants throughout the western United States. Although the main clientele of B&R Global, like HF Group, is Chinese restaurants, B&R Global is actively expanding into pan-Asian restaurants, high-end seafood restaurants, and Japanese restaurants. The HF Group board believes the business combination will enjoy a synergy of operations between the pre-merger entities and provide HF Group with additional competitive strength in the marketplace, given B&R Global’s existing market share, its large array of products, and its procurement system and delivery network, and the HF Group Board expects the Merger will result in stronger negotiation power with vendors and increased cost efficiency with larger economies of scale.

 

 

Experienced Management Team. The combined company will be led by a management team with a long track record of success supplying products for owners of Chinese cuisine restaurants and other restaurants serving Asian cuisine and seafood. Mr. Ni, HF Group’s President and Chief Executive Officer, and Mr. Zhang, B&R Global’s Chief Executive Officer, will lead the combined company as Co-Chief Executive Officers. Mr. Ni and Mr. Zhang both have more than two decades of accomplished executive experience in the Asian restaurant supply field.

 

 

Representation on the HF Group Board. The fact that Mr. Ni will serve as Chairman of the board of the combined company and will designate another independent director, the fact that Mr. Zhang will serve as a board member and will designate another independent director, and the fact that Mr. Ni and Mr. Zhang will jointly designate a fifth, independent director;

 

 

Participation in Potential Appreciation. After giving effect to the Merger, HF Group shareholders will own approximately 41.9% of the combined company based on the companies’ fully diluted market capitalizations as of the signing of the Merger Agreement, and as a result, HF Group shareholders would participate in the future growth of the combined company after the consummation of the Merger;

 

 

Knowledge of HF Group’s and B&R Global’s Businesses and Financial Condition. The HF Group Board’s knowledge of HF Group’s business, financial condition, results of operations and prospects, as well as B&R Global’s business, financial condition, results of operations and prospects, taking into account the discussions of HF Group management with B&R Global management and the results of HF Group’s due diligence review of B&R Global, which included review of historical financial results and projections, existing agreements, contingent liabilities and legal and other matters, and the subsequent recommendation of the Merger by HF Group management;

 

 

Terms of the Merger Agreement. The terms and conditions of the Merger Agreement, including:

 

 

i.

Fixed Share Consideration. The fact that the Merger Consideration is based on a fixed share consideration as set forth in the Merger Agreement provides certainty as to the number of HF Group Shares that will be issued to the B&R Global stockholders;

 

 

ii.

Conditions to Consummation of the Merger. The limited number and nature of the conditions to the parties’ obligations to complete the Merger and the belief of the HF Group Board of the likelihood of satisfying such conditions;

 

29

 

 

 

iii.

Opportunity to Vote. HF Group shareholders will have an opportunity to vote on the issuance of the HF Group Shares in connection with the Merger;

 

 

iv.

Consideration of Alternatives. The HF Group Board had considered certain alternatives to the Merger and determined that entering into the Merger Agreement was more favorable to HF Group shareholders than other alternatives available to HF Group, including continued operation of HF Group on a standalone basis or the pursuit of potential alternative transactions; and

 

 

v.

Likelihood of Completing the Merger. The likelihood of completing the Merger on the anticipated schedule.

 

The HF Board also considered various risks and other potentially negative factors concerning the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the issuance of HF Group common stock, which included the following factors:

 

 

the challenges inherent in combining the businesses, operations and workforces of HF Group and B&R Global, including: (i) the possible diversion of management focus and resources from operational matters and other strategic opportunities and (ii) difficulties in integrating and retaining management employees, including from the two companies’ respective labor groups, as well as the potential effect the challenges inherent in combining the businesses, operations and workforces of HF Group and B&R Global could have on HF Group’s business and relations with partners, and suppliers;

 

 

the fact that forecasts of future results of operations and synergies are necessarily estimates based on assumptions;

 

 

the risk of not realizing anticipated synergies and cost savings between HF Group and B&R Global and the risk that other anticipated benefits might not be realized;

 

 

the fact that HF Group shareholders will be sharing participation of HF Group’s potential growth with the B&R Global stockholders after the consummation of the Merger;

 

 

the possibility that the Merger might not be completed, or that completion might be unduly delayed, including as a result of HF Group’s or B&R Global’s shareholders failing to grant the requisite approvals to consummate the Merger, and the potential negative impact that may have on HF Group’s business and relationships with employees, customers, suppliers and the communities in which it operates;

 

 

the substantial costs to be incurred in connection with the Merger, including the cash and other costs of integrating the businesses of HF Group and B&R Global, as well as the transaction expenses arising from the Merger;

 

 

the terms of the Merger Agreement, including generally reciprocal covenants relating to (i) the two companies’ conduct of their respective businesses during the period between the signing of the Merger Agreement and the completion of the Merger, and (ii) the restrictions on the two companies’ ability to solicit alternative transaction proposals; and

 

 

the other factors described in the section entitled “Risk Factors” and the matters described under “Special Note Regarding Forward-Looking Statements”.

 

The above discussion of the factors considered by the HF Group Board is not intended to be exhaustive, but does set forth material factors considered by the HF Group Board in evaluating the Merger Agreement and the transactions contemplated thereby. In light of the wide variety of factors considered in connection with its evaluation of the Merger Agreement and the transactions contemplated thereby, including the issuance of HF Group common stock, and the complexity of these matters, the HF Group Board did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative or specific weight or values to any of these factors, and individual directors may have held varied views of the relative importance of the factors considered. The HF Group Board viewed its position and recommendation as being based on an overall review of the totality of the information available to it and considered these factors in the aggregate to be favorable to, and to support, its determination regarding the Merger and the issuance of HF Group common stock.

 

This explanation of the HF Group Board’s reasons for approving the Merger and the other transactions contemplated by the Merger Agreement, including the issuance of HF Group common stock, and other information presented in this section is forward-looking in nature and should be read in light of the section of this proxy statement entitled “Special Note Regarding Forward-Looking Statements” beginning on page [23] of this proxy statement.

 

30

 

 

B&R Global’s historical financial results are shown in the following table:

 

Actual Financial Results

(dollars in millions)

(unaudited)

 

   

For Years ended December 31,

 
   

2017

   

2018

 
   

Actual

   

Actual

 
                 

Net revenue

  $ 503.4     $ 527.0  

Growth of revenue

            4.69

%

Net income attributable to B&R Global

  $ 17.7     $ 20.4  

Pro Forma net income attributable to B&R Global(1)

  $ 10.8     $ 15.2  

Growth of net income attributable to B&R Global

            40.7

%

Adjusted EBITDA

  $ 21.4     $ 24.5  

Growth of Adjusted EBITDA

            14.5

%

 

(1) Prior to January 1, 2019, 18 of the subsidiaries elected to be taxed as pass-through entities. B&R Global converted to a C corporation as of January 1, 2019. Pro forma net income attributable to B&R Global was calculated with consideration of the income tax effect as if all the B&R Global's subsidiaries were taxed as C Corporation since January 1, 2018.

 

For additional information on Adjusted EBITDA, see the section titled “Management/s Discussion and Analysis of Financial Condition and Results of Operations of B&R Group – Adjusted EBTIDA” beginning on page [70].

 

Recommendation of HF Group’s Board

 

After careful consideration, the HF Group Board determined that the Business Combination with B&R Global is in the best interests of HF Group and its shareholders. On the basis of the foregoing, HF Group’s board has approved and declared advisable the Business Combination with B&R Global and recommends that you vote or give instructions to vote “FOR” each of the Business Combination Proposal and the other proposals.

 

The board of directors recommends a vote “FOR” each of the Business Combination Proposal and the other proposals.

 

Anticipated Accounting Treatment

 

The Business Combination will be accounted for using the acquisition method of accounting under the provisions of Accounting Standards Codification 805, “Business Combinations”. HF Group will be considered the accounting acquirer.  The assets and liabilities and results of operations of B&R Global will be consolidated into the results of operations of HF Group as of the completion of the Business Combination.

 

Regulatory Approvals

 

The Business Combination and the other transactions contemplated by the Merger Agreement are not subject to any additional federal or state regulatory requirements or approvals, except for (1) the Hart-Scott Rodino Antitrust Improvements Act of 1976 and (2) filings with the State of Delaware necessary to effectuate the transactions contemplated by the Merger Agreement.

 

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THE MERGER AGREEMENT

 

The following is a summary of the material provisions of the Merger Agreement, a copy of which is attached as Annex A to this proxy statement. You are encouraged to read the Merger Agreement in its entirety for a more complete description of the terms and conditions of the Merger.

 

Business Combination with B&R Global; Merger Consideration

 

Upon the closing of the transactions contemplated in the Merger Agreement, HF Group will acquire 100% of the issued and outstanding securities of B&R Global, in exchange for 30,700,000 shares of HF Group Common Stock. We refer to this transaction as the “Business Combination.”

 

Representations and Warranties

 

In the Merger Agreement, B&R Global makes certain representations and warranties (with certain exceptions set forth in the disclosure schedules to the Merger Agreement) relating to, among other things: (a) proper corporate organization of B&R Global and its subsidiaries and similar corporate matters; (b) authorization, execution, delivery and enforceability of the Merger Agreement and other transaction documents; (c) absence of conflicts; (d) capital structure; (e) accuracy of charter and governing documents; (f) affiliate transactions; (g) required consents and approvals; (h) financial information; (i) absence of certain changes or events; (j) title to assets and properties; (k) material contracts; (l) insurance; (m) licenses and permits; (n) compliance with laws, including those relating to foreign corrupt practices and money laundering; (o) ownership of intellectual property; (p) employment and labor matters; (q) taxes and audits; (r) environmental matters; (s) brokers and finders; and (t) other customary representations and warranties.

 

In the Merger Agreement, HF Group makes certain representations and warranties relating to, among other things: (a) proper corporate organization and similar corporate matters; (b) authorization, execution, delivery and enforceability of the Merger Agreement and other transaction documents; (c) brokers and finders; (d) capital structure; (e) validity of share issuance; (f) SEC documents and financial statements; (g) certain business practices; (h) litigation; (i) money laundering laws and OFAC; and (h) corporate records.

 

Conduct Prior to Closing; Covenants

 

B&R Global has agreed to operate its business in the ordinary course prior to the closing of the Merger (with certain exceptions) and not to take certain specified actions without the prior written consent of HF Group.

 

HF Group has agreed to operate its business in the ordinary course prior to the closing of the Merger (with certain exceptions) and not to take certain specified actions without the prior written consent of B&R Global.

 

The Merger Agreement also contains certain customary covenants, including covenants relating to: (a) each party providing access to their books and records; (b) each party using their best efforts to complete the transactions contemplated by the Merger Agreement; and (c) B&R Global being required to deliver the financial statements required by HF Group to make applicable filings with the SEC.

 

Conditions to Closing

 

General Conditions

 

Consummation of the merger is conditioned on, among other things, (a) the absence of any order, stay, judgment or decree by any government agency; (b) the absence of any action brought by third-party non-affiliate to enjoin, modify, amend or prohibit the merger; and (c) the execution and delivery of the Additional Agreements as defined in the Merger Agreement.

 

B&R Global’s Conditions to Closing

 

The obligations of B&R Global to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described above, are conditioned upon, among other things, each of the following:

 

 

HF Group complying with all of its obligations required to be performed pursuant to the covenants in the Merger Agreement;

 

 

the representations and warranties of HF Group being true on and as of the closing date of the merger;

 

32

 

 

 

absence of material adverse effect; and

 

 

delivery of a closing certificate signed by the Chief Executive Officer and Chief Financial Officer of HF Group.

 

HF Group’s Conditions to Closing

 

The obligations of HF Group to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described above in the first paragraph of this section, are conditioned upon, among other things, each of the following:

 

 

B&R Global complying with all of its obligations required to be performed pursuant to the covenants in the Merger

Agreement;

 

 

the representations and warranties of B&R Global being true on and as of the closing date of the merger;

 

 

absence of material adverse effect;

 

 

delivery of a closing certificate signed by the Chief Executive Officer and Chief Financial Officer of B&R Global, all required third party consents, governmental approvals, and updated disclosure schedules;

 

 

B&R Global’s completion of the Restructuring as defined in the Merger Agreement;

 

 

HF Group completing its due diligence review of B&R Global; and

 

 

Approval by the majority of HF Group’s stockholders as set forth herein.

 

Termination

 

The Merger Agreement may be terminated and/or abandoned at any time prior to the closing by:

 

 

the mutual written agreement of HF Group and B&R Global;

 

 

HF Group, if the closing has not occurred on or prior to December 31, 2019, provided that HF Group is not in breach of any of its obligations under the Merger Agreement, or on 30 days’ notice if B&R Global is in material breach of the Merger Agreement; or

 

 

B&R Global, if the closing has not occurred on or prior to December 31, 2019, provided that B&R Global is not in breach of any of its obligations under the Merger Agreement, or on 30 days’ notice if HF Group is in material breach of the Merger Agreement.

 

Effect of Termination

 

In the event of termination and abandonment by either HF Group or B&R Global, all further obligations of the parties shall terminate.

 

Indemnification

 

B&R Global and its shareholders will jointly and severally indemnify HF Group for (a) any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties and covenants of B&R Global, (b) any actions by any third parties with respect to the business (including breach of contract claims, violations of warranties, trademark infringement, privacy violations, torts or consumer complaints) for any period on or prior to the closing date (c) the violation of any laws in connection with or with respect to the operation of the business on prior to the closing date, (d) any claims by any employee of B&R Global with respect to any period or event occurring on or prior to the closing date, (e) the failure of B&R Global to pay any taxes or to file any tax return with respect to any pre-closing period, or (f) any sales, use, transfer or similar tax imposed on HF Group as a result of any transaction contemplated by the Merger Agreement. The indemnification shall survive for a period of 12 months following the closing. 5% of the consideration shares will be held in escrow for purposes of satisfying the indemnification obligations of the stockholders, with such shares being valued at the time of such indemnification payment at the volume weighted average closing price of HF Group common stock on NASDAQ for the 20 trading days prior to such indemnification payment date.

 

33

 

 

The foregoing summary of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the actual agreement, which is filed as Annex A hereto.

 

Escrow Agreement

 

In connection with the Merger, HF Group, B&R Global, Xiao Mou Zhang, as representative of the B&R Global stockholders, and [•], as escrow agent, will enter into an Escrow Agreement, pursuant to which HF Group shall deposit shares of HF Group common stock, representing 5% of the aggregate amount of shares to be issued to the B&R Global stockholders pursuant to the Merger, to secure the indemnification obligations of the B&R Global stockholders as contemplated by the Merger Agreement.

 

Tag-Along Agreement

 

In connection with the Merger, HF Group and the B&R Global stockholders will enter into a Tag-Along Agreement, which will provide the B&R Global stockholders with tag-along rights in the event a B&R Global stockholder desires to sell his or her HF Group securities in a sale transaction. The form of Tag-Along Agreement that was attached as an exhibit to the Merger Agreement is attached to this proxy statement as Annex B.

 

Registration Rights Agreement 

 

In connection with the Merger, HF Group and the B&R Global stockholders will enter into a Registration Rights Agreement to provide for the registration of the common stock being issued to the B&R Global stockholders in connection with the Business Combination. The B&R Global stockholders will be entitled to “piggy-back” registration rights with respect to registration statements filed following the consummation of the Business Combination, as well as certain demand rights. HF Group will bear the expenses incurred in connection with the filing of any such registration statements. The form of Registration Rights Agreement that was attached as an exhibit to the Merger Agreement is attached to this proxy statement as Annex C.

 

Voting Agreement

 

In connection with the Merger, HF Group, B&R Global, and certain of the B&R Global stockholders will enter into a five year Voting Agreement, which will provide that, immediately after the closing of the Business Combination, (i) Zhou Min Ni, the current Chief Executive Officer of HF Group, shall serve as a director and the chairman of the board; (ii) Xiao Mou Zhang, the current Chief Executive Officer of B&R Global, shall serve as a director; (iii) Zhou Min Ni shall select one person to serve as an independent director, (iv) Xiao Mou Zhang shall select one person to serve as an independent director, and (v) Zhou Min Ni and Xiao Mou Zhang shall jointly select one person to serve as an independent director. The form of Voting Agreement that was attached as an exhibit to the Merger Agreement is attached to this proxy statement as Annex D.

 

Employment Agreements

 

In connection with the Merger, HF Group will enter into separate employment agreements with each of Xiao Mou Zhang, Ling Fang Yang and Sha J. Zhang.

 

34

 

 

THE AMENDMENT PROPOSAL

 

Overview

 

In order to effectuate the transactions contemplated by the Merger Agreement, HF Group must increase its number of authorized shares of common stock. The board of directors has requested that HF Group’s stockholders authorize the issuance of up to [•] shares of common stock. If this proposal is not approved, the transaction with B&R Global will not be able to be consummated because HF Group will not have sufficient authorized shares to issue to the B&R Global stockholders in consideration of the Business Combination.

 

HF Group will need approximately [●] authorized shares of common stock to pay the initial consideration to the B&R Global stockholders at the closing of the Business Combination. By authorizing up to [●] shares, the combined company will have flexibility to execute its business plan by having an adequate number of authorized but unissued shares of common stock available to facilitate potential equity financings, acquisitions, business combinations, stock dividends, stock options, stock splits, recapitalizations and other general corporate purposes, without the expense or delay attendant in seeking stockholder approval at a special or annual meeting at a time when such shares would be needed (except as may be required by law or by any stock exchange on which our securities may then be listed).

 

In addition the amendment will add provisions requiring that certain actions of the Board of Directors require a two-thirds vote of the Board of Directors to approve.  These provisions are being added to insure that at least one director from both HF Foods and B&R Global will be required to take the specified actions.

  

Comparison of Current Certificate of Incorporation to Proposed Certificate of Amendment to Amended and Restated Certificate of Incorporation, in Connection with the Amendment Proposal

 

The following table sets forth a summary of the change proposed to be made between our Current Certificate of Incorporation and the Proposed Certificate of Amendment to our Amended and Restated Certificate of Incorporation if the Amendment Proposal is approved.

 

 Article in Current Certificate of Incorporation

   

Current Certificate of Incorporation

   

Proposed Certificate of Amendment to Amended and Restated Certificate of Incorporation

 
           

 Article FOURTH

 

“FOURTH: The name and mailing address of the incorporator is: Jaszick Maldonado, c/o Loeb & Loeb LLP, 345 Park Avenue, New York NY 10154.”

 

Removed

 
           

Article FIFTH: 

 

“FIFTH. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 31,000,000, of which 30,000,000 shares will be common stock, par value $.0001 per share (“Common Stock”) and 1,000,000 shares shall be preferred stock, par value $.001 per share (“Preferred Stock”).”

 

”FOURTH. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is [•], of which [•] shares will be common stock, par value $.0001 per share (“Common Stock”) and 1,000,000 shares shall be preferred stock, par value $.001 per share (“Preferred Stock”).”

 
           

Article SIXTH

 

This Article contains provisions that are no longer applicable to HF Foods; they relate to the period when HF Foods was a Spacial Purpose Acquisition Company.

 

Removed

 
           

No Current equivalent provision

 

None.

 

E.     Each director present in person shall have one vote at each Board meeting, and all decisions of the directors shall be passed by simple majority vote, provided, however, that the following acts of the Corporation or any of its subsidiaries, whether in a single transaction or series of related transactions, whether directly or indirectly and whether or not by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, must be passed by a two-thirds (2/3) vote of the Board:

 

1.     alter any provision of the Certificate of Incorporation or the Bylaws of the Corporation (including pursuant to a merger);

 

2.     any increase, decrease or cancellation of any authorized, issued, or outstanding shares of the Corporation or its subsidiaries, or any issuance, distribution, purchase or redemption of any share, convertible security or warrant or any issuance of option, except for any such action under the terms of any existing stock or option plan;

 

3.     increase the number of shares authorized for issuance under any existing stock or option plan or create any new stock or option plan;

 

4.     any action that results in the payment or declaration of a dividend or other distribution on any Common Stock or Preferred Stock;

 

 

35

 

 

       

5.     approve any liquidation, winding up or dissolution of the Corporation or any of its subsidiaries or majority-owned affiliates;

 

6.     approve or effect any merger, reorganization, consolidation or amalgamation of the Corporation or any of its subsidiaries or majority-owned affiliates with any other entity or entities or any spin-off, sub-division, or any other transaction of a similar nature or having a similar economic effect as any of the foregoing, or other forms of restructuring of the Corporation or any of its subsidiaries;

 

7.     create, issue or authorize the creation or issuance of any debt security, or permit any subsidiary to take any such action with respect to any debt security, if the aggregate indebtedness of the Corporation and its subsidiaries for borrowed money following such action would exceed $500,000 and such debt is not already included in a budget approved by the Board of Directors of the Corporation, other than trade debt or payables incurred in the ordinary course of business;

 

8.     any action that results in the Corporation selling, transferring or otherwise disposing of any capital stock of any direct or indirect subsidiary of the Corporation, or permitting any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary;

 

9.     make any change to the nature or scope of the business purpose of the Corporation or acquire any businesses which are not related to the business purpose of Corporation in a material manner;

 

10.     Change the name of the Corporation or the location of its principal office to a location outside the state of its current location;

 

11.     any appointment of, removal of, or substantial limitation or infringement of the scope of authority, management responsibilities, or access to Corporation facilities or records of the president, chief executive officer, chief financial officer, chief operating office, or other officer of the Corporation having the title of no less than Vice President;

 

12.     approve any compensation increase in excess of more than fifteen percent (15%) in a twelve (12) month period afforded to any of the five (5) highest paid employees of the Corporation and its subsidiaries and majority-owned affiliates;

 

13.     approve any new loans to any affiliate, officer, director, board member, employee, or holder of any equity security of the Corporation or its subsidiaries, and any affiliate or associate of any of the foregoing (collectively, “Related Party”);

 

14.     approve any transaction or series of transactions (including but not limited to the termination, extension, continuation after expiry, renewal, amendment, variation or waiver of any term under agreement with respect to any transaction or series of transactions) with any Related Party involving payments in excess of $100,000 individually or in the aggregate other than the transaction incurred in the ordinary course of business;

 

 

36

 

 

       

15.     approve any material deviation from or material amendment of, the annual budget of the Corporation or its subsidiary;

 

16.     the appointment or removal of the auditors or the auditors for the Corporation or its subsidiaries, or the change of the term of the fiscal year for the Corporation or its subsidiaries;

 

17.     any adoption of or change to, a significant tax or accounting practice or policy or any internal financial controls and authorization policies, or the making of any significant tax or accounting election

 

18.     sell, assign, pledge, or encumber material property or intellectual property;

 

19.     transfer or dispose of any stock of any subsidiary or majority owned affiliate, or permit any subsidiary or majority-owned affiliate to transfer or dispose of all or substantially all its assets or license a substantial portion of the Corporation’s intellectual properties to any Person for use on an exclusive basis; or

 

20.     any action to authorize, approve or enter into any agreement or obligation with respect to any action listed above.

 

 

If stockholder approval is not obtained for the Amendment Proposal, we will not complete the Business Combination because stockholder approval of the Amendment Proposal is a condition to completion of the Business Combination and because we do not currently have a sufficient number of authorized shares to consummate the Business Combination.

 

We do not have any arrangements, commitments or understandings to issue any shares of our capital stock except in connection with the Business Combination, the 2018 Equity Incentive Plan and our currently outstanding warrants.

 

While it may be deemed to have potential anti-takeover effects, this proposal to increase our authorized common stock and preferred stock is not prompted by any specific effort or takeover threat currently perceived by management.

 

Required Vote

 

Approval of the Amendment Proposal requires the affirmative vote of the holders of a majority of the shares of HF Group common stock.

 

Board Recommendation

 

The board of directors recommends a vote “FOR” adoption of the Amendment Proposal.

 

37

 

 

THE NASDAQ PROPOSAL

 

Background and Overview

 

Under the terms of the Merger Agreement, HF Group is required to issue more than 20% of its issued and outstanding shares of common stock to the B&R Global stockholders. Because of the issuance of in excess of 20% of the outstanding shares of common stock of HF Group, we are required to obtain stockholder approval in order to comply with Nasdaq Listing Rules 5635(a) and (d).

 

Under Nasdaq Listing Rule 5635(a), stockholder approval is required prior to the issuance of securities in connection with the acquisition of another company if such securities are not issued in a public offering and (A) such securities have, or will have upon issuance, voting power equal to or in excess of 20% of the voting power outstanding before the issuance of common stock (or securities convertible into or exercisable for common stock); or (B) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the stock or securities.

 

Under Nasdaq Listing Rule 5635(d), stockholder approval is required for a transaction other than a public offering involving the sale, issuance or potential issuance by an issuer of common stock (or securities convertible into or exercisable for common stock) at a price that is less than the greater of book or market value of the stock if the number of shares of common stock to be issued is or may be equal to 20% or more of the common stock, or 20% or more of the voting power, outstanding before the issuance.

 

Effect of Proposal on Current Stockholders

 

If the Nasdaq Proposal is adopted, HF Group would issue shares representing more than 20% of its outstanding common stock in connection with the Business Combination. The issuance of such shares would result in significant dilution to the HF Group stockholders and would afford such stockholders a smaller percentage interest in the voting power, liquidation value and aggregate book value of HF Group.

 

If the Nasdaq Proposal is not approved and we consummate the Business Combination on its current terms, HF Group would be in violation of Nasdaq Listing Rule 5635(a) and potentially Nasdaq Listing Rule 5635(d), which could result in the delisting of our securities from the Nasdaq Capital Market. If Nasdaq delists our securities from trading on its exchange, we could face significant material adverse consequences, including:

 

 

a limited availability of market quotations for our securities;

 

 

 

 

reduced liquidity with respect to our securities;

 

 

 

 

a determination that our shares are a “penny stock,” which will require brokers trading in our securities to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our securities;

 

 

 

 

a limited amount of news and analyst coverage for the post-transaction company; and

 

 

 

 

a decreased ability to issue additional securities or obtain additional financing in the future.

 

Required Vote

 

Approval of the Nasdaq Proposal requires the affirmative vote of the holders of a majority of the shares of HF Group common stock represented in person or by proxy at the special meeting of HF Group stockholders and entitled to vote thereon.

 

Board Recommendation

 

The board of directors recommends a vote “FOR” adoption of the Nasdaq Proposal.

 

38

 

 

THE BUSINESS COMBINATION ADJOURNMENT PROPOSAL

 

Purpose of the Business Combination Adjournment Proposal

 

In the event there are not sufficient votes for, or otherwise in connection with, the adoption of the Merger Agreement and the transactions contemplated thereby, the HF Group board of directors may adjourn the special meeting to a later date, or dates, if necessary, to permit further solicitation of proxies.

 

Required Vote

 

Approval of the Business Combination Adjournment Proposal requires the affirmative vote of the majority of the holders of HF Group common stock as of the record date represented in person or by proxy at the special meeting of HF Group shareholders and entitled to vote thereon. Adoption of the Business Combination Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.

 

Board Recommendation

 

The board of directors recommends a vote “FOR” adoption of the Business Combination Adjournment Proposal.

 

39

 

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF B&R GLobal holdings, Inc.  

 

The following table sets forth selected historical financial information derived from B&R Global’s audited consolidated financial statements for the years ended December 31, 2018 and 2017, and for each of the three-month periods ending March 31, [2019] and March 31, [2018] has been derived from B&R Global’s unaudited condensed consolidated financial statements for such periods, which are included elsewhere in this proxy statement.

 

The information is only a summary and should be read in conjunction with B&R Global’s consolidated financial statements and related notes, and “B&R Global Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere herein. The historical results included below and elsewhere in this proxy statement are not indicative of the future performance of B&R Global or HF Group.

 

   

For the Three Months Ended

   

For the Years Ended

 
   

March 31,

   

December 31,

 
   

2019

   

2018

   

2018

   

2017

 
                                 

Net revenue

    134,154,344       136,379,467       526,974,506       503,362,450  

Cost of sales

    112,379,345       115,500,002       441,917,690       427,717,346  

Gross profit

    21,774,999       20,879,465       85,056,816       75,645,104  

Distribution, selling and administrative expenses

    15,906,481       14,936,281       63,074,257       55,079,623  

Income from operations

    5,868,518       5,943,184       21,982,559       20,565,481  

Interest expenses and bank charges

    (461,319

)

    (580,763

)

    (1,368,627

)

    (1,423,933

)

Other income (expense)

    115,913       (33,464

)

    188,726       (1,103,817

)

Income before income tax provision

    5,523,112       5,328,957       20,802,658       18,037,731  

Provision for income taxes

    1,669,733       47,865       151,806       85,527  

Net income

    3,853,379       5,281,092       20,650,852       17,952,204  

Less: net income attributable to noncontrolling interest

    125,258       19,839       272,595       248,605  

Net income attributable to HF Group Holding Corporation

  $ 3,728,121     $ 5,261,253     $ 20,378,257       17,703,599  
                                 

Cash Flow Data:

                               

Net cash provided by operating activities

  $ 12,225,543     $ 11,817,158     $ 15,301,659     $ 5,737,571  

Net cash used in investing activities

  $ (497,122

)

  $ (1,325,951

)

  $ (2,790,802

)

  $ (4,246,304

)

Net cash used in financing activities

  $ (8,230,459

)

  $ (10,266,761

)

  $ (12,401,355

)

  $ (3,058,627

)

 

   

March 31,

   

December 31,

 

Balance Sheet Data:

 

2019

   

2018

   

2017

 

Cash

  $ 11,800,733     $ 8,302,104     $ 8,192,602  

Total assets

  $ 138,470,023     $ 122,438,924     $ 112,278,385  

Total liabilities

  $ 109,083,069     $ 96,869,600     $ 88,652,137  

Total shareholders’ equity

  $ 29,386,954     $ 25,569,324     $ 23,626,248  

 

40

 

 

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

HF Group is providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the transactions.

 

The following unaudited pro forma condensed combined balance sheet as of March 31, 2019 combines the unaudited historical condensed consolidated balance sheet of HF Group as of March 31, 2019 with the unaudited historical condensed consolidated balance sheet of B&R Global as of March 31, 2019, giving effect to the transactions as if they had been consummated as of that date.

 

The following unaudited pro forma condensed combined income statement for the year ended December 31, 2018 combines the audited historical consolidated statement of income of HF Group for the year ended December 31, 2018 with the audited historical consolidated statement of income of B&R Global for the year ended December 31, 2018, giving effect to the transactions as if they had been consummated as of January 1, 2018.

 

The historical financial information has been adjusted to give effect to pro forma events that are related and/or directly attributable to the transactions, are factually supportable and are expected to have a continuing impact on the combined results. The adjustments presented on the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the transactions.

 

The historical financial information of B&R Global was derived from the audited consolidated financial statements of B&R Global for the year ended [December 31, 2018] included elsewhere in this proxy statement. The historical financial information of HF Group was derived from the audited financial statements of HF Group for the year ended [December 31, 2018] included elsewhere in this proxy statement. This information should be read together with B&R Global’s and HF Group’s audited financial statements and related notes, “B&R Global Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Other Information Related to HF GroupHF Group’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this proxy statement.

 

The unaudited pro forma condensed combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience. HF Group and B&R Global have not had any historical relationship prior to the transactions. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

 

HF Group will be considered the accounting acquirer.  The assets and liabilities and results of operations of B&R Global will be consolidated into the results of operations of HF Group as of the completion of the Business Combination.

 

   

HF

Group

Historical

   

B&R Global

 

Historical

   

Pro Forma

Adjustment

   

Pro Forma

Unaudited,

Combined

 
                                 

Three Months ended March 31, 2019

                               

Net revenue

  $ 74,801,022     $ 134,154,344             $ 208,955,366  

Gross profit

  $ 12,706,856     $ 21,774,999             $ 34,481,855  

Net income attributable to common shareholders

  $ 1,672,813     $ 3,728,121             $ 5,400,934  

Net income per share - basic and diluted

  $ 0.08     $ 0.56             $ 0.10  

Equivalent pro forma earnings per share of B&R Global – basic and diluted (1)

                          $ 0.47  
                                 

Year ended December 31, 2018

                               

Net revenue

  $ 291,006,698     $ 526,974,506             $ 817,981,204  

Gross profit

  $ 49,565,549     $ 85,056,816             $ 134,622,365  

Net income attributable to common shareholders

  $ 6,286,455     $ 20,378,257       (5,173,024

)(2)

  $ 21,491,688  

Net income per share – basic and diluted

  $ 0.30       3.08             $ 0.41  

Equivalent pro forma earnings per share of B&R Global – basic and diluted (1)

                          $ 1.87  
                                 

As of March 31, 2019

                               

Cash

  $ 6,897,354     $ 11,800,733             $ 18,698,087  

Total assets

  $ 87,681,108     $ 138,470,023             $ 226,151,131  

Total liabilities

  $ 51,426,054     $ 109,083,069             $ 160,509,123  

Total shareholders’ equity

  $ 36,255,054     $ 29,386,954             $ 65,642,008  

 

(1) Equivalent pro forma net earnings per share was calculated by multiplying the share exchange ratio between HF Group and B&R Global (approximately 4.6/1=30,700,000/6,665,516) by pro forma net income per share.

 

(2) Prior to January 1, 2019, 18 of the subsidiaries of B&R Global elected to be taxed as pass-through entities. B&R Global converted to C corporation as of January 1, 2019. Pro forma net income attributable to common stockholders of B&R Global was calculated with consideration of the income tax effect as if all of the subsidiaries were taxed as C Corporation since January 1, 2018.        

                                                                                                 

See pro forma condensed combined financial statements and related notes in “Unaudited Pro Forma Condensed Combined Financial Statements” included elsewhere in this proxy statement.

 

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COMPARATIVE PER SHARE DATA

 

The following table sets forth the per share data of HF Group for the three months ended March 31, 2019 and the year ended December 31, 2018 on a stand-alone basis, and the unaudited pro forma combined per share ownership information of HF Group and B&R Global after giving effect to the transactions.

 

This information is only a summary and should be read together with the selected historical financial information summary included elsewhere in this proxy statement, and the historical financial statements of HF Group and B&R Global and related notes that are included elsewhere in this proxy statement. The unaudited HF Group and B&R Global pro forma combined per share information is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements and related notes included elsewhere in this proxy statement.

 

The unaudited pro forma combined earnings per share information below does not purport to represent the earnings per share which would have occurred had the companies been combined during the periods presented, nor earnings per share for any future date or period. The unaudited pro forma combined book value per share information below does not purport to represent what the value of HF Group and B&R Global would have been had the companies been combined during the period presented.

 

   

HF Group

Historical

   

B&R Global

Holdings

Historical

   

Pro Forma

Adjustment

   

Pro Forma

Unaudited,

Combined

 
                                 

Three Months ended March 31, 2019

                               

Net income attributable to common shareholders

  $ 1,672,813     $ 3,728,121             $ 5,400,934  

Weighted Average Shares Outstanding — Basic and Diluted

    22,167,486       6,622,093       24,077,907 (4)      52,867,486  

Earnings Per Share – Basic and Diluted

  $ 0.08     $ 0.56             $ 0.10  

Equivalent pro forma earnings per share of B&R Global – basic and diluted (1)

                          $ 0.47  
                                 

Year ended December 31, 2018

                               

Net income attributable to common shareholders

  $ 6,286,455     $ 20,378,257       (5,173,024

)(5)

  $ 21,491,688  

Weighted Average Shares Outstanding — Basic and Diluted

    22,167,486       6,622,093       24,077,907 (4)      52,867,486  

Earnings Per Share – Basic and Diluted

  $ 0.28     $ 3.08             $ 0.41  

Equivalent Pro Forma Earnings Per Share of B&R Global – Basic and Diluted (1)

                          $ 1.88  
                                 

As of March 31, 2019

                               

Shares Outstanding as of March 31, 2019

    22,167,486       6,622,093       24,077,907 (4)      52,867,486  

Book Value Per Share (2)

  $ 1.58     $ 4.29             $ 1.20  

Equivalent Pro Forma Book Value Per Share of B&R Global as of March 31, 2019(2) (3)

                          $ 5.58  

 

(1) Equivalent pro forma earnings per share was calculated by multiplying the share exchange ratio between HF Group and B&R Global (approximately 4.6/1=30,700,000/6,622,093) by pro forma net income per share.

 

(2) The equity of noncontrolling interest was excluded from the calculation of book value per share related to HF Group and B&R Global and pro forma book value per share after merger because it was not attributable to the common stockholders of HF Group and B&R Global before the business combination and will not be attributable to HF Foods Group Inc. after the business combination, but will be attributable to the minority shareholders.

                                                                                                    

(3) Equivalent pro forma book value per share was calculated by multiplying the share exchange ratio between HF Group and B&R Global (approximately 4.6/1=30,700,000/6,622,093) by pro forma book value per share.

 

(4) Adjustment to shares outstanding is calculated by subtracting existing shares outstanding from proposed outstanding shares after merger of 52,867,486.

 

(5) Prior to January 1, 2019, 18 of the subsidiaries of B&R Global elected to be taxed as pass-through entities. B&R Global converted to C corporation as of January 1, 2019. Pro forma net income attributable to common stock holders of B&R Global was calculated with consideration of the income tax effect as if all of the subsidiaries were taxed as C Corporation since January 1, 2018.

                                              

See pro forma condensed combined financial statements and related notes in “Unaudited Pro Forma Condensed Combined Financial Statements” included elsewhere in this proxy statement.

 

42

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

HF Foods Group Inc. 

Pro Forma Condensed Combined Balance Sheet 

As of March 31, 2019

(Unaudited)

 

                         

Pro Forma

 
   

HF Group

   

B&R Global

   

Pro Forma

   

Combined

 
   

Unaudited

   

Unaudited

    Adjustment    

Unaudited

 

ASSET

                               

Current assets:

                               

Cash

  $ 6,897,354     $ 11,800,733     $       $ 18,698,087  
                                 
                                 
                                 

Accounts receivable, net

    15,376,607       34,042,882               49,419,489  

Accounts receivable - related parties, net

    2,145,061       3,631,695               5,776,756  

Inventories, net

    23,677,137       51,812,477               75,489,614  

Advances to suppliers, net

    217,314       128,889               346,203  

Advances to suppliers - related parties, net

    1,161,590       -               1,161,590  

Notes receivable

    733,373       -               733,373  

Notes receivable - related parties, current

    952,592       -               952,592  

Other current assets

    681,765       1,772,770               2,454,535  

Other current assets - related parties

    -       797,936               797,936  

Total current assets

    51,842,793       103,987,382               155,830,175  

Property and equipment, net

    24,582,651       11,076,786               35,659,437  

Long-term investments

    -       2,265,286               2,265,286  

Security deposits

    -       285,004               285,004  

Security deposits - related parties

    -       591,380               591,380  

Operating Lease Right-of-use-assets

    95,931       20,127,160               20,223,091  

Deferred tax assets

    90,131       -               90,131  

Long-term notes receivables

    3,179,203       -               3,179,203  

Long-term notes receivables - related parties

    7,692,339       -               7,692,339  

Intangible assets

    -       137,025               137,025  

Other long-term assets

    198,060       -               198060  

Total assets

  $ 87,681,108     $ 138,470,023     $       $ 226,151,131  
                                 

LIABILITIES AND SHAREHOLDERS’ EQUITY

                               

Current liabilities:

                               

Lines of credit

  $ 7,094,146     $ -     $       $ 7,094,146  

Bank overdraft

    -       20,479,955               20,479,955  

Accounts payable

    19,740,594       21,977,451               41,718,045  

Accounts payable - related parties

    2,823,142       1,463,898               4,287,040  

Advance from customers

    47,844       33,878               81,722  

Advance from customers - related parties

    119,947       420,300               540,247  

Current portion of long-term debt, net

    1,706,839       1,178,642               2,885,481  

Current portion of obligations under capital leases

    262,904       -               262,904  

Current portion of obligations under operating leases

    39,191       4,157,892               4,197,083  

Other payables

    -       253,154               253,154  

Other payables - related parties

    -       111,100               111,100  

Income tax payable

    296,773       1,510,256               1,807,029  

Accrued expenses

    2,273,035       962,145               3,235,180  

Total current liabilities

    34,404,415       52,548,671               86,953,086  

Long-term debt

    14,408,026       2,840,781               17,248,807  

Long-term debt - related parties

    -       2,250,000               2,250,000  

Line of credit

    -       34,846,359               34,846,359  

Obligations under capital leases, non-current

    1,272,846       -               1,272,846  

Obligations under operating leases, non-current

    56,740       15,969,268               16,026,008  

Deferred tax liabilities

    1,284,027       627,990               1,912,017  

Total liabilities

    51,426,054       109,083,069               160,509,123  
                                 

Commitments and contingencies

                               
                                 

Equity

                               

Preferred Stock

    -       -               -  

Common stock

    2,217       662       2,408 (a)      5,287  

Additional paid-in capital

    22,920,603       18,764,015       (2,408

)(a)

    41,682,210  

Retained earnings

    12,106,797       9,814,742               21,921,539  

Noncontrolling interest

    1,225,437       807,535               2,032,972  

Total shareholders’ equity

    36,255,054       29,386,954       -       65,642,008  

Total liabilities and shareholders’ equity

  $ 87,681,108     $ 138,470,023     $ -     $ 226,151,131  
                                 

Shares Outstanding as of March 31, 2019

    22,167,486       6,622,093       24,077,907 (a)     52,867,486  

Book Value Per Share as of March 31, 2019(1)

          $ 4.32             $ 1.20  

Equivalent Pro Forma Book Value Per Share of B&R Global as of March 31, 2019(2)

                          $ 5.58  

 

(1) The equity of noncontrolling interest was excluded from the calculation of book value per share related to B&R Global and pro forma book value per share after merger because it was not attributable to the common stockholders of B&R Global before the business combination and will not be attributable to HF Foods Group Inc. after the business combination, but will be attributable to the minority shareholders.

 

(2) Equivalent pro forma net book value per share was calculated by multiplying the share exchange ratio between HF Group and B&R Global Group (approximately 4.6/1=30,700,000/6,622,093) by pro forma book value per share.

 

43

 

 

HF Foods Group Inc. 

Pro Forma Condensed Combined Income Statement 

For the Three Months ended March 31, 2019

(Unaudited)

 

   

HF Group

   

B&R Global

   

 

   

Pro Forma

 
   

Historical

   

Historical

   

Pro Forma

   

Combined

 
   

Unaudited

   

Unaudited

    Adjustment    

Unaudited

 
                                 

Net revenue - third parties

  $ 70,303,911     $ 124,263,793             $ 194,567,704  

Net revenue - related parties

    4,497,111       9,890,551               14,387,662  

Total net revenue

    74,801,022       134,154,344               208,955,366  

Cost of revenue

    62,094,166       112,379,345               174,473,511  

Gross profit

    12,706,856       21,774,999               34,481,855  

Distribution, selling and administrative expenses

    10,365,172       15,906,481               26,271,653  

Income from operations

    2,341,684       5,868,518               8,210,202  

Interest income

    151,949       -               151,949  

Interest expenses and bank charges

    (336,958 )     (461,319 )             (798,277 )

Other income

    284,535       115,913               400,448  

Income before income tax provision

    2,441,210       5,523,112               7,964,322  

Income tax provision

    647,639       1,669,733               2,317,372  

Net income

  $ 1,793,571     $ 3,853,379             $ 5,646,950  

Less: income attributable to common stock subject to redemption

                            -  

Less: net income attributable to noncontrolling interest

    120,758       125,258               246,016  

Net income attributable to common stockholders

  $ 1,672,813     $ 3,728,121             $ 5,400,934  

Weighted Average Shares Outstanding — Basic and Diluted

    22,167,486       6,622,093       24,077,907       52,867,486  

Earnings Per Share – Basic and Diluted

  $ 0.08     $ 0.56             $ 0.10  

Equivalent Pro Forma Earnings Per Share of B&R Global – Basic and Diluted (1)

                          $ 0.47  

 

(1) Equivalent pro forma net earnings per share was calculated by multiplying the share exchange ratio between HF Group and B&R Global (approximately 4.6/1=30,700,000/6,622,093) by pro forma income per share.

 

44

 

 

HF Foods Group Inc.

Pro Forma Condensed Combined Income Statement 

For the Year ended December 31, 2018

(Unaudited)

 

   

HF Group

   

B&R Global

   

 

   

Pro Forma

 
   

Historical

   

Historical

   

Pro Forma

   

Combined

 
   

Audited

   

Audited

    Adjustment    

Unaudited

 

Net revenue - third parties

  $ 272,859,695     $ 492,047,897             $ 764,907,592  

Net revenue - related parties

    18,147,003       34,926,609               53,073,612  

Total net revenue

    291,006,698       526,974,506               817,981,204  

Cost of revenue

    241,441,149       441,917,690               683,358,839  

Gross profit

    49,565,549       85,056,816               134,622,365  

Distribution, selling and administrative expenses

    41,039,438       63,074,257               104,113,695  

Income from operations

    8,526,111       21,982,559               30,508,670  

Interest income

    493,358                       493,358  

Interest expenses and bank charges

    (1,372,508 )     (1,368,627 )             (2,741,135 )

Other income

    1,196,989       188,726               1,385,715  

Income before income tax provision

    8,843,950       20,802,658               29,646,608  

Income tax provision

    2,490,255       151,806       5,201,808  (b)     7,843,869  

Net income

  $ 6,353,695     $ 20,650,852     $ (5,201,808 )   $ 21,802,739  

Less: income attributable to common stock subject to redemption

                            -  

Less: net income attributable to noncontrolling interest

    67,240       272,595       (28,784 )(b)     311,051  

Net income (loss) attributable to common shareholders

  $ 6,286,455     $ 20,378,257       (5,173,024 )(b)   $ 21,491,688  

Weighted Average Shares Outstanding — Basic and Diluted

    20,991,004       6,622,093       25,254,389  (a)     52,867,486  

Earnings Per Share – Basic and Diluted

  $ 0.30     $ 3.08             $ 0.41  

Equivalent Pro Forma Earnings Per Share of B&R Global – Basic and Diluted (1)

                          $ 1.88  

 

 (1) Equivalent pro forma net earnings per share was calculated by multiplying the share exchange ratio between HF Group and B&R Global (approximately 4.6/1=30,700,000/6,622,093) by pro forma income per share.

 

45

 

 

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL INFORMATION

 

1.     Description of Transaction

 

On June 21, 2019, HF Group, B&R Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of HF Group, or “Merger Sub,” B&R Global Holdings, Inc., a Delaware corporation, or “B&R Global,” the stockholders of B&R Global, and Xiao Mou Zhang, as representative of the stockholders, entered into a merger agreement, pursuant to which Merger Sub will merge into HF Group resulting in B&R Global becoming a wholly owned subsidiary of HF Group. See “The Business Combination Proposal” for more detailed information. The merger consideration consists of 30,700,000 shares of HF Group common stock. Upon consummation of the Business Combination, B&R Global will be a wholly owned subsidiary of HF Group.

 

B&R Global’s shareholders will own approximately 58.1% of HF Group’s shares to be outstanding immediately after the transactions, and the HF Group’s shareholders will own approximately 41.9% of Atlantic’s outstanding shares.

 

2.     Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments

 

a.

Issuance of the stock consideration of 30,700,000 shares.

b.

Prior to January 1, 2019, 18 of the subsidiaries of B&R Global elected to be taxed as pass-through entities. B&R Global converted to C corporation as of January 1, 2019. The adjustment represented income tax effect as if all of the subsidiaries were taxed as C Corporation since January 1, 2018.

 

3.     Reconciliation of Pro Forma Adjusted EBITDA

 

   

 

                         
    HF Group    

B&R

Global

           

Pro Forma

 
   

Historical

   

Historical

   

Pro Forma

   

Combined

 
   

Unaudited

   

Unaudited

   

Adjustment

   

Unaudited

 

For the three Months ended March 31, 2019

                               

Net income

  $ 1,793,571     $ 3,853,379             $ 5,646,950  

Interest expenses

    336,958       461,319               798,277  

Income tax provision

    647,939       1,669,733               2,317,672  

Depreciation and Amortization

    707,396       595,676               1,303,072  

Adjusted EBITDA

  $ 3,485,864     $ 6,580,107     $ -     $ 10,065,971  

For the Year ended December 31, 2018

                               

Net income

  $ 6,353,695     $ 20,650,852     $ (5,201,808 )(1)   $ 21,802,739  

Interest expenses

    1,372,508       1,368,627               2,741,135  

Income tax provision

    2,490,255       151,806       5,201,808  (1)     7,843,869  

Depreciation and Amortization

    2,134,832       2,332,067               4,466,899  

Non-recurring expenses

    1,831,167       -               1,831,167  

Adjusted EBITDA

  $ 14,182,457     $ 24,503,352     $ -     $ 38,685,809  

 

(1) Prior to January 1, 2019, 18 of the subsidiaries of B&R Global elected to be taxed as pass-through entities. B&R Global converted to C corporation as of January 1, 2019. The adjustment represented income tax effect as if all of the subsidiaries were taxed as C Corporation since January 1, 2018.

 

46

 

 

B&R GLOBAL HOLDINGS, INC.’S BUSINESS

 

Overview

 

 

B&R Global Holdings, LLC, acting through its subsidiaries (sometimes referred to in this proxy statement as “B&R Global” or the “Group”), is a Chinese food wholesaler and distributor for Asian restaurants in the western United States. B&R Global was founded by Xiao Mou Zhang, aka Peter Zhang and his partners, who were originally from China, in 1999. Like many Chinese immigrants, Peter and his partners found their first jobs in the United States in Chinese restaurants, and eventually transitioned into opening their own restaurants. Through operating their own Chinese restaurants, Peter and partners realized vast business potential in food distribution business.

 

In the past 20 years, B&R Global has developed distribution channels throughout the western United States. The Group has eleven distribution centers located in Arizona, California, Colorado, Montana, Nevada, Oregon, Utah, and Washington. The Group spent several years developing its proprietary ERP system for inventory, sales, and customer management. B&R Global outsources most of its sales function to a call-center in China. This allows the Group to serve its customers around-the-clock in their native language, while lowering the administrative cost in the United States. Supported by the call center in China, B&R Global has been able to grow customer base and, at the same time, keep operating costs low. The utilization of private networks has allowed an integrated system facilitating real time information sharing between the headquarters in California, subsidiaries throughout the western United States, the call center in China, and its customers.