PRE 14A 1 s109520_pre14a.htm SCHEDULE 14A

 

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

ATLANTIC ACQUISITION CORP.
(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 $.001 per share (“Common Stock”) 

       
    (2)  

Aggregate number of securities to which transaction applies:

 

19,969,833 shares of common stock of Atlantic Acquisition Corp. to be issued to the HF Group shareholders pursuant to that certain Merger Agreement, dated as of March 28, 2018, by and among Atlantic Acquisition Corp., HF Group Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Atlantic, HF Group Holding Corporation, a North Carolina corporation, or “HF Group,” the stockholders of HF Group, and Zhou Min Ni, 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 $10.00. 

       
    (4)  

Proposed maximum aggregate value of transaction:

 

$199,698,330 

       
    (5)   Total fee paid: $24,862
         
   
  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 ATLANTIC ACQUISITION CORP.

 

Proxy Statement dated [●], 2018
and first mailed to shareholders on or about [●], 2018

 

Dear Shareholders:

 

You are cordially invited to attend the special meeting of Atlantic’s shareholders. Atlantic is a special purpose company incorporated 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, which we refer to as a “target business.”

 

Holders of shares of Atlantic’s common stock will be asked to approve the merger agreement dated as of March 28, 2018, or the “Acquisition Agreement,” by and among Atlantic, HF Group Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Atlantic, or “Merger Sub,” HF Group Holding Corporation, a North Carolina corporation, or “HF Group,” the stockholders of HF Group, and Zhou Min Ni, as representative of the stockholders, and the other related proposals. We refer to the stockholders of HF Group as the HF Group shareholders.

 

The issuance of shares of Atlantic to the HF Group 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 Atlantic in the business combination is approximately $199.7 million (calculated as follows: 19,969,833 shares of common stock of Atlantic to be issued to the HF Group shareholders multiplied by $10.00 (the deemed value of the shares in the Acquisition Agreement). The transactions contemplated under the Acquisition Agreement relating to the business combination with HF Group are referred to in this proxy statement as the Business Combination.

 

As of December 31, 2017, there was approximately $45,318,185 in Atlantic’s trust account, of which Atlantic withdrew $34,370 of interest to pay franchise taxes for 2017 in January 2018, or approximately $10.24 per outstanding share of common stock issued in Atlantic’s initial public offering for the public shareholders. On [●], 2018, the record date for the special meeting of shareholders, the last sale price of Atlantic’s common stock was $[●].

 

Each shareholder’s vote is very important. Whether or not you plan to attend the Atlantic 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 Atlantic 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 15.

 

Atlantic’s board of directors unanimously recommends that Atlantic 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 Acquisition or otherwise, or passed upon the adequacy or accuracy of this proxy statement. Any representation to the contrary is a criminal offense.

 

 

 

Richard Xu
Chairman of the Board of Directors of
Atlantic Acquisition Corp. 


[●], 2018

 

 

 

HOW TO OBTAIN ADDITIONAL INFORMATION

 

This proxy statement incorporates important business and financial information about Atlantic 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 Atlantic 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): 

1250 Broadway, 36th Floor 

New York, NY, 10001
Attn: Richard Xu
Telephone: 646-912-8918

 

If you would like to request documents, please do so no later than [●], 2018 to receive them before Atlantic’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 Atlantic and HF Group. You should rely only on the information contained in this proxy statement in deciding how to vote on the Business Combination. Neither Atlantic nor HF Group 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 “Atlantic,” “we,” “us” or “our company” refers to Atlantic Acquisition Corp. and its subsidiary, HF Group Merger Sub Inc.

 

     References to “HF Group” or the “Group” in this proxy statement refer to HF Group Holding Corporation and its subsidiaries.

 

●     References to “Merger Sub” means HF Group Merger Sub Inc., a wholly owned subsidiary of Atlantic.

 

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

 

 

 

ATLANTIC ACQUISITION CORP.

 

US Office (Principal Executive Office): 

1250 Broadway, 36th Floor 

New York, NY, 10001 

Attn: Richard Xu
Telephone: 646-912-8918

 

NOTICE OF SPECIAL MEETING OF
ATLANTIC ACQUISITION CORP. SHAREHOLDERS
To Be Held on [●], 2018

 

To Atlantic Acquisition Corp. (“Atlantic”) Shareholders:

 

A special meeting of shareholders of Atlantic, will be held at [●], on [●], 2018, at [●] a.m., for the following purposes:

 

1.           To approve the authorization for Atlantic’s board of directors to complete the merger of Merger Sub into HF Group, resulting in HF Group becoming a wholly owned subsidiary of Atlantic, as provided for in the Acquisition Agreement, or the “Business Combination.” This proposal is referred to as the Business Combination Proposal.

 

2.           To approve the amendment of the certificate of incorporation Atlantic to change Atlantic’s name from “Atlantic Acquisition Corp.” to “HF Foods Group Inc.” This proposal is referred to as the Name Change Proposal.

 

3.           To approve the 2018 Omnibus Equity Incentive Plan. This proposal is referred to as the Equity Incentive Plan Proposal.

 

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

 

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

 

Proposals 1 through 5 are sometimes collectively referred to herein as the “Proposals.”

 

As of [●], 2018, there were 5,872,497 shares of Atlantic common stock issued and outstanding and entitled to vote. Only Atlantic common shareholders who hold shares of record as of the close of business on [●], 2018 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 [●], 2018. Approval of the Business Combination Proposal, the Equity Incentive Plan Proposal and the Nasdaq Proposal will each require the affirmative vote of the holders of a majority of the outstanding shares of common stock; provided, however, that if 3,884,660 or more of the common stock purchased in the IPO demand redemption of their common stock, then neither the Business Combination or other Proposals will be completed. Approval of the Name Change Proposal will require the approval of a majority of the issued and outstanding shares of common stock of Atlantic. 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 and the Equity Incentive Plan Proposal, but will be the same as a vote against the Name Change Proposal.

 

 

 

Atlantic 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.

 

Holders of Atlantic’s common stock will not be entitled to appraisal rights under Delaware law in connection with the Business Combination.

 

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 Atlantic at Atlantic Acquisition Corp., 1250 Broadway, 36th Floor, New York, New York, 10001, Attention: Richard Xu, Telephone: 646-912-8918, 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.

 

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

 

By order of the Board of Directors,

 

 

 

Richard Xu
Chairman of the Board of Directors of
Atlantic Acquisition Corp.

 

[__________], 2018

 

 

 

TABLE OF CONTENTS

 

  PAGE
   
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR ATLANTIC SHAREHOLDERS 1
DELIVERY OF DOCUMENTS TO ATLANTIC SHAREHOLDERS 6
SUMMARY OF THE PROXY STATEMENT 7
PRICE RANGE OF SECURITIES AND DIVIDENDS 14
RISK FACTORS 15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 29
DIVIDEND POLICY  
SPECIAL MEETING OF ATLANTIC SHAREHOLDERS 31
THE BUSINESS COMBINATION PROPOSAL 36
THE ACQUISITION AGREEMENT 46
THE NAME CHANGE PROPOSAL 49
THE NASDAQ PROPOSAL 55
THE EQUITY INCENTIVE PLAN PROPOSAL 50
THE BUSINESS COMBINATION ADJOURNMENT PROPOSAL 57
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF HF GROUP INC. 58
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 61
COMPARATIVE SHARE INFORMATION 60
HF GROUP’S BUSINESS 65
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HF GROUP 75
OVERVIEW  
SELECTED HISTORICAL FINANCIAL INFORMATION OF ATLANTIC 83
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 84
ATLANTIC BUSINESS 86
DIRECTORS, EXECUTIVE OFFICERS, EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE 90
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT BEFORE THE BUSINESS COMBINATION 96
SECURITY OWNERSHIP OF THE COMBINED COMPANY AFTER THE BUSINESS COMBINATION 98
CERTAIN TRANSACTIONS 100
DESCRIPTION OF ATLANTIC’S SECURITIES 104
DESCRIPTION OF THE COMBINED COMPANY’S SECURITIES FOLLOWING THE BUSINESS COMBINATION  
EXPERTS 108
LEGAL MATTERS  
SHAREHOLDER PROPOSALS AND OTHER MATTERS 108
WHERE YOU CAN FIND ADDITIONAL INFORMATION 108
INDEX TO FINANCIAL STATEMENTS F-28
ANNEX A – ACQUISITION AGREEMENT A-1

ANNEX B – 2018 OMNIBUS EQUITY INCENTIVE PLAN

B-1

 

i 

 

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR Atlantic shareholders

 

Q:    What is the purpose of this document?

 

A:    Atlantic Acquisition Corp., a Delaware corporation, or Atlantic, and HF Group Holding Corporation, a North Carolina corporation, or HF Group, have agreed to a business combination under the terms of a Merger Agreement, dated as of March 28, 2018, which we refer to as the Acquisition Agreement, by and among Atlantic, HF Group Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Atlantic, or “Merger Sub,” HF Group Holding Corporation, a North Carolina corporation, or “HF Group,” the stockholders of HF Group, and Zhou Min Ni, as representative of the stockholders, and the other related proposals. The consummation of the transactions contemplated by the Acquisition Agreement relating to the business combination with HF Group are referred to as the Business Combination and the proposal to approve the Business Combination is referred to as the Business Combination Proposal. The Acquisition Agreement is attached to this proxy statement as Annex A, and is incorporated into this proxy statement by reference. The 2018 Omnibus Equity Incentive Plan is attached to this proxy statement as Annex B, and is incorporated into this proxy statement by reference. You are encouraged to read this proxy statement, including “Risk Factors” and all the annexes hereto.

 

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

 

The units that were issued in Atlantic’s initial public offering, or the Atlantic units, each consist of one share of common stock of Atlantic, par value $0.0001 per share, or an Atlantic share, and one right to receive one-tenth (1/10) of a share of common stock on the consummation of an initial business combination, or an Atlantic right. Atlantic shareholders (except shareholders who are Founders or an officer or director of Atlantic) will be entitled to redeem their Atlantic common stock for a pro rata share of the trust account (currently anticipated to be no less than approximately $10.20 per share for shareholders) net of taxes payable.

 

The Atlantic Units, Atlantic Shares and Atlantic Rights are currently listed on the Nasdaq Stock Market.

 

This proxy statement also relates to other proposals connected with the Business Combination.

 

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

 

Q:    What is being voted on?

 

A:    Below are the proposals on which Atlantic shareholders are being asked to vote:

 

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

 

     To approve the amendment of the certificate of incorporation Atlantic to change Atlantic’s name from “Atlantic Acquisition Corp.” to “HF Foods Group Inc.” This proposal is referred to as the Name Change Proposal.

 

     To approve the 2018 Omnibus Equity Incentive Plan. This proposal is referred to as the Equity Incentive Plan Proposal.

 

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

 

1 

 

 

     To approve the adjournment of the special meeting in the event Atlantic 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:    Do any of Atlantic’s directors or officers have interests that may conflict with my interests with respect to the Business Combination?

 

A:    Atlantic’s directors and officers may have interests in the Business Combination that are different from your interests as a shareholder. You should keep in mind the following interests of Atlantic’s directors and officers:

 

In June 2016, 1,150,000 shares of our common stock were sold at a price of approximately $0.02 per share for an aggregate of $25,000. In May 2017, we repurchased and canceled the initial shareholder shares and issued an additional 1,150,000 shares for $25,000, or approximately $0.02 per share. In addition, simultaneously with the consummation of the IPO, we consummated the private placement (“Private Placement”) of 320,000 Units (“Private Placement Units”) at a price of $10.00 per Private Placement Unit, generating total proceeds of $3,200,000, to Atlantic’s initial shareholders and Chardan Capital Markets, LLC. Further, on August 21, 2017, simultaneously with the sale of the over-allotment units, we consummated the private sale of an additional 21,250 Private Placement Units. On August 22, 2017, the underwriters canceled the remainder of the over-allotment option. In connection with the cancellation of the remainder of the over-allotment option, we canceled an aggregate of 43,753 shares of common stock issued to our initial shareholders prior to the IPO and Private Placement. The Private Placement Units are identical to the Units sold in the IPO. In light of the amount of consideration paid for the foregoing securities, Atlantic’s directors and officers will likely benefit from the completion of the Business Combination even if the Business Combination causes the market price of Atlantic’s securities to significantly decrease. The likely benefit to Atlantic’s directors and officers may influence their motivation for promoting the Business Combination and/or soliciting proxies for the approval of the Business Combination Proposal.

 

If Atlantic does not consummate the Business Combination by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, Atlantic will be required to dissolve and liquidate and the securities held by Atlantic’s insiders will be worthless because such holders have agreed to waive their rights to any liquidation distributions.

 

Approval of the Business Combination Proposal, the Equity Incentive Plan Proposal and the Nasdaq Proposal will require the affirmative vote of the holders of a majority of the outstanding shares of common stock as of the record date, present in person or by represented by proxy, at the special meeting of Atlantic shareholders; provided, however, that if 3,884,660 or more of the common stock purchased in the IPO demand redemption of their common stock, then the Business Combination will not be completed. Approval of the Name Change Proposal will require the approval of a majority of the issued and outstanding shares of common stock of Atlantic. As of the record date of the special meeting of Atlantic shareholders, 1,447,497 shares held by Atlantic’s initial shareholders, or approximately 24.6% of the outstanding Atlantic common stock, would be voted in favor of each of the Proposals.

 

If Atlantic liquidates prior to the consummation of a business combination, Wai Fun Cheng, Ren Hua Zheng, Richard Xu and Tom W. Su have contractually agreed that they will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us, but only if such a vendor or prospective target business does not execute such a waiver. Therefore, our directors and officers have a financial interest in consummating the Business Combination, thereby resulting in a conflict of interest.

 

In addition, the exercise of Atlantic’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes or waivers are appropriate and in Atlantic shareholders’ best interests.

 

Q:    When and where is the special meeting of Atlantic shareholders?

 

A:    The special meeting of Atlantic shareholders will take place at [●] on [●], 2018, at [●] a.m.

 

2 

 

 

Q:    Who may vote at the special meeting of shareholders?

 

A:    Only holders of record of Atlantic common stock as of the close of business on [●], 2018 may vote at the special meeting of shareholders. As of [●], 2018, there were 5,872,497 shares of Atlantic common stock outstanding and entitled to vote. Holders of rights do not have the ability to vote at the special meeting. Please see “Special Meeting of Atlantic Shareholders — Record Date; Who is Entitled to Vote” for further information.

 

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

 

A:    Shareholders representing a majority of the Atlantic common stock issued and outstanding as of the record date ([●] shares) 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. Atlantic 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.

 

Q:    What vote is required to approve the Proposals?

 

A:    Approval of the Business Combination Proposal, the Equity Incentive Plan Proposal and the Nasdaq Proposal will require the affirmative vote of the holders of a majority of the issued and outstanding shares of common stock of Atlantic present and entitled to vote at the special meeting; provided, however, that if 3,884,660 or more of the holders of Atlantic common stock exercise their redemption rights then the Business Combination will not be completed. Approval of the Name Change Proposal will require the approval of a majority of the issued and outstanding shares of common stock of Atlantic. 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 Equity Incentive Plan Proposal and the Nasdaq Proposal, but will be the same as a vote against the Name Change Proposal.

 

Q:    How will the initial shareholders vote?

 

A:    Atlantic’s initial shareholders, who as of [●], 2018 owned 1,447,497 shares of Atlantic common stock, or approximately 24.6% of the outstanding Atlantic common stock, have agreed to vote their respective common stock acquired by them prior to the initial public offering in favor of the Business Combination Proposal and related proposals. Atlantic’s initial shareholders have also agreed that they will vote any shares they purchase in the open market in or after the IPO in favor of each of the Proposals. As of the record date, these additional purchases equal [●] shares.

 

Q:    Am I required to vote against the Business Combination Proposal in order to have my common stock redeemed?

 

A:    No. You are not required to vote against the Business Combination Proposal in order to have the right to demand that Atlantic redeem your Atlantic common stock for cash equal to your pro rata share of the aggregate amount then on deposit in the trust account (before payment of deferred underwriting commissions and including interest earned on their pro rata portion of the trust account, net of taxes payable). These rights to demand redemption of Atlantic common stock for cash are sometimes referred to herein as redemption rights. If the Business Combination is not completed, then holders of Atlantic common stock electing to exercise their redemption rights will not be entitled to receive such payments until expiration of the 18 month period from the closing of the IPO (or 24 month period if extended). In addition, Atlantic’s Amended and Restated Certificate of Incorporation, or the Atlantic charter, provides that an Atlantic shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended, or the Exchange Act), will be restricted from seeking redemption rights in connection with the Business Combination with respect to more than an aggregate of 25% of the Atlantic common stock sold in the IPO.

 

Q:    How do I exercise my redemption rights?

 

A:    In order to exercise your redemption rights, you must vote for or against the business combination and mark the appropriate space on the applicable enclosed proxy card and providing physical or electronic delivery of your common stock certificates, as appropriate, prior to the special meetings of Atlantic shareholders. The redemption option is a separate election option.

 

3 

 

 

Any request for redemption, once made, may be withdrawn at any time up to the date of the special meeting of Atlantic shareholders. The actual per share redemption price will be equal to the aggregate amount then on deposit in the trust account (before payment of deferred underwriting commissions and including interest earned on their pro rata portion of the trust account, net of taxes payable, divided by the number of shares of common stock sold in the IPO. Please see the section entitled “Special Meetings of Atlantic shareholders—Redemption Rights” for the procedures to be followed if you wish to redeem your Atlantic common stock for cash.

 

Q:    How can I vote?

 

A:    If you were a holder of record Atlantic common stock on [●], 2018, the record date for the special meeting of Atlantic shareholders, you may vote with respect to the applicable proposals in person at the special meeting of Atlantic shareholders, or by submitting a proxy by mail so that it is received prior to 9:00 a.m. on [●], 2018, in accordance with the instructions provided to you under “Special Meetings of Atlantic 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 Atlantic shareholders and vote in person, obtain a proxy from your broker, bank or nominee.

 

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. Atlantic 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. 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 Atlantic shares in accordance with directions you provide

 

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

 

A:    Atlantic 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 Atlantic shareholders. For purposes of approval, an abstention on any Proposals will have the same effect as a vote “AGAINST” such Proposal. Additionally, failure to elect to exercise your redemption rights will preclude you from having your common stock redeemed for cash. In order to exercise your redemption rights, you must make an election on the applicable proxy card to redeem such shares of Atlantic common stock or submit a request in writing to Atlantic’s transfer agent at the address listed on page 107, and deliver your shares to Atlantic’s transfer agent physically or electronically through DTC prior to the special meeting of Atlantic shareholders.

 

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:

 

1250 Broadway, 36th Floor
New York, New York, 10001
Telephone: 646-912-8918

 

4 

 

 

Q:    Should I send in my share certificates now?

 

A:    Yes. Atlantic shareholders who intend to have their shares of common stock redeemed, by electing to have those shares of common stock redeemed for cash on the proxy card, should send their certificates by the day prior to the special meeting. Please see “Special Meeting of Atlantic Shareholders — Redemption Rights” for the procedures to be followed if you wish to redeem your common stock for cash.

 

Q:    When is the Business Combination expected to occur?

 

A:    Assuming the requisite shareholder approvals are received, Atlantic expects that the Business Combination will occur no later than [_________], 2018.

 

Q:    May I seek statutory appraisal rights or dissenter rights with respect to my shares?

 

A:    No. Appraisal rights are not available to holders of Atlantic common stock or rights in connection with the proposed Business Combination. For additional information, see the sections entitled “Special Meeting of Atlantic Shareholders—Appraisal Rights.”

 

Q:    What happens if the Business Combination is not consummated?

 

A:    If Atlantic does not consummate the Business Combination by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, then pursuant to Article SIXTH of its amended and restated certificate of incorporation, Atlantic’s officers must take all actions necessary in accordance with the Delaware General Corporation Law (referred to herein as the “DGCL”) to dissolve and liquidate Atlantic as soon as reasonably practicable. Following dissolution, Atlantic will no longer exist as a company. In any liquidation, the funds held in the Trust Account, plus any interest earned thereon (net of taxes payable), together with any remaining out-of-trust net assets will be distributed pro-rata to holders of Atlantic common stock who acquired such Atlantic common stock in Atlantic’s IPO or in the aftermarket. If the Business Combination is not effected by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, the Atlantic Rights will expire worthless. The estimated consideration that each Atlantic share would be paid at liquidation would be approximately $10.24 per share for shareholders based on amounts on deposit in the Trust Account as of December 31, 2017. The closing price of Atlantic’s common stock on the Nasdaq Stock Market as of [__________], 2018 was $[____]. Atlantic’s initial shareholders waived the right to any liquidation distribution with respect to any Atlantic common stock held by them.

 

Q:    What happens to the funds deposited in the Trust Account following the Business Combination?

 

A:    Following the closing of the Business Combination, funds in the Trust Account will be released simultaneously to Atlantic and to holders of Atlantic common stock exercising redemption rights in an amount equal to their per share redemption price. The balance of the funds will be utilized to fund the Business Combination and expenses of operating the company. As of December 31, 2017, there was approximately $45,318,185 in Atlantic’s Trust Account, of which Atlantic withdrew $34,370 of interest to pay taxes in January 2018. Approximately $10.24 per outstanding share issued in Atlantic’s initial public offering for the public investors. Any funds remaining in the Trust Account after such uses will be used for future working capital and other corporate purposes of the combined entity.

 

5 

 

 

DELIVERY OF DOCUMENTS TO Atlantic shareholders

 

Pursuant to the rules of the SEC, Atlantic 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 Atlantic has received contrary instructions from one or more of such shareholders. Upon written or oral request, Atlantic 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 Atlantic deliver single copies of the proxy statement in the future. Shareholders may notify Atlantic of their requests by contacting Atlantic as follows:

 

Atlantic Acquisition Corp.
1250 Broadway, 36th Floor
New York, New York, 10001
Attn: Richard Xu
Telephone: 646-912-8918

 

6 

 

 

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 Acquisition Agreement attached as Annex A and the 2018 Equity Incentive Plan attached as Annex B.

 

The Parties

 

Atlantic

 

Atlantic Acquisition Corp.
1250 Broadway, 36th Floor
New York, New York, 10001
Attn: Richard Xu
Telephone: 646-912-8918

 

Atlantic Acquisition Corp., or Atlantic, was incorporated in Delaware on May 19, 2016. Atlantic was formed with 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, which we refer to as a “target business.” Atlantic’s efforts to identify a prospective target business will not be limited to any particular industry or geographic region, although it initially intends to focus on target businesses being operated by and/or serving ethnic minorities in the United States, especially within Asian-American communities.

 

Atlantic completed its initial public offering (“IPO”) on August 14, 2017 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. Simultaneous with the consummation of the IPO, we consummated the private placement of 320,000 private Units (“Private Placement Units”) at a price of $10.00 per Private Placement Unit, generating total proceeds of $3,200,000. The Private Placement Units were purchased by Atlantic’s initial shareholders and Chardan Capital Markets, LLC. On August 16, 2017, the underwriters in the IPO exercised the over-allotment option in part. The closing of the sale 425,000 over-allotment option units generating gross proceeds of $4,250,000 took place on August 21, 2017. Simultaneously with the sale of the over-allotment units, we consummated the private sale of an additional 21,250 Private Placement Units.

 

After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the IPO and private placement were $45,811,383, of which $45,135,000 was deposited into a trust account and the remaining proceeds became available to be used to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses. As of December 31, 2017, we have approximately $560,204 of unused net proceeds that were not deposited into the trust fund to pay future general and administrative expenses. The net proceeds deposited into the trust fund remain on deposit in the trust fund earning interest. As of December 31, 2017, there was $45,318,185 held in the trust fund (including $183,185 of accrued interest which we can withdraw to pay taxes).

 

Atlantic’s units, shares and rights are each quoted on the Nasdaq Stock Market, under the symbols “ATACU,” “ATAC” and “ATACR,” respectively. Each of Atlantic’s units consist of share of common stock and one right to receive one-tenth (1/10) of a share of common stock on the consummation of an initial business combination. Atlantic’s units commenced trading on August 9, 2017. Atlantic’s shares and rights commenced trading on September 7, 2017.

 

HF Group Holding Corporation

 

HF Group Holding Corporation
6001-A West Market St.

Greensboro, NC 27409
Telephone: (336)268 2080

 

7 

 

 

HF Group Holding Corporation, acting through its subsidiaries (sometimes referred to in this proxy statement as “HF Group” or the “Group”), is a leading foodservice distributor operated by Chinese Americans, providing Chinese restaurants, primarily Chinese takeout restaurants located in the southeastern United States, with good quality food and supplies at competitive prices. Since its inception in 1997, fueled by increasing demand in the Chinese foods market segment, which is highly fragmented with unsophisticated competitors and has natural cultural barriers, HF Group has grown its business and currently serves approximately 3,200 restaurant customers in ten states with its deep understanding of Chinese Culture and its good old-fashioned business know-how in Chinese community.

 

Chinese takeout restaurants are located in every corner of the US, including urban and suburban areas. They focus on serving Chinese cuisine mainly to non-Chinese Americans. For the most part, these takeout restaurants are operated by individual families with very few workers, and HF Group believes over 80% of the restaurants it services are owned by Chinese Americans from Fuzhou (“Fuzhoueses”), the province capital of Fujian, China. The industry has been able to grow rapidly because it provides good food at low cost and in a convenient way. HF Group offers an array of specialty Chinese foods and supplies that are not widely available elsewhere. By becoming a one-stop-shopping location for its customers, HF Group has made it difficult for small competitors to enter this market. As a way to focus its efforts, HF Group concentrates on serving primarily the fast growing Chinese restaurants in the southeastern region of the United States. With natural cultural barriers, HF Group is able to maintain market position with its core customers and make it difficult for large competitors serving mainstream restaurants like Sysco and US Food Services from penetrating into this market segment easily.

 

In the past 20 years operation, HF Group has developed distribution channels throughout the southeastern United States. It has three distribution centers located in Greensboro, North Carolina, Ocala, Florida, and Atlanta Georgia. HF Group has spent years in developing its proprietary information system for its management of customer relationships and inventory management and it is able to sustain its growth partly because of this information system. HF Group also uses a call-center located in China, which allows the Group to serve its customers on a 24 hour basis in their native language, while lowering the administrative cost in the United States. Supported by technology, HF Group has been able to support its growing customer base and, at the same time, keep operating costs low. The utilization of private networks has linked the Greensboro headquarters with the other distribution centers as well as the outsourced call center in China. This communication system allows HF Group to communicate seamlessly both internally and externally with its customers.

 

The Business Combination and Acquisition Agreement

 

Business Combination with HF Group; Business Combination Consideration

 

Merger Sub will merger with and into HF Group, resulting in HF Group becoming a wholly owned subsidiary of Atlantic. The issuance of shares of Atlantic 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 Atlantic in the business combination is approximately $199.7 million (calculated as follows: 19,969,833 shares of common stock of Atlantic to be issued to the HF Group shareholders multiplied by $10.00 (the deemed value of the shares in the Acquisition Agreement)).

 

After the Business Combination assuming no redemptions of common stock for cash, Atlantic’s current public shareholders will own approximately 18.5% of Atlantic, Atlantic’s current directors, officers and affiliates will own approximately 5.6% of Atlantic, and the former stockholders of HF Group will own approximately 75.0% of Atlantic. Assuming redemption by holders of 3,884,660 shares of Atlantic’s outstanding common stock, Atlantic public shareholders will own approximately 4.4% of Atlantic, Atlantic’s current directors, officers and affiliates will own approximately 6.6% of Atlantic, and the former stockholders of HF Group will own approximately 89.0% of Atlantic. Upon consummation of the Business Combination, the rights will be converted into Atlantic common stock, Further, upon consummation of the Business Combination, HF Group will be a wholly owned subsidiary of Atlantic.

 

8 

 

 

The Business Combination and the Acquisition Agreement comply with the terms described in Atlantic’s Registration Statement on Form S-1 relating to its initial public offering. Furthermore, the consummation of the Business Combination is conditioned upon the majority of the common stock voted by Atlantic’s shareholders present and entitled to vote at the special meeting voting in favor of the Business Combination and holders of less than 3,884,660 Atlantic shares exercising their redemption rights, consistent with the disclosure set forth in Atlantic’s initial public offering registration statement (the “S-1”) according to the financial statements as of December 31, 2017.

 

Management

 

Effective as of the closing date, the board of directors of Atlantic will consist of five members. The members designated by HF Group will include Zhou Min Ni, Chan Sin Wong, Ren Hua Zheng, Hong Wang and Zhehui Ni, of whom Ren Hua Zheng, Hong Wang and Zhehui Ni will be independent directors. Zhou Min Ni will be the Chief Executive Officer of Atlantic after the consummation of the Business Combination. See “Directors and Executive Officers after the Business Combination” elsewhere in this proxy statement.

 

The Acquisition Agreement

 

On March 28, 2018, Atlantic, Merger Sub, HF Group, the HF Group shareholders, and the representative of the HF Group shareholders entered into the Acquisition Agreement, pursuant to which Merger Sub will merge into HF Group resulting in HF Group becoming a wholly owned subsidiary of Atlantic. See “The Acquisition Agreement — Business Combination with HF Group; Business Combination Consideration” for more detailed information.

 

The merger consideration consists of 19,969,833 shares of Atlantic common stock. Upon consummation of the Business Combination, HF Group will be a wholly owned subsidiary of Atlantic.

 

Consummation of the Acquisition 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 its 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 Acquisition Agreement, and compliance with all required covenants in the Acquisition Agreement. To the knowledge of the parties to the Business Combination, none of the events in (b) or (c) above have occurred.

 

The obligations of Atlantic to consummate the transactions contemplated by the Acquisition 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 HF Group’s business; and
Atlantic receiving a legal opinion from HF Group’s counsel.

 

The obligations of HF Group to consummate the transactions contemplated by the Acquisition 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:

 

Atlantic complying with all of its obligations required to be performed pursuant to the covenants in the Acquisition Agreement; and
the representations and warranties of Atlantic being true on and as of the closing date of the Business Combination.

 

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

 

Other Agreements Relating to the Business Combination

 

Escrow Agreement

 

In connection with the Acquisition, Atlantic, HF Group, Zhou Min Ni, as representative of the stockholders of HF Group, and Loeb & Loeb LLP, as escrow agent, will enter into an Escrow Agreement at closing, pursuant to which Atlantic shall deposit shares of Atlantic common stock, representing 15% of the aggregate amount of shares ([●] shares) to be issued to the stockholders of HF Group pursuant to the Business Combination, to secure the indemnification obligations of the stockholders of HF Group as contemplated by the Acquisition Agreement.

 

9 

 

 

Lock-up Agreement

 

In connection with the Acquisition, Atlantic and each of the HF Group shareholders will enter into a Lock-Up Agreement at closing, pursuant to which the stockholders of HF Group shall agree, for a period of 365 days from the closing of the Acquisition, not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of common stock (including any securities convertible into, or exchangeable for, or representing the rights to receive, shares of common stock), enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of such shares, or to enter into any transaction, swap, hedge or other arrangement, or engage in any short sales with respect to any security of Atlantic.

 

Registration Rights Agreement

 

In connection with the Acquisition, Atlantic and the HF Group shareholders will enter into a Registration Rights Agreement at closing to provide for the registration of the common stock being issued to the HF Group shareholders in connection with the Business Combination. The HF Group shareholders will be entitled to “piggy-back” registration rights with respect to registration statements filed following the consummation of the Business Combination. Atlantic will bear the expenses incurred in connection with the filing of any such registration statements.

 

Employment Agreements

 

In connection with the Acquisition, Atlantic will enter into separate employment agreements at closing with each of Zhou Min Ni, Chan Sin Wong and Jian Ming Ni.

 

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

 

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

 

     FOR the Business Combination Proposal;

     FOR the Name Change Proposal;

     FOR the Equity Incentive Plan Proposal;

     FOR the Nasdaq Proposal; and

     FOR the Business Combination Adjournment Proposal.

 

Interests of Certain Persons in the Business Combination

 

When you consider the recommendation of Atlantic’s board of directors in favor of adoption of the Business Combination Proposal and other Proposals, you should keep in mind that Atlantic’s directors and officers have interests in the Business Combination that are different from, or in addition to, your interests as a shareholder, including:

 

     If the proposed Business Combination is not completed by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, Atlantic will be required to liquidate. In such event, the 1,106,247 shares of Atlantic common stock held by Atlantic officers, directors and affiliates, which were acquired prior to the IPO for an aggregate purchase price of $25,000, will be worthless. Such common stock and units had an aggregate market value of approximately $[_________] based on the closing price of Atlantic’s common stock of $[_____] and Atlantic’s rights $[_____], on the Nasdaq Stock Market as of [__________], 2018;

 

10 

 

 

     Unless Atlantic consummates the Business Combination, its officers, directors and initial shareholders will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceeded the amount of its working capital. As a result, the financial interest of Atlantic’s officers, directors and initial shareholders or their affiliates could influence its officers’ and directors’ motivation in selecting HF Group as a target and therefore there may be a conflict of interest when it determined that the Business Combination is in the shareholders’ best interest.

 

     Wai Fun Cheng, Ren Hua Zheng, Richard Xu and Tom W. Su have contractually agreed that they will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us, but only if such a vendor or prospective target business does not execute such a waiver. Therefore, Atlantic’s initial shareholders have a financial interest in consummating a business combination, thereby resulting in a conflict of interest. Atlantic’s initial shareholders or their affiliates could influence our officers’ and directors’ motivation in selecting a target business and therefore there may be a conflict of interest when determining whether the Business Combination is in the shareholders’ best interest.

 

     In addition, the exercise of Atlantic’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the transaction may result in a conflict of interest when determining whether such changes or waivers are appropriate and in our shareholders’ best interest.

 

Voting Securities

 

As of [●], 2018, there were 5,872,497 shares of Atlantic common stock issued and outstanding. Only Atlantic shareholders who hold common stock of record as of the close of business on [●], 2018 are entitled to vote at the special meeting of shareholders or any adjournment of the special meeting. Approval of all Proposals requires the affirmative vote of the holders of a majority of the issued and outstanding Atlantic common stock entitled to vote thereon as of the record date present in person or represented by proxy at the special meeting. 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 be considered present for the purposes of establishing a quorum, but not eligible to vote the applicable 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.

 

As of [●], 2018, Atlantic’s initial shareholders, either directly or beneficially, owned and were entitled to vote 1,447,497 shares of common stock, or approximately 24.6% of Atlantic’s outstanding common stock. With respect to the Business Combination, Atlantic’s initial shareholders have agreed to vote their respective Atlantic common stock acquired by them in favor of the Business Combination Proposal and related Proposals. They have indicated that they intend to vote their shares, as applicable, “FOR” each of the other Proposals although there is no agreement in place with respect to these Proposals.

 

Appraisal Rights

 

Holders of Atlantic common stock and rights are not entitled to appraisal rights under the DGCL.

 

Emerging Growth Company

 

Atlantic 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, Atlantic will continue to be an “emerging growth company.” As an emerging growth company, Atlantic 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.

 

11 

 

 

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 Atlantic and HF Group 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, Atlantic, as an emerging growth company, will 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 Atlantic’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.

 

Atlantic 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 Atlantic’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, Atlantic would cease to be an emerging growth company as of the following fiscal year.

 

Anticipated Accounting Treatment

 

The Business Combination will be treated by Atlantic as a reverse Business Combination under the acquisition method of accounting in accordance with GAAP. For accounting purposes, HF Group is considered to be acquiring Atlantic in this transaction. Therefore, the aggregate consideration paid in connection with the Business Combination will be allocated to Atlantic tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of Atlantic 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 Acquisition Agreement are not subject to any additional federal or state regulatory requirements or approvals, including the Hart-Scott Rodino Antitrust Improvements Act of 1976, except for filings with the States of Delaware and North Carolina necessary to effectuate the transactions contemplated by the Acquisition Agreement.

 

12 

 

 

HF GROUP HOLDING CORPORATION SUMMARY FINANCIAL INFORMATION

 

The data below as for the years ended December 31, 2017 and 2016 has been derived from HF Group’s audited consolidated financial statements for such years, 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 HF Group’s audited and unaudited financial statements and notes thereto included elsewhere in this proxy statement.

 

   For the Years Ended December 31,   
   2017     2016   
         
Net revenue   295,549,980    279,500,235 
Cost of sales   251,615,013    243,193,112 
      Gross profit   43,934,967    36,307,123 
Distribution, selling and administrative expenses   32,924,877    30,578,840 
      Income from operations   11,010,090    5,728,283 
Interest income   21,105    1,634 
Interest expenses and bank charges   (1,339,897)   (1,076,088)
Other income   1,010,038    369,379 
      Income before income tax provision   10,701,336    5,023,208 
Provision for income taxes   623,266    191,922 
      Net income   10,078,070    4,831,286 
Less: net income attributable to non-controlling interest   431,999    116,122 
     Net income attributable to HF Group Holding Corporation  $9,646,071   $4,715,164 
           
Cash Flow Data:          
Net cash provided by operating activities  $15,286,862   $4,554,280 
Net cash used in investing activities  $(5,468,604)  $(429,125)
Net cash used in financing activities  $(9,688,359)  $(2,458,592)

 

   December 31, 
Balance Sheet Data:  2017   2016 
Cash  $6,086,044   $5,956,145 
Total assets  $80,657,900   $72,616,118 
Total liabilities  $53,759,788   $48,257,898 
Total shareholders’ equity  $26,898,112   $24,358,220 

 

13 

 

 

PRICE RANGE OF SECURITIES AND DIVIDENDS

 

Atlantic’s units, shares and rights are each quoted on the Nasdaq Stock Market, under the symbols “ATACU,” “ATAC” and “ATACR,” respectively. Each of Atlantic’s units consist of one share of common stock and one right to acquire 1/10 of a share of common stock of Atlantic. Each of Atlantic’s units consists of one share of common stock and one right to acquire 1/10 of a share of Atlantic common stock. Atlantic’s units commenced trading on August 9, 2017. Atlantic’s shares and rights commenced trading on September 7, 2017.

 

The table below sets forth the high and low bid prices of Atlantic’s common stock, rights, and units as reported on the Nasdaq Stock Market for the period from September 7, 2017 (the date on which our common stock and rights were first quoted on the Nasdaq Stock Market) through April 5, 2018 and for the period from August 9, 2017 (the date on which our units were first quoted on the Nasdaq Stock Market) through April 5, 2018.

 

   Units   Common Stock   Rights 
   High   Low   High   Low   High   Low 
Quarter ended:                        
June 30, 2018*  $10.53   $10.37   $10.06   $9.99   $0.63   $0.52 
March 31, 2018  $10.84   $10.20   $10.00   $9.80   $0.60   $0.45 
September 30, 2017**  $10.28   $10.03   $10.11   $9.75   $0.55   $0.33 
                               
Period ended:                              
December 31, 2017  $10.35   $10.03   $10.11   $9.75   $0.66   $0.33 

 

* Through April 5, 2018 

** Commencing September 7, 2017

 

Atlantic 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 Atlantic’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 Atlantic’s board of directors to retain all earnings, if any, for use in its business operations and, accordingly, Atlantic’s board does not anticipate declaring any dividends in the foreseeable future.

 

HF Group’s securities are not publicly traded.

 

14 

 

 

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 Acquisition.

 

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 operation results of HF Group are substantially affected by the operating and economic conditions in the regions in which HF Group operates. Economic conditions can affect HF Group in the following ways: 

   
Decrease in discretionary spending of consumers could adversely impact sales of Chinese/Asian restaurants, and then the sales of HF Group. 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 HF Group’s business by reducing demand for its products.
Heightened uncertainty in the financial markets negatively affects consumer confidence and discretionary spending, which can cause disruptions with HF Group’s customers and suppliers.
Liquidity issues and the inability of HF Group’s customers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in HF Group’s 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 HF Group’s ability to obtain the foodservice products and supplies needed by HF Group in the quantities and at the prices requested.

 

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

 

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

 

The foodservice distribution industry in the United States is fragmented and highly competitive, with local, regional, multi-regional distributors, and specialty competitors. However, HF Group believes that the market participants serving Chinese restaurants are highly fragmented. Currently, HF Group faces 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 or financial resources than HF Group does. 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.

 

15 

 

 

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

 

HF Group 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 HF Group. HF Group requires significant quantities of fuel for delivery vehicles and is 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 HF Group’s 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 HF Group for products, as well as the costs HF Group incurs to deliver products to the customers. Although HF Group has been able to pass along a portion of increased fuel costs to its customers in the past, there is no guarantee that it will be able to do so in the future. If fuel costs increase in the future, HF Group may experience difficulties in passing all or a portion of these costs along to its customers, which may have a negative impact on HF Group’s results of operations.

 

HF Group’s 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 its results of operations and financial condition.

 

Historically, a portion of HF Group’s growth has come through acquisitions, and HF Group’s growth strategy depends, in large part, on acquiring other distributors or wholesalers to access the untapped market regions and enlarge its 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 HF Group will continue to grow through acquisitions. HF Group 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 HF Group is unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, HF Group’s earnings may be materially adversely affected. A significant expansion of HF Group’s business and operations, in terms of geography or magnitude, could strain HF Group’s administrative and operational resources. Significant acquisitions may also require the issuance of material additional amounts of debt or equity, which could materially alter HF Group’s debt-to-equity ratio, increase the interest expense and decrease net income, and make it difficult for HF Group to obtain favorable financing for other acquisitions or capital investments.

 

HF Group’s operating results and stock price will be adversely affected if it fails to implement its growth strategy or if it invests resources in a growth strategy that ultimately proves unsuccessful.

 

Disruption of relationships with vendors could negatively affect HF Group’s business. Suppliers may increase the product prices, which could increase product costs.

 

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

 

In addition, HF Group purchases seasonal Chinese specialty of vegetables and fruits from farms and other vendors. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt HF Group’s 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 HF group sells for a prolonged period. HF Group’s inability to obtain adequate supplies of foodservice and related products as a result of any of the foregoing factors or otherwise could mean that HF Group is unable to fulfill its obligations to customers, and customers may turn to other distributors.

 

16 

 

 

The purchasing prices of its products vary from time to time, which is subject to market conditions and negotiation with suppliers. The prices of some of its products, especially seasonal products, such as vegetables and fruits, have significant fluctuations. HF Group 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 its suppliers, streamlining its inventory turnover, and passing portions of the price fluctuation to its customers. However, it may not always be able to do that if there are significant and frequent fluctuations. If it unable to mitigate these price fluctuations, its performance results will be adversely affected.

 

As a foodservice distributor, it is necessary for HF Group to maintain an inventory of products that may have declines in product pricing levels between the time HF Group purchases the product from suppliers and the time it sells the product to customers, which could reduce the margin on that inventory, adversely affecting HF Group’s results of operations.

 

HF Group’s relationships with customers may be materially diminished or terminated. The loss of customers could adversely affect HF Group’s business, financial condition, and results of operations.

 

HF Group has maintained long-standing relationships with a number of its customers. However, those customers could unilaterally terminate their relationship with HF Group or materially reduce the amount of business they conduct with HF Group at any time. HF Group’s customers may shift their purchase order from HF Group 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 HF Group will be able to maintain relationships with any of its customers on acceptable terms, or at all. The loss of a number of customers could adversely affect HF Group’s business, financial condition, and results of operations.

 

Changes in consumer eating habits could materially and adversely affect HF Group’s business, financial condition, or results of operations.

 

HF Group provides 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 HF Group’s 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, HF Group may be required to modify or discontinue sales of certain items in its product portfolio, and HF Group may experience higher costs and/or supply shortages associated with its efforts to accommodate those changes as its 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 HF Group’s food products, or laws and regulations requiring HF Group’s to disclose the nutritional content of its 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. HF Group cannot make any assurances regarding its ability to effectively respond to changes in consumer culture preference, health perceptions or resulting new laws or regulations or to adapt its products offerings to trends in eating habits.

 

HF Group may not be able to achieve its financial targets in the projections disclosed in this Proxy Statement.

 

HF Group’s ability to meet these financial targets as disclosed in the Proxy Statement depends largely on its successful execution of business plan including various related initiatives. There are various risks related to these efforts, including the risk that these efforts may not provide the expected benefits in its anticipated time frame, if at all, and may prove costlier than expected; and the risk of adverse effects to its business, results of operations and liquidity if past and future undertakings, and the associated changes to its business, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that HF Group anticipate. HF Group’s intentions and expectations with regard to the execution of its business plan, and the timing of any related initiatives, are subject to change at any time based on management’s subjective evaluation of its overall business needs. If HF Group is unable to successfully execute its business plan, whether due to the failure to realize the anticipated benefits from its various business initiatives in the anticipated time frame or otherwise, it may be unable to achieve these financial targets.

 

17 

 

 

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

 

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

 

HF Group also faces the risk of exposure to product liability claims in the event that the use of products sold by HF Group are alleged to have caused injury or illness. HF Group cannot be sure that consumption of its products will not cause a health-related illness in the future or that HF Group 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 HF Group’s products caused illness or injury could adversely affect HF Group’s reputation with existing and potential customers and its corporate and brand image.

 

With respect to product liability claims, HF Group believe it has 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 HF Group’s liabilities. HF Group generally seeks contractual indemnification and insurance coverage from parties supplying its products, 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 suppliers. If HF Group does not have adequate insurance or contractual indemnification available, product liability relating to defective products could materially adversely affect its results of operations and financial condition.

 

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

 

HF Group believes that its intellectual property has substantial value and has contributed significantly to the success of HF Group’s business. In particular, HF Group’s trademarks of Han Feng, Inc., are valuable assets that reinforce HF Group’s customers’ favorable perception of its products. HF Group’s trademark rights and related registrations may be challenged in the future and could be canceled or narrowed. Failure to protect HF Group’s trademark rights could cause customer confusion or negatively affect customers’ perception of HF Group’s brand and products, and eventually adversely affect HF Group’s 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 HF Group is successful. Such proceedings may be protracted with no certainty of success, and an adverse outcome could subject HF Group to liabilities, force HF Group to cease use of certain trademarks or other intellectual property or force HF Group to enter into licenses with others. Any one of these occurrences may have a material adverse effect on HF Group’s business, results of operations and financial condition.

 

If HF Group is unable to renew or replace the current lease of its warehouse located in Georgia on favorable terms, or the current lease is terminated prior to expiration of its stated term, and it cannot find suitable alternate locations, HF Group’s operation and profitability could be negatively impacted.

 

HF Group currently leases one of its warehouses for the distribution center located in Georgia. HF Group’s ability to re-negotiate favorable terms on an expiring lease or to negotiate favorable terms for a suitable alternate location, and its 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 HF Group’s control. Any or all of these factors and conditions could negatively impact HF Group’s growth and profitability.

 

18 

 

 

Failure to retain HF Group’s senior management and other key personnel may adversely affect its operations.

 

HF Group’s success is substantially dependent on the continued service of its senior management and other key personnel. These executives, and in particular Zhou Min Ni, HF Group’s Executive Chairman and Chief Executive Officer, and Chan Sin Wong, HF Group’s President, have been primarily responsible for determining the strategic direction of HF Group’s business and for executing its growth strategy and are integral to its brand and culture, and the reputation HF Group 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 HF Group’s business and prospects, as HF Group 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 HF Group’s stock price to decline. The loss of key employees could negatively affect HF Group’s business.

 

If HF Group is unable to attract, train and retain employees, it may not be able to grow or successfully operate its business.

 

The foodservice distribution industry is labor intensive. HF Group’s success depends in part upon its ability to attract, train and retain a sufficient number of employees who understand and appreciate HF Group’s culture and are able to represent its brand effectively and establish credibility with its business partners and customers. HF Group’s ability to meet its 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 HF Group is 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 HF Group fails to increase its wages competitively, the quality of its workforce could decline, causing its customer service to suffer, while increasing its wages could cause its earnings to decrease. If HF Group is unable to hire and retain employees capable of meeting its business needs and expectations, its business and brand image may be impaired. Any failure to meet HF Group’s staffing needs or any material increase in turnover rates of HF Group’s employees may adversely affect its business, results of operations and financial condition.

 

Changes in and enforcement of immigration laws could increase HF Group’s costs and adversely affect HF Group’s ability to attract and retain qualified employees.

 

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

 

A considerable amount of HF Group’s operating costs is attributable to labor costs and, therefore, its financial performance is greatly influenced by increases in wage and benefit costs. As a result, HF Group is 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 HF Group’s financial condition, results of operations and cash flows. HF Group also expects that in the event of a work stoppage or labor disturbance, it could incur additional costs and face increased competition.

 

19 

 

 

If HF Group fails to comply with requirements imposed by applicable law or other governmental regulations, it could become subject to lawsuits, investigations and other liabilities and restrictions on its operations that could significantly and adversely affect its business.

 

HF Group is 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 HF Group attempts to comply with all applicable laws and regulations, it 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 it will be able to comply with any future laws, regulations or interpretations of these laws and regulations. If HF Group fails to comply with applicable laws and regulations, HF Group 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 HF Group’s results of operations. In addition, governmental units may make changes in the regulatory frameworks within which HF Group operate that may require it to incur substantial increases in costs in order to comply with such laws and regulations.

 

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

 

HF Group 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, HF Group operates, maintains, and fuels vehicles; stores fuel in on-site above ground containers; operates refrigeration systems; and uses and disposes of hazardous substances and food waste. HF Group 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, HF Group could incur investigation, remediation or other costs related to environmental conditions at its currently or formerly owned or operated properties.

 

HF Group’s growth strategy depends on its acquisition other competitors. Failure to use its capital efficiently could have an adverse effect on its profitability.

 

HF Group’s growth strategy depends on its acquisition other competitors, which will require HF Group to use cash generated by its operations and a portion of the net proceeds of future equity or debt financing and borrowing under bank credit lines. HF Group cannot assure you that cash generated by its operations, the net proceeds of future equity or debt financing and borrowing under bank credit lines will be sufficient to allow HF Group to implement its growth strategy. HF Group has no current letter of intent or other agreement with sources of financing to raise capital and if HF Group is unable to raise funds for acquisitions, HF Group may experience reduced profitability and it could be required to delay, significantly curtail or eliminate expansion plans, which could have a material adverse effect on its future operating performance and the price of its common stock. Furthermore, any default under HF Group’s current or future indebtedness could have a material adverse effect on its cash flow and liquidity.

 

20 

 

 

Litigation may materially adversely affect HF Group’s business, financial condition and results of operations.

 

HF Group’s operations carry an exposure to litigation risk from consumers, customers, its 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 HF Group’s businesses, regardless of whether the allegations are valid or whether HF Group is ultimately found liable. As a result, litigation may materially adversely affect HF Group’s businesses, financial condition, results of operations and cash flows.

 

Increased commodity prices and availability may impact profitability.

 

Many of HF Group’s products include ingredients such as wheat, corn, oils, sugar, and other commodities. Commodity prices worldwide have been increasing. While commodity price inputs do not typically represent the substantial majority of HF Group’s product costs, any increase in commodity prices may cause its vendors to seek price increases from HF Group. Although HF Group is typically able to mitigate vendor efforts to increase its costs, it may be unable to continue to do so, either in whole or in part. In the event HF Group is unable to continue mitigating potential vendor price increases, it may in turn consider raising its prices, and its customers may be deterred by any such price increases. HF Group’s profitability may be impacted through increased costs to it 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 increases of tariffs on certain products imported into the U.S., including products imported from China, which may have an adverse impact on HF Group’s future operating results.

 

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

 

Severe weather, natural disasters and adverse climate changes may materially adversely affect HF Group’s financial condition and results of operations.

 

Severe weather conditions and other natural disasters in areas where HF Group’s distribution network covers or from which HF Group obtains the products it sells may materially adversely affect its operations or its product offerings and, therefore, its results of operations. Such conditions may result in physical damage to, or temporary or permanent closure of, one or more of HF Group’s distribution centers, an insufficient work force in HF Group’s market regions and/or temporary disruption in the supply of products, including delays in the delivery of goods to HF Group’s warehouses or a reduction in the availability of products in its 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 its supply chain. Any of these factors may disrupt HF Group’s businesses and materially adversely affect its financial condition, results of operations and cash flows.

 

The unaudited pro forma financial information included elsewhere in this proxy statement may not be indicative of what the combined company’s actual financial position or results of operations would have been.

 

The unaudited pro forma financial information in this joint proxy statement is presented for illustrative purposes only, has been prepared based on a number of assumptions and is not necessarily indicative of what the combined company’s actual financial position or results of operations would have been had the business combination been completed on the dates indicated. See “Unaudited Pro Forma Consolidated Combined Financial Information”.

 

HF Group relies on technology in its business and any cybersecurity incident, other technology disruption or delay in implementing new technology could negatively affect its business and its relationships with customers.

 

HF Group uses technology in its business operations, and its ability to serve customers most effectively depends on the reliability of its technology systems. HF Group uses software and other technology systems, among other things, to generate and select orders, to make purchases, to manage warehouses and to monitor and manage its business on a day-to-day basis. Further, HF Group’s 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.

 

21 

 

 

These technology systems are vulnerable to disruption from circumstances beyond HF Group’s 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 HF Group relies, 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 HF Group’s customer service, decrease the volume of our business and result in increased costs and lower profits.

 

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

 

HF Group’s current indebtedness may adversely affect its liquidity position and ability of future financing.

 

As of December 31, 2017, HF Group has $11.9 million of debt borrowed from a bank credit line and $15.6 million of long-term mortgage loans, which could adversely affect the company’s cash flow, its 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 HF Group to incur additional debt and operate its business. HF Group 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.

 

HF Group’s current management doesn’t have corporate governance experience, and it may need to recruit expertise on corporate governance and capital market to comply with the regulations and communicate with the capital market after the merger, which may increase the Group’s operating expenses.

 

HF Group’s 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 HF Group’s management team to learn to comply with the reporting, disclosure and corporate governance requirements and listing standards following consummation of the merger. It may need to recruit expertise on corporate governance and capital markets to comply with applicable regulations and communicate with the capital markets after merger, which may increase the Group’s operating expenses.

 

Risk Factors Relating to Atlantic’s Business

 

Atlantic will be forced to liquidate the trust account if it cannot consummate a business combination by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination. In the event of a liquidation, Atlantic’s public shareholders will receive $10.20 per share and the Atlantic rights will expire worthless.

 

If Atlantic is unable to complete a business combination by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, and is forced to liquidate, the per-share liquidation distribution will be $10.20. Furthermore, there will be no distribution with respect to the Atlantic rights, which will expire worthless as a result of Atlantic’s failure to complete a business combination.

 

22 

 

 

You must tender your Atlantic common stock in order to validly seek redemption at the special meeting of shareholders.

 

In connection with tendering your shares for redemption, you must elect either to physically tender your share certificates to Atlantic’s transfer agent in each case by the business day prior to the consummation of the Business Combination, or to deliver your common stock to the transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, which election would likely be determined based on the manner in which you hold your common stock. The requirement for physical or electronic delivery by the business day prior to the consummation of the Business Combination ensures that a redeeming holder’s election to redeem is irrevocable once the Business Combination is consummated. Any failure to observe these procedures will result in your loss of redemption rights in connection with the vote on the Business Combination.

 

If third parties bring claims against Atlantic, the proceeds held in trust could be reduced and the per-share liquidation price received by Atlantic’s shareholders may be less than $10.20.

 

Atlantic’s placing of funds in trust may not protect those funds from third party claims against Atlantic. Although Atlantic has received from many of the vendors, service providers (other than its independent accountants) and prospective target businesses with which it does business executed agreements waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of Atlantic’s public shareholders, they may still seek recourse against the trust account. Additionally, a court may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could take priority over those of Atlantic’s public shareholders. If Atlantic liquidates the trust account before the completion of a business combination and distributes the proceeds held therein to its public shareholders, Wai Fun Cheng, Ren Hua Zheng, Richard Xu and Tom W. Su have contractually agreed that they will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us, but only if such a vendor or prospective target business does not execute such a waiver. However, Atlantic cannot assure you that they will be able to meet such obligation. Therefore, the per-share distribution from the trust account for our shareholders may be less than $10.20 due to such claims.

 

Additionally, if Atlantic is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in Atlantic’s bankruptcy estate and subject to the claims of third parties with priority over the claims of its shareholders. To the extent any bankruptcy claims deplete the trust account, Atlantic may not be able to return $10.20 to our public shareholders.

 

Any distributions received by Atlantic shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, Atlantic was unable to pay its debts as they fell due in the ordinary course of business.

 

Atlantic’s Amended and Restated Certificate of Incorporation provides that it will continue in existence only until the date that is 18 months from the closing of the IPO, or February 14, 2019, or until the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination. If Atlantic is unable to consummate a transaction within the required time periods, upon notice from Atlantic, the trustee of the trust account will distribute the amount in its trust account to its public shareholders. Concurrently, Atlantic shall pay, or reserve for payment, from funds not held in trust, its liabilities and obligations, although Atlantic cannot assure you that there will be sufficient funds for such purpose. If there are insufficient funds held outside the trust account for such purpose, Wai Fun Cheng, Ren Hua Zheng, Richard Xu and Tom W. Su have contractually agreed that, if it liquidates prior to the consummation of a business combination, they will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Atlantic for services rendered or contracted for or products sold to it, but only if such a vendor or prospective target business does not execute such a waiver.

 

23 

 

 

Thereafter, Atlantic’s sole business purpose will be to dissolve through the voluntary liquidation procedure under the DGCL. In such a situation under the DGCL, a liquidator would be appointed and would give at least 21 days’ notice to creditors of his intention to make a distribution by notifying known creditors (if any) and by placing a public advertisement, although in practice this notice requirement need not necessarily delay the distribution of assets as the liquidator may be satisfied that no creditors would be adversely affected as a consequence of a distribution before this time period has expired. As soon as the affairs of the company are fully wound-up, the liquidator must lay his final report and accounts before a final general meeting which must be called by a public notice at least one month before it takes place. After the final meeting, the liquidator must make a return to the Registrar confirming the date on which the meeting was held and three months after the date of such filing the company is dissolved. It is Atlantic’s intention to liquidate the trust account to its public shareholders as soon as reasonably possible and Atlantic’s insiders have agreed to take any such action necessary to liquidate the trust account and to dissolve the company as soon as reasonably practicable if Atlantic does not complete a business combination within the required time period. Pursuant to Atlantic’s Amended and Restated Certificate of Incorporation, failure to consummate a business combination by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, will trigger an automatic winding up of the company.

 

If Atlantic is forced to enter into an insolvent liquidation, any distributions received by Atlantic shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, Atlantic was unable to pay its debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover all amounts received by Atlantic’s shareholders. Furthermore, Atlantic’s board may be viewed as having breached their fiduciary duties to its creditors and/or may have acted in bad faith, and thereby exposing itself and Atlantic to claims of damages, by paying public shareholders from the trust account prior to addressing the claims of creditors. Atlantic cannot assure you that claims will not be brought against it for these reasons.

 

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

 

Even though Atlantic conducted a due diligence investigation of HF Group, it cannot be sure that this diligence uncovered all material issues that may be present inside HF Group 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 HF Group and its business and outside of its control will not later arise.

 

All of Atlantic’s officers and directors own Atlantic common stock and Atlantic rights which will not participate in liquidation distributions and, therefore, they may have a conflict of interest in determining whether the business combination is appropriate.

 

All of Atlantic’s officers and directors own an aggregate of 1,106,247 shares and 319,125 units of Atlantic common stock. Such individuals have waived their right to redeem these shares, or to receive distributions with respect to these shares upon the liquidation of the trust account if Atlantic is unable to consummate a business combination. Accordingly, the Atlantic common stock, as well as the Atlantic units purchased by our officers or directors, will be worthless if Atlantic does not consummate a business combination. Based on a market price of $[___] per Atlantic share of common stock on [_______], 2018 and $[___] per right on [_______], 2018, the value of these shares and units was approximately $[___] million. The Atlantic common stock acquired prior to the IPO, as well as the Atlantic units will be worthless if Atlantic does not consummate a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting HF Group as a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of the Business Combination are appropriate and in Atlantic’s stockholders’ best interest.

 

Atlantic’s public shareholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group” with, are restricted from seeking redemption rights with respect to more than 25% of the Atlantic common stock sold in the IPO.

 

Atlantic is offering each of its public shareholders (but not its initial shareholders) the right to have his, her, or its common stock redeemed for cash. Notwithstanding the foregoing, an Atlantic public shareholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” will be restricted from seeking redemption rights with respect to more than 25% of the Atlantic common stock sold in the IPO. Accordingly, if you beneficially own more than 25% of the Atlantic common stock sold in the IPO and the Business Combination is approved, you will not be able to seek redemption rights with respect to the full amount of your Atlantic common stock and may be forced to hold such additional Atlantic common stock and any rights or sell them in the open market. Atlantic cannot assure you that the value of such additional Atlantic common stock will appreciate over time following the Business Combination or that the market price of Atlantic’s common stock will exceed the redemption price.

 

24 

 

 

Atlantic’s public shareholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group” with, will be restricted from exercising voting rights with respect to more than 25% of the shares sold in the IPO.

 

Pursuant to Atlantic’s Amended and Restated Certificate of Incorporation, without Atlantic’s prior written consent, none of Atlantic’s public shareholders, whether acting singly or with any affiliate or other person acting in concert or as a “group,” shall be permitted to exercise voting rights on any proposal submitted for consideration at the special meeting with respect to more than 25% of the Atlantic common stock sold in the IPO. Accordingly, if you hold more than 25% of the Atlantic common stock sold in the IPO (such shares are referred to herein as “Excess Shares”), you will be restricted from exercising voting rights with respect to any Excess Shares and such Excess Shares will remain outstanding following consummation of the Business combination. We cannot assure you that the value of such Excess Shares will appreciate over time following the Business Combination or that the market price of Atlantic’s common stock will exceed the per-share redemption price.

 

Atlantic is requiring shareholders who wish to redeem their common stock in connection with a proposed business combination to comply with specific requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising their rights.

 

Atlantic is requiring public shareholders who wish to redeem their common stock to either tender their certificates to our transfer agent at any time prior to the business day immediately preceding the consummation of the proposed Business Combination or to deliver their shares to the transfer agent electronically using the Depository Trust Company’s, or DTC, DWAC (Deposit/Withdrawal At Custodian) System. In order to obtain a physical certificate, a shareholder’s broker and/or clearing broker, DTC and Atlantic’s transfer agent will need to act to facilitate this request. It is Atlantic’s understanding that shareholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. While we have been advised that it takes a short time to deliver shares through the DWAC System, we cannot assure you of this fact. Accordingly, if it takes longer than Atlantic anticipates for shareholders to deliver their common stock, shareholders who wish to redeem may be unable to meet the deadline for exercising their redemption rights and thus may be unable to redeem their common stock.

 

Atlantic will require its public shareholders who wish to redeem their common stock in connection with the Business Combination to comply with specific requirements for redemption described above, such redeeming shareholders may be unable to sell their securities when they wish to in the event that the Business Combination is not consummated.

 

If Atlantic requires public shareholders who wish to redeem their common stock in connection with the proposed Business Combination to comply with specific requirements for redemption as described above and the Business Combination is not consummated, Atlantic will promptly return such certificates to its public shareholders. Accordingly, investors who attempted to redeem their common stock in such a circumstance will be unable to sell their securities after the failed acquisition until Atlantic has returned their securities to them. The market price for Atlantic’s common stock may decline during this time and you may not be able to sell your securities when you wish to, even while other shareholders that did not seek redemption may be able to sell their securities.

 

Atlantic’s initial shareholders, including its officers and directors, control a substantial interest in Atlantic and thus may influence certain actions requiring a shareholder vote.

 

Atlantic’s initial shareholders, including all of its officers and directors, collectively own approximately 24.6% of its issued and outstanding common stock. However, if a significant number of shareholders vote, or indicate an intention to vote, against the Business Combination, Atlantic’s officers, directors, initial shareholders or their affiliates could make such purchases in the open market or in private transactions in order to influence the vote. Atlantic’s initial shareholders have agreed to vote any shares they own in favor of the Business Combination.

 

25 

 

 

If Atlantic’s security holders exercise their registration rights with respect to their securities, it may have an adverse effect on the market price of Atlantic’s securities.

 

Atlantic’s initial shareholders are entitled to make a demand that it register the resale of their initial shares at any time commencing three months prior to the date on which their shares may be released from escrow. Additionally, the purchasers of Atlantic private units sold in an offering that was consummated simultaneously with the IPO or the Atlantic unit offering, are entitled to demand that Atlantic register the resale of their units and underlying common stock at any time commencing three months after Atlantic consummates a business combination. If such persons exercise their registration rights with respect to all of their securities, then there will be an additional 1,481,622 shares of Atlantic common stock eligible for trading in the public market. The presence of these additional common stock trading in the public market may have an adverse effect on the market price of Atlantic’s securities.

 

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

 

Atlantic 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. Atlantic’s public shareholders therefore, must rely solely on the judgment of Atlantic’s board of directors.

 

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

 

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

 

        Atlantic 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.

 

Atlantic’s directors and officers may have certain conflicts in determining to recommend the acquisition of HF Group, since certain of their interests, and certain interests of their affiliates and associates, are different from, or in addition to, your interests as a shareholder.

 

Atlantic’s management and directors have interests in and arising from the Business Combination that are different from, or in addition to, your interests as a shareholder, which could result in a real or perceived conflict of interest. These interests include the fact that certain of the Atlantic common stock owned by Atlantic’s management and directors, or their affiliates and associates, would become worthless if the Business Combination Proposal is not approved and Atlantic otherwise fails to consummate a business combination prior to its liquidation date.

 

Atlantic will incur significant transaction costs in connection with transactions contemplated by the Acquisition Agreement.

 

Atlantic will incur significant transaction costs in connection with the Business Combination. If the Business Combination is not consummated, Atlantic may not have sufficient funds to seek an alternative business combination and may be forced to liquidate and dissolve.

 

Risk Factors Relating to the Business Combination

 

Atlantic and HF Group 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 Atlantic if the Business Combination is completed or by Atlantic if the Business Combination is not completed.

 

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

 

26 

 

 

In the event that a significant number of Atlantic’s common stock are redeemed, its stock may become less liquid following the Business Combination.

 

If a significant number of Atlantic’s common stock are redeemed, Atlantic may be left with a significantly smaller number of shareholders. As a result, trading in the shares of the surviving company following the Business Combination may be limited and your ability to sell your shares in the market could be adversely affected. Nasdaq may not list Atlantic’s shares on its exchange, which could limit investors’ ability to make transactions in Atlantic’s securities and subject Atlantic to additional trading restrictions.

 

Atlantic will be required to meet the initial listing requirements to be listed on the Nasdaq Stock Market. Atlantic may not be able to meet those initial listing requirements. Even if Atlantic’s securities are so listed, Atlantic may be unable to maintain the listing of its securities in the future.

 

If Atlantic fails to meet the initial listing requirements and Nasdaq does not list its securities on its exchange, Atlantic could face significant material adverse consequences, including:

 

         a limited availability of market quotations for its securities;

 

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

 

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

 

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

 

Atlantic 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 Atlantic 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 Atlantic determines that a waiver is not sufficiently material to warrant resolicitation of shareholders, Atlantic has the discretion to complete the Business Combination without seeking further shareholder approval. For example, it is a condition to Atlantic’s obligations to close the Business Combination that there be no restraining order, injunction or other order restricting HF Group’s conduct of its business, however, if the board of directors of Atlantic determines that any such order or injunction is not material to the business of HF Group, then the board may elect to waive that condition and close the Business Combination.

 

There will be a substantial number of Atlantic’s common stock available for sale in the future that may adversely affect the market price of Atlantic’s common stock.

 

Atlantic currently has authorized share capital of 31,000,000 shares consisting of 30,000,000 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.

 

The shares to be issued in the business combination to the post-Business Combination shareholders, will be subject to certain restrictions on sale and cannot be sold for six (6) months (or in certain cases, twelve (12) months) from the date of the Business Combination. In addition, the holders of the shares to be issued in the Business Combination are parties to a Registration Rights Agreement that would allow the sale of the such shares to occur as early as 60 days from the date of the Business Combination. After the expiration of this restricted period, there will then be an additional 1,106,247 shares that are eligible for trading in the public market. The availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of Atlantic’s shares.

 

27 

 

 

Atlantic’s stockholders will experience immediate dilution as a consequence of the issuance of common stock as consideration in the Business Combination. Having a minority share position may reduce the influence that Atlantic’ current stockholders have on the management of Atlantic.

 

After the Business Combination, assuming no redemptions of common stock for cash, Atlantic’s current public shareholders will own approximately 18.5% of Atlantic, Atlantic’s current directors, officers and affiliates will own approximately 5.6% of Atlantic, and the former stockholders of HF Group will own approximately 75.9% of Atlantic. Assuming redemption by holders of 3,884,660 Atlantic’s outstanding common stock, Atlantic public shareholders will own approximately 4.4% of Atlantic, Atlantic’s current directors, officers and affiliates will own approximately 6.6% of Atlantic, and the former stockholders of HF Group will own approximately 89.0% of Atlantic. The minority position of the former Atlantic shareholders will give them limited influence over the management and operations of the post-Business Combination company.

 

Atlantic is an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make its securities less attractive to investors.

 

Atlantic is an “emerging growth company,” as defined in the JOBS Act. It may remain an “emerging growth company” until the fiscal year ended December 31, 2022. However, if its non-convertible debt issued within a three-year period or revenues exceeds $1 billion, or the market value of its 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, Atlantic would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, Atlantic is not required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, has reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and is exempt from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, Atlantic has elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, Atlantic’s financial statements may not be comparable to companies that comply with public company effective dates. As a result, potential investors may be less likely to invest in our securities.

 

28 

 

 

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 HF Group’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 HF Group,” and “HF Group’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;

 

     HF Group’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 Atlantic’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.

 

29 

 

 

CAPITALIZATION

 

The following table sets forth the capitalization on an audited, historical basis of each of Atlantic and HF Group as of December 31, 2017 after giving effect to the Business Combination, assuming (i) that no holders of Atlantic’s shares of common stock exercise their redemption rights and Atlantic does not make any permitted repurchases and (ii) that the maximum number of holders of Atlantic’s shares of common stock have properly exercised their redemption rights and/or Atlantic has made permitted repurchases.  

 

   Historical     As Adjusted 
   Atlantic   HF Group   Assuming Maximum Redemption   Assuming No Redemption 
     
Cash and cash equivalents  $560,204   $6,086,044   $10,573,837   $50,358,183 
Restricted cash and cash equivalents held in trust account   45,318,185             
                     
Lines of credit       11,894,146    11,894,146    11,894,146 
Long-term debt, including current portion       15,621,704    15,621,704    15,621,704 
Obligations under capital leases, including current portion       552,538    552,538    552,538 
                     
Ordinary shares, subject to possible redemption   39,784,346             
Total stockholders’ equity   5,000,001    26,898,112    31,398,113    71,182,459 
Total capitalization  $44,784,347   $54,966,500   $59,466,501   $99,250,847 

 

30 

 

 

SPECIAL MEETING OF Atlantic SHAREHOLDERS

 

General

 

We are furnishing this proxy statement to the Atlantic shareholders as part of the solicitation of proxies by our board of directors for use at the special meeting of Atlantic shareholders to be held on [●], 2018, and at any adjournment or postponement thereof. This proxy statement is first being furnished to our shareholders on or about [●], 2018 in connection with the vote on the Business Combination Proposal, the Name Change Proposal, the Equity Incentive Plan 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 [●], 2018 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 Atlantic Shareholders

 

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

 

    The proposed business combination resulting in HF Group becoming a subsidiary of Atlantic, which we refer to as the Business Combination. This proposal is referred to as the Business Combination Proposal. For details, see “The Business Combination Proposal” elsewhere in this proxy statement.

 

●    The amendment of the certificate of incorporation of Atlantic to change Atlantic’s name from “Atlantic Acquisition Corp.” to “HF Foods Group Inc.” This proposal is referred to as the Name Change Proposal.

 

●    The 2018 Omnibus Equity Incentive Plan. This proposal is referred to as the Equity Incentive Plan Proposal.

 

    To approve the issuance of more than 20% of the issued and outstanding shares of common stock of Atlantic pursuant to the terms of the Acquisition 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 of Atlantic shareholders for the purpose of soliciting additional proxies in the event that Atlantic does not receive the requisite shareholder vote to approve the Business Combination. This proposal is referred to as the Business Combination Adjournment Proposal. For details, see “The Business Combination Adjournment Proposal.”

 

Recommendation of Atlantic’s Board of Directors

 

Atlantic’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, Atlantic and its shareholders;

 

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

 

     recommends that Atlantic’s shareholders vote “FOR” each of the Business Combination Proposal, the Name Change Proposal, the Equity Incentive Plan Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal.

 

Atlantic’s board of directors have interests that may be different from or in addition to your interests as a shareholder. See “The Business Combination Proposal — Interests of Certain Persons in the Business Combination” in this proxy statement for further information.

 

31 

 

 

Record Date; Who is Entitled to Vote

 

We have fixed the close of business on [●], 2018, as the “record date” for determining those Atlantic shareholders entitled to notice of and to vote at the special meeting. As of the close of business on [●], 2018, there were 5,872,497 shares of Atlantic common stock outstanding and entitled to vote. Each holder of Atlantic common stock is entitled to one vote per share on each of the Business Combination Proposal, the Name Change Proposal, the Equity Incentive Plan Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal. Holders of rights are not entitled to vote at the special meeting.

 

As of [●], 2018, Atlantic’s initial shareholders, either directly or beneficially, owned and were entitled to vote 1,447,497 common stock, or approximately 24.6% of Atlantic’s outstanding common stock. With respect to the Business Combination, Atlantic’s initial shareholders have agreed to vote their respective Atlantic common stock acquired by them in favor of the Business Combination Proposal and related proposals. They have indicated that they intend to vote their shares, as applicable, “FOR” each of the other proposals although there is no agreement in place with respect to these proposals.

 

Quorum and Required Vote for Shareholder Proposals

 

A quorum of Atlantic shareholders is necessary to hold a valid meeting. A quorum will be present at the special meeting of Atlantic shareholders if a majority of the Atlantic 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 Equity Incentive Plan Proposal and the Nasdaq Proposal will require the affirmative vote of the holders of a majority of the issued and outstanding shares of Atlantic common stock entitled to vote thereon as of the record date present in person or represented by proxy at the special meeting; provided, however, that if more than 3,884,660 of the shares of common stock purchased in the IPO demand redemption of their shares of common stock, then the Business Combination will not be completed. Approval of the Name Change Proposal will require the approval of a majority of the issued and outstanding shares of common stock of Atlantic. 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, the Equity Incentive Plan Proposal and the Nasdaq Proposal, but will be the same as a vote against the Name Change Proposal.

 

Voting Your Shares

 

Each Atlantic share of 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 Atlantic common stock, as applicable, 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 Name Change Proposal, the Equity Incentive Plan 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.

 

32 

 

 

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). IN ORDER TO REDEEM YOUR SHARES, YOU MUST CONTINUE TO HOLD YOUR SHARES THROUGH THE CLOSING DATE OF THE BUSINESS COMBINATION AND TENDER YOUR PHYSICAL STOCK CERTIFICATE TO OUR STOCK TRANSFER AGENT AT LEAST ONE BUSINESS DAY PRIOR TO THE CONSUMMATION OF THE BUSINESS COMBINATION. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO ELECTRONICALLY TRANSFER YOUR SHARES TO THE DTC ACCOUNT OF AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC, OUR TRANSFER AGENT, AT LEAST ONE BUSINESS DAY PRIOR TO THE CONSUMMATION OF THE BUSINESS COMBINATION.

 

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 Morrow & Co., LLC, our proxy solicitor, at 312-212-4416, or Atlantic at 646-912-8918.

 

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 Atlantic’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.

 

Redemption Rights

 

Pursuant to Atlantic’s Amended and Restated Certificate of Incorporation, a holder of Atlantic common stock may demand that Atlantic redeem such common stock for cash. Demand may be made by:

 

●      Voting for or against the business combination and electing redemption by checking the appropriate box on the proxy card; and

 

     Tendering the Atlantic common stock for which you are electing redemption by the business day prior to the consummation of the Business Combination by either:

 

●      Delivering certificates representing Atlantic’s common stock to Atlantic’s transfer agent, or

 

     Delivering the Atlantic common stock electronically through the DWAC system; and

 

     Not selling or otherwise transferring the Atlantic common stock until the closing of the Business Combination (tendering your common stock for redemption is not considered selling or transferring your shares).

 

Atlantic shareholders will be entitled to redeem their Atlantic common stock for a full pro rata share of the trust account (currently anticipated to be no less than approximately $10.20 per share) net of taxes payable.

 

In connection with tendering your shares for redemption, you must elect either to physically tender your share certificates to Atlantic’s transfer agent or deliver your shares to the transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, in each case, by the business day prior to the consummation of the Business Combination.

 

33 

 

 

Through the DWAC system, this electronic delivery process can be accomplished by contacting your broker and requesting delivery of your shares through the DWAC system. Delivering shares physically may take significantly longer. In order to obtain a physical stock certificate, a shareholder’s broker and/or clearing broker, DTC, and Atlantic’s transfer agent will need to act together to facilitate this request. There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the tendering broker $45 and the broker would determine whether or not to pass this cost on to the redeeming holder. It is Atlantic’s understanding that shareholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. Atlantic does not have any control over this process or over the brokers or DTC, and it may take longer than two weeks to obtain a physical stock certificate. Shareholders who request physical stock certificates and wish to redeem may be unable to meet the deadline for tendering their common stock before exercising their redemption rights and thus will be unable to redeem their common stock.

 

In the event that a shareholder tenders its common stock and decides prior to the consummation of the Business Combination that it does not want to redeem its common stock, the shareholder may withdraw the tender. In the event that a shareholder tenders common stock and the business combination is not completed, these common stock will not be redeemed for cash and the physical certificates representing these common stock will be returned to the shareholder promptly following the determination that the Business Combination will not be consummated. Atlantic anticipates that a shareholder who tenders common stock for redemption in connection with the vote to approve the Business Combination would receive payment of the redemption price for such common stock soon after the completion of the Business Combination.

 

If properly demanded by Atlantic’s public shareholders, Atlantic will redeem each share into a pro rata portion of the funds available in the Trust Account, calculated as of two business days prior to the anticipated consummation of the Business Combination. As of the record date, this would amount to approximately $10.20 per share. If you exercise your redemption rights, you will be exchanging your Atlantic common stock for cash and will no longer own the common stock. If Atlantic is unable to complete the Business Combination by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, it will liquidate and dissolve and public shareholders would be entitled to receive approximately $10.20 per share upon such liquidation.

 

The Business Combination will not be consummated if the holders of 3,884,660 or more of Atlantic’s common stock exercise their redemption rights.

 

Limitation on Redemption Rights Upon Consummation of the Business Combination

 

The Atlantic Amended and Restated Certificate of Incorporation provide that no Atlantic public shareholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) is permitted from seeking redemption rights, without Atlantic’s prior written consent, with respect to 25% or more of the common stock sold in the IPO. By limiting a shareholder’s ability to redeem no more than 25% of the common stock sold in the IPO, Atlantic believes it has limited the ability of a small group of shareholders to block a transaction which is favored by our other public shareholders. However, this limitation also makes it easier for Atlantic to complete a business combination which is opposed by a significant number of public shareholders.

 

Tendering Common Stock Share Certificates in connection with Redemption Rights

 

Atlantic is requiring the Atlantic public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to Atlantic’s transfer agent, or to deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option prior to the business day immediately preceding the consummation of the proposed Business Combination. There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker whether to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether Atlantic requires holders seeking to exercise redemption rights to tender their common stock. The need to deliver common stock is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated.

 

34 

 

 

Any request for redemption, once made, may be withdrawn at any time up to the business day immediately preceding the consummation of the proposed Business Combination. Furthermore, if a shareholder delivered his certificate for redemption and subsequently decided prior to the date immediately preceding the consummation of the proposed Business Combination not to elect redemption, he may simply request that the transfer agent return the certificate (physically or electronically).

 

A redemption payment will only be made in the event that the proposed Business Combination is consummated. If the proposed Business Combination is not completed for any reason, then public shareholders who exercised their redemption rights would not be entitled to receive the redemption payment. In such case, Atlantic will promptly return the share certificates to the public shareholder.

 

Appraisal Rights

 

Appraisal rights are not available to holders of Atlantic common stock or rights in connection with the proposed Business Combination.

 

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. Atlantic 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. Morrow & Co., LLC,, a proxy solicitation firm that Atlantic has engaged to assist it in soliciting proxies, will be paid its customary fee of approximately $[●] and out-of-pocket expenses.

 

Atlantic 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. Atlantic 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.

 

Atlantic Initial Shareholders

 

In June 2016, 1,150,000 shares of our common stock were sold at a price of approximately $0.02 per share for an aggregate of $25,000. In May 2017, we repurchased and canceled the initial shareholder shares and issued an additional 1,150,000 shares for $25,000, or approximately $0.02 per share. In addition, simultaneously with the consummation of the IPO, we consummated the private placement (“Private Placement”) of 320,000 Units (“Private Placement Units”) at a price of $10.00 per Private Placement Unit, generating total proceeds of $3,200,000, to Atlantic’s initial shareholders and Chardan Capital Markets, LLC. Further, on August 21, 2017, simultaneously with the sale of the over-allotment units, we consummated the private sale of an additional 21,250 Private Placement Units. On August 22, 2017, the underwriters canceled the remainder of the over-allotment option. In connection with the cancellation of the remainder of the over-allotment option, we canceled an aggregate of 43,753 shares of common stock issued to our initial shareholders prior to the IPO and Private Placement. The Private Placement Units are identical to the Units sold in the IPO.

 

Pursuant to a registration rights agreement between us and our initial shareholders are entitled to certain registration rights with respect to the Atlantic rights held by them, as well as the underlying securities. The holders of these securities are entitled to make up to two demands that Atlantic register such securities. The holders of the initial shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these common stock are to be released from escrow. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a business combination. Atlantic will bear the expenses incurred in connection with the filing of any such registration statements.

 

35 

 

 

THE BUSINESS COMBINATION PROPOSAL

 

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

 

General Description of the Business Combination

 

Business Combination with HF Group; Business Combination Consideration

 

Merger Sub will merge into HF Group, resulting in HF Group becoming a wholly owned subsidiary of Atlantic. The issuance of shares of Atlantic 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 Atlantic in the business combination is approximately $199.7 million (calculated as follows: 19,969,833 shares of common stock of Atlantic to be issued to the HF Group shareholders multiplied by $10.00 (the deemed value of the shares in the Acquisition Agreement)).

 

Atlantic currently has authorized share capital of 31,000,000 shares consisting of 30,000,000 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, assuming no redemptions of common stock for cash, Atlantic’s current public shareholders will own approximately 18.5% of Atlantic, Atlantic’s current directors, officers and affiliates will own approximately 5.6% of Atlantic, and the former stockholders of HF Group will own approximately 75.9% of Atlantic. Assuming redemption by holders of 3,884,660 Atlantic’s outstanding common stock, Atlantic public shareholders will own approximately 4.4% of Atlantic, Atlantic’s current directors, officers and affiliates will own approximately 6.6% of Atlantic, and the former stockholders of HF Group will own approximately 89.0% of Atlantic.

 

Assuming the Business Combination Proposal is approved, the parties to the transaction expect to close the Business Combination on [●], 2018.

 

Background of the Business Combination

 

Background of the Acquisition

 

Atlantic Acquisition Corp., or Atlantic, was incorporated in Delaware on May 19, 2016. Atlantic was formed with 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, which we refer to as a “target business.” Atlantic’s efforts to identify a prospective target business will not be limited to any particular industry or geographic region, although it initially intends to focus on target businesses being operated by and/or serving ethnic minorities in the United States, especially within Asian-American communities.

 

Atlantic completed its initial public offering (“IPO”) on August 14, 2017 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. Simultaneous with the consummation of the IPO, we consummated the private placement of 320,000 private Units (“Private Placement Units”) at a price of $10.00 per Private Placement Unit, generating total proceeds of $3,200,000. The Private Placement Units were purchased by Atlantic’s initial shareholders and Chardan Capital Markets, LLC. On August 16, 2017, the underwriters in the IPO exercised the over-allotment option in part. The closing of the sale 425,000 over-allotment option units generating gross proceeds of $4,250,000 took place on August 21, 2017. Simultaneously with the sale of the over-allotment units, we consummated the private sale of an additional 21,250 Private Placement Units.

 

36 

 

 

After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the IPO and private placement were $45,811,383, of which $45,135,000 was deposited into a trust account and the remaining proceeds became available to be used to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses. As of December 31, 2017, we have approximately $560,204 of unused net proceeds that were not deposited into the trust fund to pay future general and administrative expenses. The net proceeds deposited into the trust fund remain on deposit in the trust fund earning interest. As of December 31, 2017, there was $45,318,185 held in the trust fund (including $183,185 of accrued interest, of which we can withdraw to pay income tax or other tax obligation..

 

In accordance with Atlantic’s Amended and Restated Certificate of Incorporation, the amounts held in the trust account may only be used by Atlantic upon the consummation of a business combination, except that there can be released to Atlantic, from time to time, any interest earned on the funds in the trust account that it may need to pay its tax obligations. The remaining interest earned on the funds in the trust account will not be released until the earlier of the completion of a business combination and Atlantic’s liquidation. Atlantic executed a definitive agreement on March 28, 2018 and it must liquidate unless a business combination is consummated by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if it extends the period of time to consummate a business combination. As of December 31, 2017, $45,318,185 was held in deposit in Atlantic’s trust account.

 

Promptly after Atlantic’s IPO, the officers and directors of Atlantic commenced the process of locating potential targets. The Board of Atlantic established a list of criteria for screening potential targets, including but not limited to:

 

•   Credible and compelling growth strategy; 

•   Stable or growing margins; 

  Diversified customer base; 

  Proprietary and/or value-added products/services; 

  Differentiated from competitors; 

  Sustainable competitive advantage; 

  Leading and/or defensible market position; 

  Positive industry and/or secular trends; 

  Large, fragmented sector or sub-sector with high barriers to entry; 

  Strong and experienced management team; and 

  Possession of untapped value-creation opportunities.

 

From the date of the IPO through execution of a non-binding letter of intent with HF Group on January 22, 2018, we considered and reviewed a number of potential target companies. We were contacted and were contacted by a number of individuals and entities who offered to present ideas for acquisition opportunities, including investment banks, financial advisory firms, finders, senior business executives and other entities and individuals known team as knowledgeable about deals in the marketplace such as lawyers and accounting firms.

 

As described in the prospectus for our IPO, Atlantic primarily focused on sourcing and negotiating with companies being operated by and/or serving ethnic minorities in the United States, especially within Asian-American communities. However, we also reviewed a few companies serving other communities in the United States and companies from China referred by investment banks, lawyers and accounting firms. We reviewed the business model, financial performance, capital structure, industry analysis and other information of the potential targets, and participated in in-person or telephonic discussions with them to discuss the potential acquisition opportunities before we determined to move forward with HF Group for our business combination.

 

On August 21, 2017, a few days after Atlantic’s IPO, Tom W. Su, our president was contacted by Zhou Min Ni, Chief Executive Officer and Chairman of HF Group, who knew through contacts in the Chinese business community that Atlantic was a SPAC that had just consummated its IPO and was seeking potential targets for a business combination. Zhou Min Ni gave a brief introduction to HF Group and expressed HF Group’s interest in pursuing a merger with Atlantic.

 

On August 22, 2017, Atlantic’s management team, including Richard Xu, Chairman and CEO, Tom W. Su, President, and Peiling He, Chief Financial Officer, had a conference call with Zhou Min Ni. Zhou Min Ni briefly introduced HF Group’s business, financials, growth plan and capital structure to Atlantic. Atlantic’s team learned that HF Group conducts a foodservice distribution business to Chinese/Asian restaurants, primarily Chinese takeout restaurants in the Southeastern United States. After the call, Atlantic had an internal discussion and decided to make a site visit to HF Group.

 

37 

 

 

On September 1 and 2, 2017, Mr. Xu and Mr. Su visited HF Group’s headquarters in Greensboro, North Carolina, met with Mr. Ni, Chan Sin Wong, HF Group’s President and Jian Ming Ni, Chief Financial Officer. Atlantic and HF Group executed a confidentiality and non-disclosure agreement on September 1, 2017. They discussed the niche market segment of foodservice distribution serving Chinese/Asian restaurants, primarily Chinese take-out restaurants, HF Group’s business model and five-year growth strategy, its capital structure and financing requirements, organizational structure, financial performance and outlook. Mr. Zhou Min Ni described the advantages HF Group had compared to its competitors, its future growth opportunities through acquisitions within the current fragmented market, and the possibility of evolving the business model. Mr. Xu made a brief introduction of Atlantic and its acquisition strategy, the management team and their background on SPAC merger transactions. They discussed the company valuation that HF Group was looking for, the merger structure and timeline for a potential merger. Mr. Xu and Mr. Su also visited the warehouse and company operation at HF Group’s headquarter to understand the daily operation of the company. The Atlantic team requested that HF Group begin to conduct an audit for its financial statements and restructure its organization so that all its operations were in a holding company structure. However, Atlantic advised HF Group that it would continue its search for target companies while HF Group was working on its audit and the restructuring.

 

On September 7, 2017, HF Group engaged Brook & Partners Management Consulting Co., Ltd. as its financial advisor to assist HF Group in preparing its financial statements.

 

On September 17 and 18, 2017, after an initial review of HF Group’s financial information and organization structure, Mr. Xu and Mr. Su visited HF Group’s headquarters again to meet HF Group’s management. They discussed HF Group’s financial performance in 2015 and 2016, projected results for 2017, certain accounting issues and the working plan of corporate restructure.

 

On September 27, 2017, HF Group engaged Friedman LLP (“Friedman”) as its auditor to audit its financial statements.

 

Between September 19, 2017 and January 8, 2018, Atlantic’s Team conducted initial due diligence on HF Group, including: (a) HF Group’s corporate structure and legal documents; (b) HF Group’s financial statements for 2015 and 2016, interim financial statements as of September 30, 2017, and related financial information; (c) initial financial projections for the next three years; (d) material contracts such as bank loans, (e) HF Group’s business plan and future growth strategies; (f) related party transactions; and (g) corporate tax status and issues. Atlantic’s team frequently communicated with HF Group’s team, especially Mr. Jian Ming Ni, to discuss issues that arose during the initial due diligence.

 

Between January 9 and 11, 2018, Atlantic’s team, including Mr. Xu, Mr. Su and Ms. He visited HF Group’s headquarters, met with HF Group’s management team, including Mr. Zhou Min Ni, Ms. Wong, and Mr. Jian Ming Ni, further discussed the company’s business outlook, financial performance, company valuation, and requirements for further financing. Both parties negotiated and agreed upon the key terms for Letter of Intent for the business combination, and then went through the timeline for a merger between Atlantic and HF Group. Atlantic’s team also had a meeting with Mr. Jian Ming Ni and David Puryear and Joe Lingle, the partners of HF Group’s local legal counsel, Puryear and Lingle, P.L.L.C., which were assisting HF Group with Atlantic’s requests for further due diligence. Atlantic discussed with them the merger structure, procedures and timeline.

 

On January 18, 2018, Atlantic 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 merger. On January 10, 2018, HF Group engaged Becker & Poliakoff, LLP (“Becker”) as its legal counsel for the negotiation of the Acquisition Agreement with Atlantic and consummation of the Business Combination.

 

On January 22, 2018, Atlantic and HF Group executed a non-binding Letter of Intent for the future tentative business combination.

 

38 

 

 

On January 30, 2018, Loeb distributed a draft of the Acquisition Agreement to Atlantic and subsequently made revisions based on Atlantic’s review. On February 2, 2018, Atlantic provided a draft Acquisition Agreement to HF Group. From then HF Group and its legal counsels started to review the draft Acquisition Agreement.

 

On February 19, 2018, after reviewing HF Group’s financial information of 2017, Peiling He had a conference with Jian Ming Ni to discuss about the operating results, financial conditions and related issues. On the same date, Becker shared the due diligence documents to Atlantic’s team and Loeb, and Loeb started to conduct legal due diligence.

 

On February 20, 2018, Richard Xu and Tom W. Su had a conference with Zhou Min Ni to negotiate the Group’s valuation, outstanding issues for the Group’s restructure, and key terms of the Acquisition Agreement. On February 21, 2018, Becker contacted Loeb to explain their comments on the merger structure. After internal discussion, Atlantic’s team agreed upon their proposal. On February 22, 2018, Richard Xu, Tom W. Su had another conference with Zhou Min Ni to confirm company valuation and discuss capital structure after merger.

 

On February 27, 2018, HF Group completed its organization restructure and circulated the restructure documents to all parties on March 9, 2018.

 

On March 1, 2018, Loeb received comments on the Acquisition Agreement from Becker and sent a revised copy to Becker and HF Group’s team on March 6, 2018. Between March 6, 2018 and March 15, 2018, HF Group’s team and Loeb had a few calls and email communication with HF Group’s team and Becker, respectively to follow up the outstanding comments and issues for the Acquisition Agreement.

 

On March 14, 2018, HF Group’s auditor, Friedman issued an audit report for HF Group’s financial statements and footnotes for the two years ended December 31, 2016 and 2017.

 

On March 16, 2018, Loeb and Atlantic received from Becker a draft of the schedules for Acquisition Agreement and employment agreement for management. After discussion between Atlantic an HF Group, Becker provided a revised copy later on the same day.

 

On March 19, Becker circulated a revised copy of the Acquisition Agreement. Atlantic and Loeb reviewed and discussed, and then Lobe sent out an updated copy of the Acquisition Agreement, and comments on schedules on March 20, 2018 for HF Group and Becker to follow up. All parties conducted further review and discussion on the revised merger agreement.

 

On March 23, 2018, Atlantics Board of Directors held a meeting at Loebs offices. All of Atlantics directors (Richard Xu, Ren Hua Zheng, Wai Fun, Cheng) attended the meeting. Mr. Su, Ms. He and Mr. Caruso also participated in the meeting. Before the meeting started, copies of the significant transaction documents, in substantially final form, were distributed to the directors. Mr. Caruso described the major terms of the transaction documents to the directors, and Mr. Xu discussed the search for a target business and detailed HF Groups business, market and expansion plans. Ms. He discussed the financial performance of HF Group. In the meeting, the board of directors reviewed HF Groups business, market potential, growth opportunities, and financial performance. The board of directors agreed that, with sufficient resources, HF Group would be well positioned to attempt to consolidate the market for food service distribution serving Chinese/Asian restaurants.

 

The board also reviewed the transaction consideration of approximately $199.7 million to acquire 100% of the shares of HF Group negotiated by the management team with HF Group shareholders and used the market method to assess the companys value.

 

The board of directors considered the amount being paid for HF Group to be reasonable as compared to the group of comparable public companies and determined that it is in the best interests of Atlantics shareholders to proceed with the merger with HF Group. After reviewing the above factors and significant discussion, the Acquisition Agreement was unanimously approved, subject to final negotiation.

 

The Acquisition Agreement was executed by all parties on March 28, 2018. Atlantic filed a Current Report on Form 8-K with the SEC on April 3, 2018, which detailed the Acquisition Agreement and summarized the key deal terms. On [*], 2018, Atlantic filed a Current Report on Form 8-K for a presentation on the transaction and HF Group’s business.

 

39 

 

 

Atlantic Board’s Reasons for the Approval of the Acquisition

 

At a meeting held on March 23, 2018, Atlantic’s board of directors unanimously approved the Acquisition Agreement and the transactions contemplated thereby, determined that the Business Combination is in the best interests of Atlantic and its shareholders, directed that the Acquisition Agreement be submitted to Atlantic’s shareholders for approval and adoption, and recommended that Atlantic’s shareholders approve and adopt the Acquisition Agreement and the transactions contemplated thereby.

 

Before reaching its decision, Atlantic’s board of directors reviewed the results of management’s due diligence, which included:

 

●      research on industry trends, cycles, operating results, financial projections, and other industry factors;

 

     extensive meetings and calls with HF Group’s Chief Executive Officer and management team regarding operations, growth opportunities, operating results, financial projections and among other typical due diligence matters;

 

●      personal visits to HF Group’s headquarters, as well as its distribution center and warehouse locations;

 

●      review of HF Group’s material contracts for bank loans, lease and other legal diligence; and

 

●      financial, tax, and accounting diligence.

 

Atlantic’s board of directors considered a wide variety of factors in connection with its evaluation of the Business Combination. In light of the complexity of those factors, its board of directors, as a whole, did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it took into account in reaching its decision. Individual members of Atlantic’s board of directors may have given different weight to different factors.

 

The board of Atlantic considered the following facts that could be the benefits to be generated from the transaction with HF Group:

 

●      Fast Growing yet fragmented niche market with consolidation opportunity: HF Group is operating in a niche market serving Chinese/Asian restaurants, primarily Chinese takeout restaurants, of which most of the customers are non-Chinese Americans. According to National Restaurant Association, the percentage of Americans which prefer to have food away from home increased from 41.2% in 2014 to 43.8% in 2016. HF Group’s management believes the trend of consuming food away from home also represents a potential increase of demand for Chinese takeout restaurants. In addition, with the growing influence of China’s economy and culture, more and more Americans are consuming Chinese cuisines. However, this market is currently highly fragmented with a great number of small and unsophisticated competitors. HF Group believes that, with its deep insight on the industry and well-developed infrastructure, as a regional leader, there are great opportunities to make acquisition to those unsophisticated competitors and grow itself into a market leader in its market segment throughout the United States.

 

●      Unique Market with High Entry Barriers: Chinese cuisine requires unique cooking techniques such as steaming and wokking, and also require special ingredients and seasonings. Understanding the Chinese cooking culture is important to run Chinese restaurants and, therefore, most Chinese takeout restaurants are operated by Chinese Americans. Due to the language difference, it is not easy for mainstream food distributors to serve business owners. Therefore, Chinese restaurants tend to be loyal to service providers like HF Group, which understands their business needs and is able to serve them efficiently and comfortably.

 

●      A well-developed logistics infrastructure and long-established distribution network: HF Group has developed a sophisticated infrastructure with three distribution centers of a total storage capacity of 400,000 square feet and a fleet of 105 refrigerated vehicles and 12 tractors and 17 trailers. Its distribution network covers ten states in the southeastern United States, including North Carolina, South Carolina, Georgia, Florida, Alabama, Virginia, West Virginia, Tennessee, Kentucky, and Mississippi. In conjunction with the development of its logistics infrastructure and business expansion, HF Group has also developed its proprietary information system to manage its customer relationships and inventory. The logistics infrastructure results in significant advantages for HF Group and results in a high entry barrier for potential competitors. In addition, it is difficult for HF Group’s competitors in the market, which are mostly smaller wholesalers, brokers and grocery stores, to compete with HF given HF’s economies of scale and developed logistics infrastructure.

 

40 

 

 

●     Economies of scale with strong negotiating power: With a large purchase volume and a centralized procurement management, HF Group has strong negotiating power with its vendors and is able to source high quality products at lower prices than many competitors. HF Group’s inventory procurement team is led by Mr. Zhou Min Ni, founder and Chief Executive Officer, who has 20 years of operational experience in the industry. With a developed inventory procurement system supported by strong negotiating power and an experienced management team, HF Group can offer its customers high quality products at competitive prices.

 

●     20 years of operation experience: The key management and founders of HF Group include Mr. Zhou Min Ni, Chief Executive Officer and his wife Chan Sin Wong, President, who founded the business and grew it into a regional leader with three distribution centers serving over 3,200 Chinese restaurants in ten states in the southeastern United States. Besides the two founders, HF Group has also built a team with operational experience, financial expertise and IT knowledge to grow the company. With an experienced management team that has grown the business over the past 20 years, HF Group believes that it is ready to expand its business into other underserved regions through consolidation of small competitors.

 

Atlantic’s management, including the members of its board of directors, are experienced in financial analysis, valuation for merger and acquisition, and has successfully consummated a number of transactions of equity investments, mergers and acquisitions. Although Atlantic’s board of directors did not seek a third party valuation in connection with the Business Combination, the board of directors considered valuation information regarding HF Group, including industry, purchase price and enterprise values of HF Group, projections and comparisons of revenue, gross profit, net income and EBITDA, the growth outlook for the markets that HF Group serves, the abilities of HF Group’s management team, free cash flow characteristics, and ratios of share price to earnings and ratios of total enterprise value to EBITDA. These ratios are widely-accepted evaluation methods. In making its determination that the Business Combination is in the best interests of Atlantic and its shareholders, the board of directors considered the amount of cash available in the trust account and the rollover equity incentives for members of its management. Significant drivers of value that the board considered are listed above.

 

HF Group’s historical and projected financial results as shown in the following tables:

 

Actual and Projected Financial Results 

(dollars in million) 

(unaudited)

 

   For Years ended December 31, 
   2016   2017   2018 
   Actual   Actual   Projected 
             
Net revenue  $279.5   $295.5   $310.3 
Growth of revenue        5.7%   5.0%
Net income attributable to HF Group  $4.7   $9.6   $8.2 
Pro Forma net income attributable to HF Group (1)  $2.5   $6.2   $8.2 
Growth of net income attributable to HF Group        148.0%   32.3%
Adjusted EBITDA  $8.0   $14.0   $14.6 
Growth of Adjusted EBITDA        75.4%   4.3%

 

(1) The majority of the Group’s subsidiaries elected to be taxed as C Corporation, instead of S Corporation, which was effective on January 1, 2018. Pro Forma net income attributable to HF Group was calculated with consideration of the income tax effect as if all the Group’s subsidiaries were taxed as C Corporation since January 1, 2016.

 

(2) For additional information on Adjusted EBITDA, See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of HF Group Holding Corporation - Adjusted EBITDA,” beginning on page 76.

 

The major assumptions used for HF Group’s projections include: (1) HF Group plans to make acquisitions after the merger, assuming that the merger between Atlantic and HF Group will be consummated in the third quarter of 2018; (2) Net revenue for current business is projected to have an organic growth of 5% for 2018 and there will be no acquisitions in 2018; (2) HF Group will maintain the same gross margin for 2018 as it had in 2017; (3) HF Group’s senior management salaries and operating expenses of being a public company will increase by $1.5 million in 2018; (5) HF Group will reduce maintenance by about $0.8 million in 2018 after investing approximately $2 million in new trucks. (6) selling expenses and other operating expenses are projected to increase in proportion to the increase in revenue. (7) interest expenses are projected according to the Company’s outstanding loan balance and a 5% of average interest rate (8) Income tax provision is projected according to estimate future income tax rate.

 

41 

 

 

Atlantic and HF Group do not intend as a matter of course to make public projections as to future sales, earnings, or other results. The prospective financial information set forth in the above tables was prepared solely for the purpose of estimating the enterprise value of HF Group for purposes of the Acquisition Agreement. It was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of HF Group’s management, was prepared on a reasonable basis, reflects the best available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected future financial performance of HF Group. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement are cautioned not to place undue reliance on the prospective financial information. Neither HF Group’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

 

As described in more detail below, the management and board of directors of Atlantic determined that the approximately $199.7 million purchase price in all stocks for HF Group, which were negotiated and agreed by the management of both parties, was appropriate based on its evaluation of HF Group’s market position, growth opportunities, profitability, free cash flow, and the implied trading multiples of similar comparable public companies. Consequently, Atlantic’s management estimated that HF Group has an $231.6 million enterprise value: $199.7 million in equity value, plus $28.1 million of debt and $10.0 million of non-controlling interest, and minus $6.1 million of cash and cash equivalents as of December 31, 2017.

 

After research and analysis of the available information and research report of a large numbers of public companies Atlantic’s management selected the comparable companies after consideration of the similarity of industry, business model, growth perspectives, operation structure, market cap, and others. Atlantic’s board of directors reviewed and analyzed the valuation of the following similar comparable public companies, including: (1) Sysco Corporation (“Sysco”), US Foods Holding Corp. (“US Foods”) and Performance Food Group Company (“Performance”), the three largest foodservice distribution companies serving mainstream restaurants; (2) The Chefs’ Warehouse, Inc. (“Chefs’ Warehouse”), which is a leader targeting on a niche market serving high-end restaurant food distribution; (3) Some Chinese Logistics companies listed in the U.S. or China’s stock exchange and with similar business concepts and operation structure, such as ZTO Express (Cayman) Inc. (“ZTO”), S.F. Holding Co., Ltd. (“S.F.”) and YTO Express Co., Ltd. (“YTO”). Based on the review of equity research reports written for these public companies, Atlantic’s management team understood that the primary valuation metrics used by equity analysts are ratios of share price to earnings (P/E) and total enterprise value to EBITDA (EV/EBITDA). Typically, these metrics are evaluated on the basis of current year’s and one-year forward’s estimated results.

 

The following table displays valuation and multiples of comparable companies and HF Group considered by Atlantics board of directors:

 

            Enterprise       Market Cap/Revenue   EV/EBITDA   P/E
Company Name   Exchange   Ticker    Value   Market Cap   2016A   2017A   2018E   2016A   2017A   2018E   2016A   2017A   2018E
(USD in millions, except multiple data)                                                
Food distributors in the US                                                    
Sysco Corporation   NYSE   SSY   39,199   31,287         0.62         0.57        0.53        15.09        12.05        11.95          32.93        27.37        21.11
US Foods Holding Corp.   NYSE   USFD   10,371   7,104         0.31         0.29        0.28        10.67          9.80          9.15          33.83        26.21        16.60
Performance Food Group Company NYSE   PFGC   4,240   3,128         0.19         0.19        0.18        11.55        10.84          9.79          45.80        32.48        17.47
The Chefs’ Warehouse, Inc.   NasdaqGS   CHEF   912   656         0.55         0.50        0.46        15.33        13.86        12.06        217.22        45.56        30.37
Logistic companies in China                                                    
ZTO Express (Cayman) Inc.    NYSE   ZTO   9,096   10,683         7.50         5.18        3.98        20.17        15.63        10.23          38.15        21.41        16.67
S.F. Holding Co., Ltd.   SHSE   002352   34,208   35,098         3.84         3.11        2.57    N/A         23.13        20.42          52.82        46.27        40.66
YTO Express Co., Ltd.   SHSE    600233   6,857   7,138         2.67         2.25        1.79        21.75    N/A         15.15          32.72        31.11        24.00
                                                     
Average                 14,983           13,585         2.24         1.73        1.40        15.76        14.22        12.68          64.78        32.92        23.84
Median                   9,096             7,138         0.62         0.57        0.53        15.33        13.86        12.06          38.15        31.11        21.11
HF Group                      232                200         0.71         0.68        0.64        29.10        16.50        15.80          80.90        32.20        24.30

 

Source: 4-traders.com - Thomas Routers, data as of March 29, 2018 

 

42 

 

 

These similar publicly traded companies have an average P/E ratio of 32.9x for 2017 earnings and 23.8x based on 2018 estimated earnings. Atlantic’s management measured that a purchase price of $199.7 million for HF Group implied trading multiples of 32.2x of pro forma earnings (adjusted for income tax provision as C corporation) for 2017 and 24.3x estimated earnings for 2018. In addition, the average EV/EBITDA ratio of these similar publicly traded companies was 14.2x for 2017 and estimated to be 12.7x for 2018. An enterprise value of $231.6 million for HF Group implied trading multiples of 16.5x Adjusted EBITDA for 2017 and 15.8x estimated Adjusted EBITDA for 2018. The comparison shows that P/E ratio of HF Group based on the acquisition consideration is close to the average level of these similar public traded companies and its EV/EBITDA is a little higher than the average level similar public traded companies. However, Atlantic’s management and board of directors believed that the proposed transaction was priced at an attractive price when compared to similar publicly traded companies for the following reasons: (1) Sysco, US Foods and Performance included in the selected similar publicly traded companies are three largest foodservice distributors serving the U.S. mainstream market, with over billions of market cap. With many decades of development, they have dominated the mainstream market and the competition in their market segment is very intense. Their growth is very limited due to their large business scale and market cap, and monopoly monitor from the regulators for sizable acquisition in the U.S. As compared with them, HF Group is expected to expand in much faster pace because of its consolidation prospects, unique entry barriers and a leading position in its focused niche market as described above. (2) As making more detail analysis, Atlantic’s management believe Chef’s Warehouse is the most comparable company for HF Group from the perspectives of its market cap, market segment similarity and growth outlook. Chef’s Warehouse is a leader targeting on a niche market serving high-end restaurant food distribution. Currently, it has 45.6x of implied trading multiple of its 2017 earnings and estimated 30.4x of 2018 earnings, which are much higher than HF Group’s implied P/E ratio. (3) The projected financial results of HF Group demonstrated in the above table shows HF Group organic business growth without acquisition in 2018 for HF Group will focus on the merger with Atlantic and does not expect to consummate any acquisition in 2018. However, both Atlantic’s and HF Group’s management believe HF Group is well position to consolidate the niche market segment serving Chinese/Asian restaurants, primarily Chinese takeout restaurants, and will be able to conduct massive acquisition in its niche market and obtain significant growth to be a market leader with the support from capital market after merger.

 

The valuation determined by the analyses of Atlantic’s management is not necessarily indicative of actual values nor predictive of future results, which may be significantly more or less favorable than those suggested by such analyses. Much of the information used in, and accordingly the results of, are inherently subject to substantial uncertainty. The actual result may be significantly different than the projection. In addition, none of the selected comparable companies have characteristics identical to HF Group. The above data set was compiled solely for analysis purpose. An analysis of selected publicly traded companies is not mathematical; rather it involves complex consideration and judgments concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading values of the companies reviewed.

 

Atlantic’s board of directors also gave consideration to the following negative factors associated with the transactions (which are more fully described in the “Risk Factors” section of this proxy statement0 although not weighted or in any order of significance:

 

●     Execution of its growth plan: HF Group plans to expand its business through acquisition of other distributors and wholesalers, which heavily depends on having sufficient capital. If HF Group is not able to obtain equity or debt financing, or borrowings from bank loans, it may not be able to execute its plan to acquire smaller competitors. Even if HF Group is able to make such acquisitions, HF Group may not be able to successfully integrate the acquired business and improve their profitability as it plans, which could have a material adverse effect on its financial condition and future operating performance.

 

●     Change of competitive landscape. The market in which HF Group conducts business is a niche market, which is highly fragmented and which has moderate competition. It may be possible for larger companies with greater financial resources to begin to consolidate the market, which will create more competition and negatively affect HF Group’s business and development plan.

 

●     Corporate governance practices. HF Group’s current management doesn’t have experience in running a public company and conducting the corporate governance of a public company. It may take time for HF Group’s management team to learn to comply with the reporting, disclosure, corporate governance requirements and other listing standards following consummation of the merger. It may need to recruit people with expertise in corporate governance and capital markets to comply with the regulations and communicate with the capital markets after the merger, which may increase the Group’s operating expenses.

 

Atlantic’s board of directors concluded that these risks could be managed or mitigated by HF Group or were unlikely to have a material impact on the business after the closing of the Business Combination. Overall, the potentially negative factors or risks associated with HF Group’s business were outweighed by the potential benefits of the Business Combination to Atlantic and its shareholders. The Atlantic board of directors realized that there can be no assurance about future results, including results considered or expected as disclosed in the foregoing reasons. The foregoing discussion of the material factors considered by the Atlantic’s board of directors is not intended to be exhaustive, but does set forth the principal factors considered by our board.

 

43 

 

 

Other Considerations

 

Atlantic’s board of directors focused its analysis on whether the proposed business combination is likely to generate a return for its shareholders that is greater than if the trust were to be liquidated. Atlantic’s board of directors believes that HF Group is well positioned to consolidate the market in the fast-growing niche market of food service distribution serving Chinese/Asian restaurants, assuming HF Group will get sufficient capital from the sale of equity or by incurring debt. By proceeding with the Business Combination, Atlantic’s public shareholders will also receive 1/10 of a share for each right they hold (which the board believes is equivalent to a 10% return), and they have opportunity to share the potential growth of HF Group, which might generate even greater returns. Conversely, if Atlantic failed to close a business combination, its public shareholders would only receive the pro rata amount of the trust account, and their rights and the shares held by insiders would become worthless.

 

Atlantic’s board of directors unanimously concluded that the Acquisition Agreement with HF Group is in the best interests of Atlantic’s shareholders. The Atlantic board of directors did not obtain a fairness opinion on which to base its assessment. Because of the financial skills and background of its members, Atlantic’s board believes it was qualified to perform the valuation analysis discussed in this section.

 

Recommendation of Atlantic’s Board

 

After careful consideration, Atlantic’s board of directors determined that the Business Combination with HF Group is in the best interests of Atlantic and its shareholders. On the basis of the foregoing, Atlantic’s Board has approved and declared advisable the Business Combination with HF Group 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 — Atlantic’s board of directors have interests that may be different from, or in addition to your interests as a shareholder. See “The Business Combination Proposal — Interests of Certain Persons in the Acquisition” in this proxy statement for further information.

 

Interests of Certain Persons in the Business Combination

 

When you consider the recommendation of Atlantic’s board of directors in favor of adoption of the Business Combination Proposal and other proposals, you should keep in mind that Atlantic’s directors and officers have interests in the Business Combination that are different from, or in addition to, your interests as a shareholder, including:

 

●     If the proposed Business Combination is not completed by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, Atlantic will be required to liquidate. In such event, the 1,106,247 shares of Atlantic common stock held by Atlantic officers, directors and affiliates, which were acquired prior to the IPO for an aggregate purchase price of $25,000, will be worthless. Such common stock had an aggregate market value of approximately $[______] based on the closing price of Atlantic’s common stock of $[____] and Atlantic’s rights $[____], on the Nasdaq Stock Market as of [_________], 2018.

 

●     If Atlantic is forced to liquidate, the Private Placement Units that were purchased for $3,412,500 will be worthless and the entire investment amount will be lost.

 

●     Unless Atlantic consummates the Business Combination, its officers, directors and initial shareholders will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceeded the amount of its working capital.

 

●     Wai Fun Cheng, Ren Hua Zheng, Richard Xu and Tom W. Su have contractually agreed that, if it liquidates prior to the consummation of a business combination, they will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Atlantic for services rendered or contracted for or products sold to it, but only if such a vendor or prospective target business does not execute such a waiver.

 

44 

 

 

As a result, the financial interest of Atlantic’s officers, directors and initial shareholders or their affiliates could influence its officers’ and directors’ motivation in selecting HF Group as a target and therefore there may be a conflict of interest when it determined that the Business Combination is in the shareholders’ best interest. In addition, the exercise of Atlantic’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the transaction may result in a conflict of interest when determining whether such changes or waivers are appropriate and in our shareholders’ best interest.

 

Anticipated Accounting Treatment

 

The Business Combination will be treated by Atlantic as a reverse Business Combination under the acquisition method of accounting in accordance with GAAP. For accounting purposes, HF Group is considered to be acquiring Atlantic in this transaction. Therefore, the aggregate consideration paid in connection with the Business Combination will be allocated to Atlantic tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of Atlantic 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 Acquisition Agreement are not subject to any additional federal or state regulatory requirements or approvals, including the Hart-Scott Rodino Antitrust Improvements Act of 1976, except for filings with the States of Delaware and North Carolina necessary to effectuate the transactions contemplated by the Acquisition Agreement.

 

45 

 

 

THE ACQUISITION AGREEMENT

 

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

 

Business Combination with HF Group; Acquisition Consideration

 

Upon the closing of the transactions contemplated in the Agreement, Atlantic will acquire 100% of the issued and outstanding securities of HF Group, in exchange for 19,969,833 shares of Atlantic common stock. We refer to this transaction as the “Business Combination.”

 

Representations and Warranties

 

In the Acquisition Agreement, HF Group makes certain representations and warranties (with certain exceptions set forth in the disclosure schedule to the Agreement) relating to, among other things: (a) proper corporate organization of HF Group and its subsidiaries and other companies in which it is a minority shareholder and similar corporate matters; (b) authorization, execution, delivery and enforceability of the Agreement and other transaction documents; (c) absence of conflicts; (d) capital structure and title to units; (e) accuracy of charter documents and corporate records; (f) related-party 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) absence of warranty claims; (q) employment and labor matters; (r) taxes and audits; (s) environmental matters; (t) brokers and finders; (u) investment representations and transfer restrictions; (v) that HF Group is not an investment company; and (w) other customary representations and warranties.

 

In the Acquisition Agreement, Atlantic makes certain representations and warranties relating to, among other things: (a) title to shares; (b) proper corporate organization and similar corporate matters; (c) authorization, execution, delivery and enforceability of the Agreement and other transaction documents; (d) brokers and finders; (e) capital structure; (f) validity of share issuance; (g) minimum trust fund amount; and (g) validity of Nasdaq Stock Market listing; and (h) SEC filing requirements.

 

Conduct Prior to Closing; Covenants

 

HF Group has agreed to operate the business in the ordinary course, consistent with past practices, prior to the closing of the Acquisition (with certain exceptions) and not to take certain specified actions without the prior written consent of Atlantic.

 

The Agreement also contains covenants of HF Group providing for:

 

     HF Group and its subsidiaries and portfolio companies to provide access to their books and records and providing information relating to HF Group’s business to Parent, its counsel and other representatives; and

 

●     HF Group to deliver the financial statements required by the company to make applicable filings with the SEC.

 

Conditions to Closing

 

General Conditions

 

Consummation of the Acquisition Agreement and the acquisition is conditioned on, among other things, the absence of any order, stay, judgment or decree by any government agency or any pending or threatened litigation seeking to enjoin, modify, amend or prohibit the Acquisition.

 

46 

 

 

HF Group’s Conditions to Closing

 

The obligations of the Representing Parties to consummate the transactions contemplated by the Acquisition Agreement, in addition to the conditions described above, are conditioned upon (i) Atlantic and HF Group complying with all of their respective obligations required to be performed by them pursuant to the required covenants in the Acquisition Agreement, and (ii) the representations and warranties of Atlantic being true on and as of the closing date of the Acquisition.

 

Atlantic’s and HF Group’s Conditions to Closing

 

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

 

     the representations and warranties of HF Group being true on and as of the closing date of the acquisition and HF Group complying with all required covenants in the Acquisition Agreement;

 

●     there having been no material adverse effect to HF Group’s business, regardless of whether it involved a known risk;

 

●     receipt by HF Group of third party consents;

 

●     HF Group receiving a legal opinion from HF Group’s counsel; and

 

     the holders of common stock of Atlantic having approved the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement.

 

Termination

 

The Acquisition Agreement may be terminated and/or abandoned at any time prior to the closing, whether before or after approval of the proposals being presented to Atlantic’s shareholders, by:

 

●     Either Atlantic or HF Group if the closing has not occurred by September 30, 2018 (unless extended by mutual agreement of the parties);

 

●     Either Atlantic or HF Group, if HF Group or any of its stockholders has materially breached any representation, warranty, agreement or covenant contained in the Acquisition Agreement and such breach has not been cured within fifteen days following the receipt by HF Group or any of its stockholders, as applicable, of HF Group’s written notice to terminate the Agreement; or

 

●     HF Group, if HF Group has materially breached any representation, warranty, agreement or covenant contained in the Agreement and such breach has not been cured within fifteen days following the receipt by the HF Group of HF Group’s written notice to terminate the Acquisition Agreement.

 

Effect of Termination

 

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

 

Indemnification

 

Until the one year anniversary of the date of the Agreement, the Representing Parties have agreed, jointly and severally, to indemnify HF Group and its affiliates from any damages arising from (a) any breach of any representation, warranty or covenant made by the Representing Parties, (b) any actions by any third parties with respect to HF Group’s business 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 or prior to the closing date, (d) any claims by any employee of HF Group or any of its subsidiaries or portfolio companies, (e) any taxes attributable to the period prior to closing or (f) any sales, use, transfer or similar tax imposed on HF Group or its affiliates as a result of the transactions contemplated by the Agreement. The indemnification obligations of the Representing Parties are capped at $39,939,665, except that such limitation shall not apply with respect to any losses relating to or arising under or in connection with breaches of certain fundamental representation as set forth in the Acquisition Agreement. Such indemnification can be satisfied with the cancellation of Atlantic common stock. Shares of Atlantic common stock representing 15% of the aggregate amount of shares to be issued to the stockholders of HF Group pursuant to the Business Combination are to be held in escrow for such purpose and will be valued at $10.00 per share.

 

47 

 

 

The foregoing summary of the Acquisition 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 Acquisition, Atlantic, HF Group, Zhou Min Ni, as representative of the stockholders of HF Group, and Loeb & Loeb LLP, as escrow agent, will enter into an Escrow Agreement at closing, pursuant to which Atlantic shall deposit shares of Atlantic common stock, representing 15% of the aggregate amount of shares ([●] shares) to be issued to the stockholders of HF Group pursuant to the Business Combination, to secure the indemnification obligations of the stockholders of HF Group as contemplated by the Acquisition Agreement.

 

Lock-up Agreement

 

In connection with the Acquisition, Atlantic and each of the HF Group shareholders will enter into a Lock-Up Agreement at closing, pursuant to which the stockholders of HF Group shall agree, for a period of 365 days from the closing of the Acquisition, not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of common stock (including any securities convertible into, or exchangeable for, or representing the rights to receive, shares of common stock), enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of such shares, or to enter into any transaction, swap, hedge or other arrangement, or engage in any short sales with respect to any security of Atlantic.

 

Registration Rights Agreement

 

In connection with the Acquisition, Atlantic and the HF Group shareholders will enter into a Registration Rights Agreement at closing to provide for the registration of the common stock being issued to the HF Group shareholders in connection with the Business Combination. The HF Group shareholders will be entitled to “piggy-back” registration rights with respect to registration statements filed following the consummation of the Business Combination. Atlantic will bear the expenses incurred in connection with the filing of any such registration statements.

 

Employment Agreements

 

In connection with the Acquisition, Atlantic will enter into separate employment agreements at closing with each of Zhou Min Ni, Chan Sin Wong and Jian Ming Ni.

 

48 

 

 

THE NAME CHANGE PROPOSAL

 

Purpose of the Name Change Proposal

 

In connection with the transactions contemplated by the Acquisition Agreement, Atlantic and HF Group have agreed that post-closing, Atlantic will change its name to “HF Foods Group Inc.” in order to represent the business of the combined company after the closing of the Business Combination.

 

Required Vote

 

Approval of the Name Change Proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Atlantic common stock. Adoption of the Name Change Proposal is conditioned upon the adoption of the Business Combination Proposal.

 

Board Recommendation

 

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

 

49 

 

 

THE EQUITY INCENTIVE PLAN PROPOSAL

 

Purpose and Background of the Proposal to Adopt the 2018 Equity Incentive Plan

 

In connection with the transactions contemplated by the Merger Agreement and the Business Combination, Atlantic and the HF Group have agreed that post-closing, Atlantic should adopt a stock-based equity plan to provide for equity based incentives and compensation. The 2018 Omnibus Equity Incentive Plan, or the 2018 Plan, if adopted, will permit Atlantic to provide stock options and other equity awards to its employees, senior executive officers, non-employee directors and eligible consultants. The 2018 Plan is attached to this proxy statement as Annex B, and is incorporated into this proxy statement by reference.

 

The board believes that Atlantic competes with numerous other companies for a limited number of talented persons willing to join a board of directors or serve as executive officers of a public company. As a result, it is important that Atlantic be able to provide incentives to such persons. Since Atlantic intends to carefully manage its cash resources, the board believes that equity compensation awards must play an important role in attracting employees, executives, board members and consultants. Additionally, Atlantic intends to undertake future acquisitions, and the adoption of the 2018 Plan will allow for flexibility in negotiating the terms of future acquisitions, including maintaining management of entities which may be acquired. It is the board’s opinion that the grant of stock options and other equity awards has several attractive characteristics, both to the recipient and Atlantic. First, granting stock options and other equity awards provide incentive to individuals because they share in the growth of Atlantic. In this manner, employees, non-employee directors and consultants have the same interest as the stockholders of Atlantic. Second, the grant of equity-based awards preserves our cash resources. The board believes that the adoption of the 2016 Plan is in the best interests of Atlantic and its stockholders.

 

Additionally, under the rules of Nasdaq, Atlantic is required to obtained shareholder approval for equity based compensation to executive officers and directors, and therefore the Board of Directors has determined to submit this matter for shareholder approval.

 

Required Vote

 

Approval of the Equity Incentive Plan Proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Atlantic common stock. Adoption of the Equity Incentive Plan Proposal is conditioned upon the adoption of the Business Combination Proposal.

 

Board Recommendation

 

The Board of Directors recommends a vote “FOR” adoption of the Equity Incentive Plan Proposal.

 

Summary of the 2018 Omnibus Equity Incentive Plan

 

The Board of Directors of Atlantic has approved the 2018 Omnibus Equity Incentive Plan. Under the 2018 Plan as approved, and being submitted for shareholder approval, there is a reserve of 3,000,000 shares issuable as awards under the 2018 Plan.

 

Under the 2018 Plan, options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other share-based awards and performance awards may be granted to eligible participants. Subject to the reservation of authority by our board of directors to administer the 2018 Plan and act as the committee thereunder, the 2018 Plan will be administered by a Compensation Committee (the “Committee”) of the Board of Directors, which will have the authority to determine the terms and conditions of awards, and to interpret and administer the 2018 Plan. No awards have been made under the 2018 plan or are contingent upon adoption of the 2018 Plan.

 

Shares Available. The maximum number of shares of our common stock that are available for awards under the 2018 Plan (subject to the adjustment provisions described under “Adjustments upon Changes in Capitalization” below), is 3,000,000 shares. If any shares of common stock subject to an award under the 2018 Plan, are forfeited, expire or are settled for cash (in whole or in part), the shares subject to the award may be used again for awards under the 2018 Plan to the extent of the forfeiture, expiration or cash settlement.

 

50 

 

  

Eligibility. Options, stock appreciation rights (“SARs”), restricted stock awards, restricted stock unit awards, other share-based awards and performance awards may be granted under the 2018 Plan. Options may be either “incentive stock options,” as defined in Section 422 of the Code, or nonstatutory stock options. Awards may be granted under the 2018 Plan to any employee, non-employee member of our board of directors, consultant or advisor who is a natural person and provides services to us or a subsidiary, except for incentive stock options which may be granted only to employees.

 

Administration. Subject to the reservation of authority by our board of directors to administer the 2018 Plan and act as the committee thereunder, the 2018 Plan will be administered by the Committee. The Committee will have the authority to determine the terms and conditions of awards, and to interpret and administer the 2018 Plan. The Board of Directors has not yet established the Committee.

 

Stock Options. The Committee may grant either nonstatutory stock options or incentive stock options. A stock option entitles the recipient to purchase a specified number of shares of our common stock at a fixed price subject to terms and conditions set by the Committee. The purchase price of shares of common stock covered by a stock option cannot be less than 100% of the fair market value of the common stock on the date the option is granted. Fair market value of the common stock is generally equal to the closing price for the common stock on the Principal Exchange on the date the option is granted (or if there was no closing price on that date, on the last preceding date on which a closing price was reported). Options are subject to terms and conditions set by the Committee. Options granted under the 2018 Plan expire no later than 10 years from the date of grant.

 

Stock Appreciation Rights. The Committee is authorized to grant SARs in conjunction with a stock option or other award granted under the 2018 Plan, and to grant SARs separately. The grant price of a SAR may not be less than 100% of the fair market value of a share of our common stock on the date the SAR is granted. The term of an SAR may be no more than 10 years from the date of grant. SARs are subject to terms and conditions set by the Committee. Upon exercise of an SAR, the participant will have the right to receive the excess of the fair market value of the shares covered by the SAR on the date of exercise over the grant price.

 

Restricted Stock Awards. Restricted stock awards may be issued either alone or in addition to other awards granted under the 2018 Plan, and are also available as a form of payment of performance awards and other earned cash-based incentive compensation. The Committee determines the terms and conditions of restricted stock awards, including the number of shares of common stock granted, and conditions for vesting that must be satisfied, which may be based principally or solely on continued provision of services, and also may include a performance-based component. Unless otherwise provided in the award agreement, the holder of a restricted stock award will have the rights of a stockholder from the date of grant of the award, including the right to vote the shares of common stock and the right to receive distributions on the shares. Except as otherwise provided in the award agreement, any shares or other property (other than cash) distributed with respect to the award will be subject to the same restrictions as the award.

 

Restricted Stock Unit Awards. Awards of restricted stock units having a value equal to an identical number of shares of common stock may be granted either alone or in addition to other awards granted under the 2018 Plan, and are also available as a form of payment of performance awards granted under the 2018 Plan and other earned cash-based incentive compensation. The Committee determines the terms and conditions of restricted stock units, including conditions for vesting that must be satisfied, which may be based principally or solely on continued provision of services, and also may include a performance-based component. The holder of a restricted stock unit award will not have voting rights with respect to the award. Except as otherwise provided in the award agreement, any shares or other property (other than cash) distributed with respect to the award will be subject to the same restrictions as the award.

 

Other Share-Based Awards. The 2018 Plan also provides for the award of shares of our common stock and other awards that are valued by reference to our common stock or other property (“Other Share-Based Awards”). Other Share-Based Awards may be paid in cash, shares of our common stock or other property, or a combination thereof, as determined by the Committee. The Committee determines the terms and conditions of Other Share-Based Awards, including any conditions for vesting that must be satisfied.

 

51 

 

 

Performance Awards. Performance awards provide participants with the opportunity to receive shares of our common stock, cash or other property based on performance and other vesting conditions. Performance awards may be granted from time to time as determined at the discretion of the Committee. Subject to the share limit and maximum dollar value set forth above under “Limits on Awards to Participants,” the Committee has the discretion to determine (i) the number of shares of common stock under, or the dollar value of, a performance award and (ii) the conditions that must be satisfied for grant or for vesting, which typically will be based principally or solely on achievement of performance goals. At the Committee’s discretion, performance goals for restricted stock awards, restricted stock units, performance awards or other share-based awards may be based on the attainment of specified levels of one or more of the following criteria: (a) earnings per share; (b) operating income (before or after taxes); (c) net income (before or after taxes); (d) net sales; (e) cash flow; (f) gross profit; (g) gross profit return on investment; (h) gross margin return on investment; (i) gross margin; (j) working capital; (k) earnings before interest and taxes; (l) earnings before interest, tax, depreciation and amortization; (m) return on equity; (n) return on assets; (o) return on capital; (p) return on invested capital; (q) net revenues; (r) gross revenues; (s) revenue growth or product revenue growth; (t) total shareholder return; (u) appreciation in and/or maintenance of the company’s market capitalization; (v) cash flow or cash flow per share (before or after dividends); (w) economic value added; (x) the fair market value of the shares of the company’s common stock; (y) the growth in the value of an investment in the company’s common stock assuming the reinvestment of dividends; (z) reduction in expenses or improvement in or attainment of expense levels or working capital levels; (aa) financing and other capital raising transactions; (bb) debt reductions; (cc) regulatory achievements (including submitting or filing applications or other documents with regulatory authorities, having any such applications or other documents accepted for review by the applicable regulatory authority or receiving approval of any such applications or other documents); or (dd) strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property). The performance goals may be based solely by reference to Atlantic’s performance or the performance of one or more of its subsidiaries, divisions, business segments or business units, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. The Committee may also exclude under the terms of the performance awards the impact of an event or occurrence which the Committee determines should appropriately be excluded, including (i) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges, (ii) an event either not directly related to our operations or not within the reasonable control of our management, or (iii) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles.

 

No Repricing. The 2018 Plan prohibits option and SAR repricings (other than to reflect stock splits, spin-offs or other corporate events described under “Adjustments upon Changes in Capitalization” below, or in connection with a change in control of the company) unless stockholder approval is obtained.

 

Nontransferability of Awards. No award under the 2018 Plan, and no shares subject to awards that have not been issued or as to which any applicable restriction, performance or deferral period has not lapsed, is transferable other than by will or the laws of descent and distribution, and an award may be exercised during the participant’s lifetime only by the participant or the participant’s estate, guardian or legal representative, except that the Committee may provide in an award agreement that a participant may transfer an award without consideration to certain family members, family trusts, or other family-owned entities, or for charitable donations under such terms and conditions determined by the Committee.

 

Limits on Awards to Participants. Subject to adjustment as provided for in the 2018 Plan, no participant may (i) be granted options or SARs during any 12-month period with respect to more than ______ shares and (ii) earn more than ____ shares for each twelve (12) months in the vesting period or performance period with respect to restricted stock awards, restricted stock unit awards, performance awards and/or other share-based awards that are intended to comply with the performance-based exception under Code Section 162(m) and are denominated in shares. In addition to the foregoing, the maximum dollar value that may be earned by any Participant for each twelve (12) months in a performance period with respect to performance awards that are intended to comply with the performance-based exception under Code Section 162(m) and are denominated in cash is $_______. If an award is cancelled, the cancelled award shall continue to be counted toward the applicable limitation.

 

52 

 

 

Amendment and Termination. The 2018 Plan may be amended or terminated by our board of directors except that stockholder approval is required for any amendment to the 2018 Plan which increases the number of shares of common stock available for awards under the 2018 Plan, expands the types of awards available under the 2018 Plan, materially expands the class of persons eligible to participate in the 2018 Plan, permits the grant of options or SARs with an exercise or grant price of less than 100% of fair market value on the date of grant, amends the provisions of the 2018 Plan prohibiting the repricing of options and SARs as described above, increases the limits on shares subject to awards, or otherwise materially increases the benefits to participants under the 2018 Plan. The 2018 Plan will expire on the 10th anniversary of the Effective Date, except with respect to awards then outstanding, and no further awards may be granted thereafter.

 

Summary of Federal Income Tax Consequences

 

The following discussion summarizes certain federal income tax considerations of awards under the 2018 Plan. However, it does not purport to be complete and does not describe the state, local or foreign tax considerations or the consequences for any particular individual.

 

Stock Options. A participant does not realize ordinary income on the grant of a stock option. Upon exercise of a nonstatutory stock option, the participant will realize ordinary income equal to the excess of the fair market value of the shares of common stock over the option exercise price. The cost basis of the shares acquired for capital gain treatment is their fair market value at the time of exercise. Upon exercise of an incentive stock option, the excess of the fair market value of the shares of common stock acquired over the option exercise price will be an item of tax preference to the participant, which may be subject to an alternative minimum tax for the year of exercise. If no disposition of the shares is made within two years from the date of granting of the incentive stock option or within one year after the transfer of the shares to the participant, the participant does not realize ordinary income for tax purposes as a result of exercising the incentive stock option. Instead, the sale of the shares will be a capital transaction. In this case, the tax basis of the shares received for capital gain treatment is the option exercise price and any gain or loss realized on the sale of the shares is long-term capital gain or loss. If the recipient disposes of the shares of common stock acquired upon exercise of the incentive stock option within either of the time periods described above, the recipient will generally realize as ordinary income an amount equal to the lesser of (i) the fair market value of such shares of common stock on the date of exercise over the exercise price, or (ii) the amount realized upon disposition over the exercise price.

 

Stock Appreciation Rights. No ordinary income will be realized by a participant in connection with the grant of a SAR. When the SAR is exercised, the participant will realize ordinary income in an amount equal to the sum of the amount of any cash received and the fair market value of the shares of common stock or other property received upon the exercise.

 

Restricted Stock, Performance and Restricted Stock Unit Awards. The participant will not realize ordinary income on the grant of a restricted stock award (or a performance award if the shares of common stock are issued on grant), but will realize ordinary income when the shares subject to the award become vested in an amount equal to the excess of (i) the fair market value of the shares on the vesting date over (ii) the purchase price, if any, paid for the shares. The participant may, however, elect under Section 83(b) of the Code to include as ordinary income in the year the shares are granted an amount equal to the excess of (i) the fair market value of the shares on the date of issuance, over (ii) the purchase price, if any, paid for the shares. If the Section 83(b) election is made, the participant will not realize any additional taxable income when the shares become vested. The participant will not realize ordinary income on the grant of a restricted stock unit award, (or a performance award under which shares of common stock are not issued on grant), but will realize ordinary income when the shares subject to the award are issued to the participant after they become vested. The amount of ordinary income will be equal to the excess of (i) the fair market value of the shares on the date they are issued over (ii) the purchase price, if any, paid for the award. Upon disposition of shares of common stock acquired under a restricted stock award, performance award or restricted stock unit award, the participant will realize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for the shares plus any amount realized as ordinary income upon grant (or vesting) of the shares.

 

53 

 

 

Company Tax Deduction. Atlantic generally will be entitled to a tax deduction in connection with an award under the 2018 Plan, subject to the provisions of Section 162(m) of the Code, in an amount equal to the ordinary income realized by a participant at the time the participant realizes such income (for example, on the exercise of a nonqualified stock option). Section 162(m) of the Code may limit the deductibility of compensation paid to the company’s chief executive officer and to each of the next three most highly compensated executive officers other than the company’s chief financial officer. Under Section 162(m) of the Code, the annual compensation paid to any of these executives will be deductible to the extent that it does not exceed $1,000,000 or if the compensation is “performance-based compensation” under Section 162(m) of the Code. Compensation attributable to stock options and SARs under the 2018 Plan should qualify as performance-based compensation if the awards are made by the Committee (provided the Committee is composed of “outside directors” (as defined in Section 162(m) of the Code)) and the exercise or grant price of the award is no less than the fair market value of our common stock on the date of grant. Compensation attributable to restricted stock awards, restricted stock unit awards and performance awards should qualify as performance-based compensation if (i) the compensation is approved by the Committee, (ii) the compensation is paid only upon the achievement of an objective performance goal established in writing by the Committee while the outcome is substantially uncertain, and (iii) the Committee certifies in writing prior to the payment of the compensation that the performance goal has been satisfied.

 

New Plan Benefits

Any future awards under the 2018 Plan will be made at the discretion of the Committee as described above. Consequently, Atlantic cannot determine at this time, with respect to any particular person or group, the number or value of the awards that will be granted in the future pursuant to the 2018 Plan.

 

54 

 

 

THE NASDAQ PROPOSAL

 

Background and Overview

 

Under the terms of the Acquisition Agreement, Atlantic is required to issue more than 20% of its issued and outstanding shares of common stock to the HF Group shareholder. Because of the issuance of in excess of 20% of the outstanding shares of common stock of Atlantic, 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, Atlantic 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 Atlantic stockholders and would afford such stockholders a smaller percentage interest in the voting power, liquidation value and aggregate book value of Atlantic.

 

If the Nasdaq Proposal is not approved and we consummate the Business Combination on its current terms, Atlantic 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.

 

It is a condition to the obligations of HF Group to close the Business Combination that Atlantic’s common stock remain listed on the Nasdaq Capital Market. As a result, if the Nasdaq Proposal is not adopted, the Business Combination may not be completed.

 

Required Vote

 

Approval of the Nasdaq Proposal requires the affirmative vote of the holders of a majority of the shares of Atlantic common stock represented in person or by proxy at the special meeting of Atlantic stockholders and entitled to vote thereon. Adoption of the Nasdaq Proposal is conditioned upon the adoption of the Equity Incentive Plan Proposal.

 

55 

 

 

Board Recommendation

 

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

 

56 

 

 

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 Acquisition Agreement and the transactions contemplated thereby, the Atlantic board of directors may adjourn the special meeting to a later date, or dates, if necessary, to permit further solicitation of proxies. In no event will Atlantic seek adjournment which would result in soliciting of proxies, having a shareholder vote, or otherwise consummating a business combination after the date that is 18 months from the closing of the IPO, or February 14, 2019, or after the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination.

 

Required Vote

 

Approval of the Business Combination Adjournment Proposal requires the affirmative vote of the holders of two-thirds of the Atlantic common stock as of the record date represented in person or by proxy at the special meeting of Atlantic 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.

 

57 

 

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF Hf group Holding Corporation 

 

The following table sets forth selected historical financial information derived from HF Group’s audited consolidated financial statements for the year ended December 31, 2017 and 2016, which are included elsewhere in this proxy statement.

 

The information is only a summary and should be read in conjunction with HF Group’s consolidated financial statements and related notes, and “HF Group’s 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 HF Group or Atlantic.

 

   For the Years Ended December 31,  
   2017     2016   
         
Net revenue   295,549,980    279,500,235 
Cost of sales   251,615,013    243,193,112 
      Gross profit   43,934,967    36,307,123 
Distribution, selling and administrative expenses   32,924,877    30,578,840 
      Income from operations   11,010,090    5,728,283 
Interest income   21,105    1,634 
Interest expenses and bank charges   (1,339,897)   (1,076,088)
Other income   1,010,038    369,379 
      Income before income tax provision   10,701,336    5,023,208 
Provision for income taxes   623,266    191,922 
      Net income   10,078,070    4,831,286 
Less: net income attributable to non-controlling interest   431,999    116,122 
     Net income attributable to HF Group Holding Corporation  $9,646,071   $4,715,164 
           
Cash Flow Data:          
Net cash provided by operating activities  $15,286,862   $4,554,280 
Net cash used in investing activities  $(5,468,604)  $(429,125)
Net cash used in financing activities  $(9,688,359)  $(2,458,592)

 

   December 31, 
Balance Sheet Data:  2017   2016 
Cash  $6,086,044   $5,956,145 
Total assets  $80,657,900   $72,616,118 
Total liabilities  $53,759,788   $48,257,898 
Total shareholders’ equity  $26,898,112   $24,358,220 

  

58 

 

 

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Atlantic 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 December 31, 2017 combines the audited historical consolidated balance sheet of Atlantic as of December 31, 2017 with the audited historical consolidated balance sheet of HF Group as of December 31, 2017, 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, 2017 combines the audited historical statement of operations of Atlantic for year ended December 31, 2017 with the audited historical consolidated statement of operations of HF Group for the year ended December 31, 2017, giving effect to the transactions as if they had been consummated as of January 1, 2017.

 

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 HF Group was derived from the audited consolidated financial statements of HF Group for the year ended December 31, 2017 included elsewhere in this proxy statement. The historical financial information of Atlantic was derived from the audited financial statements of Atlantic for the year ended December 31, 2017 included elsewhere in this proxy statement. This information should be read together with HF Group’s and Atlantic’ audited financial statements and related notes, “HF Group Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Other Information Related to Atlantic — Atlantic’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. Atlantic and HF Group have not had any historical relationship prior to the transactions. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

 

The transactions will be accounted for as a “reverse merger” and recapitalization at the date of the consummation of the transaction since the shareholders of HF Group will own at least 75.9% of the outstanding common shares of Atlantic immediately following the completion of the transactions (assuming no holder of Atlantic common stock seeks conversion rights) and HF Group’s operations will be the operations of Atlantic following the transactions. Accordingly, HF Group will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of HF Group. As a result, the assets and liabilities and the historical operations that will be reflected in the Atlantic financial statements after consummation of the transactions will be those of HF Group and will be recorded at the historical cost basis of HF Group. Atlantic’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of HF Group upon consummation of the transactions.

 

   Atlantic Acquisition Corp. Historical   HF Group Holding Corporation Historical   (1)
Pro Forma Unaudited, Combined Assuming Maximum Conversion
   (2)
Pro Forma Unaudited, Combined Assuming No Conversion
 
                 
Year ended December 31, 2017                    
Net revenue  $   $295,549,980   $295,549,980   $295,549,980 
Gross profit  $   $43,934,967   $43,934,967   $43,934,967 
Net (Loss) income attributable to common stock holders  $(75,729)  $9,646,071   $9,570,342   $9,700,985 
Net income (loss) per share - basic and diluted  $(0.06)       $0.43   $0.37 
                     
As of December 31, 2017                    
Cash  $560,204   $6,086,044   $10,573,837   $50,358,183 
Total assets  $45,927,972   $80,657,900   $85,195,276   $124,979,622 
Total liabilities  $1,143,625   $53,759,788   $53,797,163   $53,797,163 
Total shareholders’ equity  $5,000,001   $26,898,112   $31,398,113   $71,182,459 

 

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

 

59 

 

 

COMPARATIVE PER SHARE DATA

 

The following table sets forth the per share data of Atlantic for the year ended December 31, 2017 on a stand-alone basis, and the unaudited pro forma combined per share ownership information of Atlantic and HF Group after giving effect to the transactions.

 

The unaudited pro forma condensed combined financial statements have been prepared using assumptions with two different levels of redemptions of Atlantic’s shares of common stock. Assumption (1): The shareholders of maximum shares of 3,884,660 of Atlantic’s public shares will elect to convert their shares into cash as permitted by Atlantic’s amended and restated certificate of incorporation. The HF Group shareholders will own approximately 89.0% of Atlantic’s shares to be outstanding immediately after the transactions, and Atlantic’ shareholders will own approximately 11.0% of Atlantic’s outstanding shares. Assumption (2): no shareholders will elect to convert their shares into cash. The HF Group shareholders will own approximately 75.9% of Atlantic’s shares to be outstanding immediately after the transactions, and the Atlantic’ s shareholders will own approximately 24.1% of Atlantic’s outstanding shares.

 

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 Atlantic and HF Group and related notes that are included elsewhere in this proxy statement. The unaudited Atlantic and HF Group’s 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 Atlantic and HF Group would have been had the companies been combined during the period presented.

 

   Atlantic Acquisition Corp. Historical   HF Group Holding Corporation Historical  (1)
Pro Forma Unaudited, Combined Assuming Maximum Conversion
   (2)
Pro Forma Unaudited, Combined Assuming No Conversion
 
                
Year ended December 31, 2017                  
Net (Loss) income attributable to common stock holders  $(75,729)$ 9,646,071  $9,570,342   $9,700,985 
Weighted Average Shares Outstanding — Basic and Diluted   1,368,301       22,434,295    26,318,955 
(Loss) Income or Pro Forma Earnings Per Share – Basic and Diluted  $(0.06)     $0.43   $0.37 
                   
As of December 31, 2017                  
Shares Outstanding as of December 31, 2017  $1,987,837      $22,434,295   $26,318,955 
Book Value Per Share or Pro Forma Book Value Per Share  $2.52      $1.40   $2.70 

 

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

 

60 

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

Atlantic 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 December 31, 2017 combines the audited historical consolidated balance sheet of Atlantic as of December 31, 2017 with the audited historical consolidated balance sheet of HF Group as of December 31, 2017, 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, 2017 combines the audited historical statement of operations of Atlantic for year ended December 31, 2017 with the audited historical consolidated statement of operations of HF Group for the year ended December 31, 2017, giving effect to the transactions as if they had been consummated as of January 1, 2017.

 

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 HF Group was derived from the audited consolidated financial statements of HF Group for the year ended December 31, 2017 included elsewhere in this proxy statement. The historical financial information of Atlantic was derived from the audited financial statements of Atlantic for the year ended December 31, 2017 included elsewhere in this proxy statement. This information should be read together with HF Group’s and Atlantic’ audited financial statements and related notes, “HF Group Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Other Information Related to Atlantic — Atlantic’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. Atlantic and HF Group have not had any historical relationship prior to the transactions. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

 

The transactions will be accounted for as a “reverse merger” and recapitalization at the date of the consummation of the transaction since the shareholders of HF Group will own at least 75.9% of the outstanding shares of common stock of Atlantic immediately following the completion of the transactions (assuming no holder of Atlantic common stock seeks conversion rights) and HF Group’s operations will be the operations of Atlantic following the transactions. Accordingly, HF Group will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of HF Group. As a result, the assets and liabilities and the historical operations that will be reflected in the Atlantic financial statements after consummation of the transactions will be those of HF Group and will be recorded at the historical cost basis of HF Group. Atlantic’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of HF Group upon consummation of the transactions.

 

61 

 

 

HF Foods Group Inc. 

(formerly Atlantic Acquisition Corp.) 

Pro Forma Condensed Combined Balance Sheet 

As of December 31, 2017 

(Unaudited)

 

   Atlantic   HF Group       (1)       (2) 
   Acquisition Corp.   Holdings Corporation   Adjustment for   Pro Forma Unaudited,   Adjustment for   Pro Forma Unaudited, 
   Historical   Historical   Merger Assuming   Combined Assuming   Merger Assuming   Combined Assuming 
   Audited   Audited   Maximum Conversion   Maximum Conversion   No Conversion   No Conversion 
ASSET                              
Current assets:                              
Cash  $560,204   $6,086,044   $45,318,185(a)  $10,573,837   $45,318,185(a)  $50,358,183 
              (39,784,346)(b)        (1,106,250)(f)     
              (1,106,250)(f)        (500,000)(g)     
              (500,000)(g)               
Accounts receivable, net       14,700,854        14,700,854        14,700,854 
Accounts receivable - related parties, net        1,586,420        1,586,420        1,586,420 
Inventories, net       22,669,225        22,669,225        22,669,225 
Advances to suppliers, net        1,042,554        1,042,554        1,042,554 
Advances to suppliers - related parties, net        3,248,309        3,248,309        3,248,309 
Other current assets   49,583    554,865        604,448        604,448 
Total current assets   609,787    49,888,271    3,927,589    54,425,647    43,711,935    94,209,993 
Property and equipment, net       21,709,467        21,709,467        21,709,467 
Long-term notes receivables       764,493        764,493        764,493 
Long-term notes receivables - related parties        6,860,056        6,860,056        6,860,056 
Other long-term assets       1,435,613        1,435,613        1,435,613 
Cash and investments held in trust account   45,318,185        (45,318,185)(a)       (45,318,185)(a)    
Total assets  $45,927,972   $80,657,900   $(41,390,596)  $85,195,276   $(1,606,250)  $124,979,622 
                               
LIABILITIES AND STOCKHOLDER’S EQUITY                              
Current liabilities:                              
Lines of credit  $   $11,894,146   $   $11,894,146   $   $11,894,146 
Accounts payable        17,275,485         17,275,485         17,275,485 
Accounts payable - related parties       4,075,927        4,075,927        4,075,927 
Advance from customers       49,677        49,677        49,677 
Advance from customers - related parties       1,350,296        1,350,296        1,350,296 
Current portion of long-term debt, net       1,372,125         1,372,125         1,372,125 
Current portion of obligations under capital leases       434,003        434,003        434,003 
Income tax payable       512,415        512,415        512,415 
Shareholder distribution payable       1,000,000        1,000,000        1,000,000 
Accrued expense and other current liabilities   37,375    991,388        1,028,763        1,028,763 
Total current liabilities   37,375    38,955,462        38,992,837        38,992,837 
Long-term debt       14,249,579        14,249,579        14,249,579 
Obligations under capital leases, non-current       118,535        118,535        118,535 
Deferred tax liabilities       436,212        436,212        436,212 
Deferred underwriting compensation   1,106,250        (1,106,250)(f)       (1,106,250)(f)    
Total liabilities   1,143,625    53,759,788    (1,106,250)   53,797,163    (1,106,250)   53,797,163 
                               
Commitments and contingencies                              
Redeemable common stock   39,784,346        (39,784,346)(b)       (39,784,346)(b)    
                               
Stockholder’s equity                              
Preferred Stock                        
Common stock   199        1,997(d)   2,243    388(b)   2,632 
              48(e)        1,997(d)     
                        48(e)     
Additional paid-in capital   4,945,588    21,551,700    54,214(c)   26,049,458    39,783,958(b)   65,833,415 
              (1,997)(d)        54,214(c)     
              (48)(e)        (1,997)(d)     
              (500,000)(g)        (48)(e)     
                        (500,000)(g)     
Retained earnings   54,214    4,255,213    (54,214)(c)   4,255,213    (54,214)(c)   4,255,213 
Non-controlling interest       1,091,199        1,091,199        1,091,199 
Total stockholders’ equity   5,000,001    26,898,112    (500,000)   31,398,113    39,284,346    71,182,459 
Total liabilities and stockholder’s equity  $45,927,972   $80,657,900   $(41,390,596)  $85,195,276   $(1,606,250)  $124,979,622 
                               
Shares Outstanding as of December 31, 2017   1,987,837              22,434,295         26,318,955 
Book Value Per Share or Pro Forma Book Value Per Share as of December 31, 2017  $2.52             $1.40        $2.70 

 

 

See notes to unaudited pro forma condensed combined financial statements

 

62 

 

 

HF Foods Group Inc. 

(formerly Atlantic Acquisition Corp.) 

Pro Forma Condensed Combined Income Statement 

For the Year ended December 31, 2017 

(Unaudited)

 

   Atlantic   HF Group       (1)       (2) 
   Acquisition Corp.   Holdings Corporation   Adjustment for   Pro Forma Unaudited,   Adjustment for   Pro Forma Unaudited, 
   Historical   Historical   Merger Assuming   Combined Assuming   Merger Assuming   Combined Assuming 
   Audited   Audited   Maximum Conversion   Maximum Conversion   No Conversion   No Conversion 
                         
Net revenue - third parties  $   $277,100,116   $   $277,100,116   $   $277,100,116 
Net revenue - related parties       18,449,864        18,449,864        18,449,864 
Total net revenue       295,549,980        295,549,980        295,549,980 
Cost of revenue       251,615,013        251,615,013        251,615,013 
    Gross profit       43,934,967        43,934,967        43,934,967 
Distribution, selling and administrative expenses   128,271    32,924,877        33,053,148        33,053,148 
    Income from operations   (128,271)   11,010,090        10,881,819        10,881,819 
Interest income   183,185    21,105        204,290        204,290 
Interest expenses and bank charges       (1,339,897)       (1,339,897)       (1,339,897)
Other income       1,010,038        1,010,038        1,010,038 
    Income before income tax provision   54,914    10,701,336        10,756,250        10,756,250 
Income tax provision       623,266        623,266        623,266 
    Net income  $54,914   $10,078,070   $   $10,132,984   $   $10,132,984 
Less: income attributable to common stock subject to redemption   130,643            130,643    (130,643)(h)    
Less: net income attributable to non-controlling interest       431,999        431,999        431,999 
Net income (loss) attributable to common stockholders  $(75,729)  $9,646,071   $   $9,570,342   $(130,643)   $9,700,985 
Weighted Average Shares Outstanding — Basic and Diluted   1,368,301              22,434,295         26,318,955 
(Loss) Income or Pro Forma Earnings Per Share – Basic and Diluted  $(0.06)            $0.43        $0.37 

 

See notes to unaudited pro forma condensed combined financial statements

 

63 

 

 

NOTES TO UNAUDITED PRO FORMA 

CONDENSED COMBINED FINANCIAL INFORMATION

 

1.        Description of Transaction

 

On March 28, 2018, Atlantic, HF Group Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Atlantic, or “Merger Sub,” HF Group Holding Corporation, a North Carolina corporation, or “HF Group,” the stockholders of HF Group, and Zhou Min Ni, as representative of the stockholders, entered into the Acquisition Agreement, pursuant to which Merger Sub will merge into HF Group resulting in HF Group becoming a wholly owned subsidiary of Atlantic. See “The Acquisition Agreement — Business Combination with HF Group; Business Combination Consideration” for more detailed information. The merger consideration consists of 19,969,833 shares of Atlantic common stock. Upon consummation of the Business Combination, HF Group will be a wholly owned subsidiary of Atlantic.

 

The unaudited pro forma condensed combined financial statements have been prepared using assumptions with two different levels of redemptions of Atlantic’s shares of common stock. Assumption (1): The shareholders of maximum shares of 3,884,660 of Atlantic’s public shares will elect to convert their shares into cash as permitted by Atlantic’s amended and restated certificate of incorporation. The HF Group shareholders will own approximately 89.0% of Atlantic’s shares to be outstanding immediately after the transactions, and the Atlantic’s shareholders will own approximately 11.0% of Atlantic’s outstanding shares. Assumption (2): no shareholders will elect to convert their shares into cash. The HF Group shareholders will own approximately 75.9% of Atlantic’s shares to be outstanding immediately after the transactions, and the Atlantic’s shareholders will own approximately 24.1% of Atlantic’s outstanding shares.

  

2.        Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments

 

(a) Release of $45,318,185 of the proceeds held in the trust account to pay for the acquisition or the share conversion into cash. 

(b) Conversion of 3,884,660 shares into cash under assumption (1), and reclassification of the balance of common stock subject to possible conversion to common stock and additional paid-in capital, under assumption (2). 

(c) Reclassification of Atlantic’ accumulated deficit to additional paid-in capital. 

(d) Issuance of the stock consideration of 19,969,833 shares. 

(e) Conversion of outstanding 4,766,250 rights to 476,625 shares. 

(f) Payment of deferred underwriting fees of $1,106,250. 

(g) The effects of an estimated $0.5 million of incremental transaction costs associated with the merger. 

(h) The adjustment for income attributable to common stock subject to redemption under the assumption (2).

 

3.        Reconciliation of Pro Forma Adjusted EBITDA

 

   Atlantic   HF Group   (1)   (2) 
   Acquisition Corp.   Holdings Corporation   Pro Forma Unaudited,   Pro Forma Unaudited, 
   Historical   Historical   Combined Assuming   Combined Assuming 
   Audited   Audited   Maximum Conversion   No Conversion 
For the Year ended December 31, 2017                    
Adjusted for EBITDA                    
Net income  $54,914   $10,078,070   $10,132,984   $10,132,984 
Interests expenses       1,268,953    1,268,953    1,268,953 
Income tax provision       623,266    623,266    623,266 
Depreciation and Amortization       2,004,374    2,004,374    2,004,374 
Adjusted EBITDA  $54,914   $13,974,663   $14,029,577   $14,029,577 

 

For additional information on Adjusted EBITDA, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of HF Group Holding Corporation — Adjusted EBITDA,” beginning on page 76.

 

64 

 

 

HF GROUP HOLDING CORPORATion’S BUSINESS

 

Overview

 

HF Group Holding Corporation, acting through its subsidiaries (sometimes referred to in this proxy statement as “HF Group” or the “Group”), is a leading foodservice distributor operated by Chinese Americans, providing Chinese restaurants, primarily Chinese takeout restaurants located in the southeastern United States, with good quality food and supplies at competitive prices. Since its inception in 1997, fueled by increasing demand in the Chinese foods market segment, which is highly fragmented with unsophisticated competitors and has natural cultural barriers, HF Group has grown its business and currently serves approximately 3,200 restaurant customers in ten states with its deep understanding of Chinese Culture and its good old-fashioned business know-how in Chinese community.

 

Chinese takeout restaurants are located in every corner of the US, including urban and suburban areas. They focus on serving Chinese cuisine mainly to non-Chinese Americans. For the most part, these takeout restaurants are operated by individual families with very few workers, and HF Group believes over 80% of the restaurants it services are owned by Chinese Americans from Fuzhou (“Fuzhoueses”), the province capital of Fujian, China. The industry has been able to grow rapidly because it provides good food at low cost and in a convenient way. HF Group offers an array of specialty Chinese foods and supplies that are not widely available elsewhere. By becoming a one-stop-shopping location for its customers, HF Group has made it difficult for small competitors to enter this market. As a way to focus its efforts, HF Group concentrates on serving primarily the fast growing Chinese restaurants in the southeastern region of the United States. With natural cultural barriers, HF Group is able to maintain market position with its core customers and make it difficult for large competitors serving mainstream restaurants like Sysco and US Food Services from penetrating into this market segment easily.

 

In the past 20 years operation, HF Group has developed distribution channels throughout the southeastern United States. It has three distribution centers located in Greensboro, North Carolina, Ocala, Florida, and Atlanta Georgia. HF Group has spent years in developing its proprietary information system for its management of customer relationships and inventory management and it is able to sustain its growth partly because of this information system. HF Group also uses a call-center located in China, which allows the Group to serve its customers on a 24 hour basis in their native language, while lowering the administrative cost in the United States. Supported by technology, HF Group has been able to support its growing customer base and, at the same time, keep operating costs low. The utilization of private networks has linked the Greensboro headquarters with the other distribution centers as well as the outsourced call center in China. This communication system allows HF Group to communicate seamlessly both internally and externally with its customers.

 

HF Group was founded by Zhou Min Ni and his wife, Chan Sin Wong in 1997. They came to the United States from Fuzhou, the provincial capital of Fujian, China. Like many other Fuzhouese, they started by working in Chinese takeout restaurants. After gaining experience, they established their own takeout restaurants in North Carolina. From the experience of operating Chinese takeout restaurants, they realized there was a great potential in the business of providing supplies to takeout restaurants.

 

HF Group was founded in 1997 in Kernersville, North Carolina in a 3,000 square feet warehouse. In 2001, HF Group opened a warehouse in Florida to further expand its reach to the southeastern United States. In 2003, HF Group purchased a warehouse in Greensboro, North Carolina to support the growing demand of its customers. In June 2005, HF Group started to outsource its sales and customer services to a call center in China, which allows the Group to operate on a 24 hour basis and which provides a solid platform for expansion. In late 2005, HF Group opened one more warehouse in Atlanta, Georgia. HF Group acquired HD Food Service, a wholesaler operated in Winston Salem, North Carolina, in late 2008. The successful acquisition resulted in business expansion and sales growth.

 

HF Group is committed to provide its customers with a wide range of products at competitive prices. Since it was founded, HF Group has differentiated itself from its competitors with its distinctive product portfolio, supplier relationships, locations, and technology. The wide range of products sets HF Group apart from other mainstream competitors such as Sysco and US Foods, as many of the items HF offers are specific to the Chinese restaurant industry. More importantly, the relationship that HF Group has with its suppliers allows it to procure a large variety of products in volume at a low cost. HF Group also imports specialized items that would be difficult to procure domestically. With three warehouses, over one hundred trucks on the road daily, and the vast majority of its service routes are within 200 miles of its distribution centers, HF Group offers its customers prompt delivery of high quality products.

 

65 

 

 

HF Group believes that the following has resulted in its success:

 

    HF Group offers a wide array of specialty products that are not widely provided by large distributors serving the mainstream market.

 

●     HF Group has a deep understanding of Chinese Culture and most of its employees can speak the native language of its customers.

 

●     HF Group outsources its sales and customer service to a call center located in China serving its customers in Chinese, which incurs lower administrative expenses and operates efficiently.

 

●     HF Group capitalizes on economies of scale, giving it strong negotiating power with suppliers.

 

●     HF Group has developed a sophisticated infrastructure with three distribution centers and a fleet of well-maintained trucks for prompt delivery.

 

●     With the self-developed proprietary information system, HF Group is able to manage its customer relationship and inventory efficiently and reduce operating expenses.

 

●     HF Group’s management has over 20 years of successful operational experience and a record of successful acquisitions.

 

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

 

HF Group’s net revenue for the year ended December 31, 2017 was $295.5 million, an increase of $16.0 million, or 5.7%, from $279.5 million for year ended  December 31, 2016. Net income attributable to HF Group’s stockholders for the year ended December 31, 2017 was $9.6 million, an increase of $4.9 million, or 104.6%, from $4.7 million for the year ended December 31, 2016. Adjusted EBITDA for the year ended December 31, 2017 was $14.0 million, an increase of $6.0 million, or 75.4%, from $8.0 million for the year ended December 31, 2016. For additional information on Adjusted EBITDA, See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of HF Group Holding Corporation — Adjusted EBITDA,” beginning on page 76.

 

Industry and Market Analysis

 

HF Group distributes food and supplies to Chinese/Asian restaurants, primarily Chinese takeout restaurants that mainly serve non-Chinese Americans, which is a niche market segment of foodservice distribution industry. The foodservice industry in the U.S. is generally large and has a long history, with several large players such as Sysco Corporation, US Foods Holding Corp. and Performance Food Group Company, each serving a significant market share of the industry by offering a “broad line” of products and services, or carrying specific products for large chains. However, they do not generally serve Chinese restaurants.

 

Features of Chinese Takeout Restaurants

 

Primarily Serving Non-Chinese Americans -- There are tens of thousands of Chinese takeout restaurants spread across the U.S., which primarily serve non-Chinese American customers. Although the products they serve cater to the preferences of a wide American mainstream customers and are more simply prepared when compared with traditional well-served Chinese restaurant, they still maintain typical Chinese ingredients and cooking styles.

 

66 

 

 

Operated by Fuzhouese Individual Families – Over 80% of the Chinese takeout restaurants it services are operated and owned by individual families with very few (two or three) workers, which usually the first or second generation of Fuzhouese, Chinese American from Fuzhou, the province capital of Fujian, China. These takeout restaurants have very limited resources and appreciate value-added service to help them improve their operational efficiency. The owners and workers in the Chinese takeout restaurants usually speak Mandarin or the Fuzhou dialect, their regional dialect. Understanding the Chinese Culture and language is important for efficient communication with customers.

 

Close-held Chinese American Community --Second or third generation Chinese Americans living in the U.S. inherit their traditional cultural, and ethnic languages and prefer to do business with Chinese Americans as opposed to other ethnic groups if they have a choice.

 

Unique Cooking Style and Ingredients for Chinese Cuisines -- Chinese cuisine requires unique cooking styles such as steaming and wokking, and requires specialty ingredients and vegetables such as bitter melons, Chinese yams, vine spinach, Chinese cabbage and winter melon. They also use Chinese and Asian seasonings and spices including peanut oil, cooking wine, vinegar, dark soy source, black bean sauce, pepper oil and chilly oil. Most of the ingredients for Chinese cuisine are not widely available from mainstream U.S. suppliers.

 

Growth Potential

 

Growing Consumption Trend for Food Away from Home According to National Restaurant Association, the percentage of Americans which prefer to have food away from home increased from 41.2% in 2014 to 43.8% in 2016. HF Group’s management believes the trend of consuming food away from home also represents a potential increase of demand for Chinese takeout restaurants.

 

More Recognition by Americans on Chinese Cuisines – With the growing influence of China’s economy and culture, more and more Americans are consuming Chinese cuisines. The management of HF Group has seen increasing demand for Chinese cuisine and believe it will bring expansion opportunities for Chinese restaurants, and thus the food distribution industry.

 

Current Industry Landscape and Opportunities

 

Natural Culture Barriers to Entry Understanding Chinese cooking culture is important to run a Chinese restaurant and, therefore, most Chinese takeout restaurants are operated by Chinese Americans, especially Fuzhouneses. It is very difficult for mainstream food distributors to serve these restaurants because of cultural and language barriers.

 

Highly Fragmented Market Segment The market is currently highly fragmented with many unsophisticated competitors and there is no recognized industry leader nationwide. Most participants are small players such as wholesalers, specialty import brokers, farmers markets, and local produce retailers without the support of sophisticated logistics infrastructure. HF Group believe they are now is the leading Chinese food distributor operating in the southeastern United States and the fragmented market gives HF Group the opportunity to consolidate the market and cement a dominant market position.

 

Infrastructure Barriers for New Entrants – The food distribution industry is an industry that requires large capital investment and resources to build a logistics infrastructure with warehouses and a fleet of trucks to cover its distribution network. In addition, larger suppliers have greater negotiating power with vendors and price advantages for customers.

 

Demand for Value-Added Services – The customers of HF Group are Chinese/Asian restaurants, primarily takeout restaurants. Usually, these restaurants are relatively small with only approximately 1,000 square feet and are operated by family members with very few workers. Most of them open seven days a week, twelve hours a day. These customers are price and quality sensitive and prefer large suppliers with scale economies providing competitive prices for products. Given the limited labor forces and resources of these restaurants, most desire to have more value-added services from the suppliers to help them to operate more efficiently.

 

67 

 

 

In sum, HF Group sees a great opportunity for market consolidation. We believe HF Group has advantages to address the current market imperfections and catch the wave to make a national leader in the niche market. With economics of scale, HF Group can provide high quality products at competitive prices in an efficient way.

 

Business Model

 

HF Group’s business model features an integrated structure with three distribution centers with 400,000 square feet of storage space, 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 a variety of high quality products at competitive prices to its customers. Customers can benefit from HF Group’s efficient supply chain to support them continue to grow.

 

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 HF Group’s product lists and it can help them to save their workload to manage their purchase of 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.

 

With 20 years operations, HF Group has established a large supplier network and maintains long-term relationships with many major suppliers. The procurement team is led by Zhou Min Ni, CEO of the HF Group, who has a deep insight in the industry. The centralized procurement management system gives HF Group negotiating power given the large procurement quantities, improves the Group’s turnover of inventory and account payables, and reduces HF Group’s operating costs.

 

The graph below depicts HF Group’s business model:

 

 

HF Group’s Business Model

 

Products

 

HF Group offers a wide range of products with over 1,000 products for the Chinese/Asian restaurants, primarily Chinese takeout restaurants. Products range from perishable produce to takeout food packaging materials. To meet its customers’ demands, HF Group has a large variety and a complete line of products in its inventory. Eighty percent of sales volume currently consists of domestic goods such as frozen meat and vegetables, which are procured through large suppliers or directly from the producer. The remaining 20% are imported specialty products. HF Group provides full service one-stop-shop for the its customers in the southeastern United States by providing most of the products needed by its customers, from order placement to delivery and post-sales services. Services to customers are supported by physical facilities, vehicles, material handling equipment and techniques, and administrative and operating staffs.

 

68 

 

 

The products HF Group distributes include:

 

     Meat and Poultry: HF Group provides its customers a variety of beef, pork, chicken and duck products with different brands to choose from, such as Smithfield, Teys Australia and Tyson.

 

●     Rice, Noodles and Skins: Rice is indispensable for Chinese cuisines and HF Group provides its customers with a wide variety of high quality rice and seasonings. Brands includes kikkoman, Ajinomoto, WY, Hunt’s, and other well-known brands. Noodles and spring rolls are not merely a principle food in the Chinese cuisines, but also can convey different meanings in different situations. In HF Group’s noodle & wrapper section, customers can find a complete selection of noodles and wrappers.

 

●     Vegetables: HF Group offers fresh, seasonal fruits and vegetables including celery, Chinese cabbage, and winter melon, which is widely used in Chinese cuisines.

 

●     Dry products: HF Group offers a variety of specialty sauces, oil, dried mushrooms, and dried beans.

 

●     Seafood: HF Group is committed to providing its customers with the freshest possible seafood. HF Group provides its customers with all sorts of seafood including lobster, shrimp, crab, scallops and flavorful fish such as tuna and Alaskan salmon with different brands to choose from, brands like Asian Star and Atlantic Bay.

 

●     Canned foods: HF Group offers preserved food and frozen or canned products such as preserved vegetables, bamboo shoots and water chestnut.

 

●     Frozen pastry: HF Group offer a wide selection of frozen food, from French fries to chicken nuggets, from apple sticks to cream cheese, and a large variety of specialty products for Chinese cuisine such as bun, dim sum, dumpling and sumai.

 

●     Packaging, disposable and utensils: HF Group offers a wide range of take-out accessories for customers, from bamboo chopsticks to takeout containers, plastic cups to and sushi combo boxes.

 

The following table set forth sales percentage by category for the year ended December 31, 2017:

 

Category  2017 
Meat and Poultry   36.8%
Rice, Noodles and Skins   19.1%
Vegetables   18.3%
Dry products   10.1%
Packaging and Disposable   7.3%
Seafood   4.3%
Canned foods   1.8%
Frozen pastry   1.3%
Utensils   0.8%
    100.0%

 

Customer Service

 

HF Group uses an outsourced call center located in China to manage it sales order, customer development, sales promotion and post-sales services. The outsourced call center is located in Fuzhou, the capital city of Fujian Province of China, with local employees speaking Mandarin, Fuzhounese and English. By offering the customer service in their native language, the sales persons can communicate smoothly and efficiently with HF Group’s customers and understand what the customers need. With cultural understanding and a common language, sales people can design a product portfolio for HF Group’s customers and use a precision marketing strategy to promote the Group’s products. The location of the outsourced call center controls costs by employing skilled sales persons at lower wages in China as compared with the U.S.

 

Currently, HF Group maintains its sales department, including decision making for sales strategies and supervision of sales performance by its key sales managers, in its headquarters in Greensboro, North Carolina. The sale managers work closely with the sales persons in China to ensure the Group’s sales strategies are exactly implemented. HF Group plans to further integrate  its operating model with the outsourced call center to expand its business and operate more efficiently.

 

69 

 

 

A proprietary information system is used to maintain the customers’ record, including location, size, contact information, purchasing history, preference, order and payment record. Customers can directly call the outsourced call center in China to inquire about products and place orders. Once orders are confirmed, electronic sales orders are generated by the information system and sent to the distribution center closest to the customer. Upon receipt of the sales orders, products are pulled from the shelves and moved to staging area at the loading docks. Daily at 2:00AM, products are loaded into delivery vehicles from the staging area in preparation for delivery. Products are delivered to customers within 2 days of the order. Customer analysis can be generated through the information system and guides the sales person to call back to the customer to follow up for product promotion and post-sales services.

 

HF Group offers a refund policy for non-satisfaction without penalty, which can’t be provided by many of its small competitors in the market segment. The Group provides a 100% satisfaction guarantee to its customer. When a shipment is made and the products are not to the standards of the customer, HF Group allows their customers to reject the order in whole or in part with no penalty within 24 hours. The non-penalty refund policy helps the Group earn the trust and loyalty of most of its customers.

 

Inventory Procurement

 

HF Group implemented a centralized inventory procurement under the lead of Zhou Min Ni, the HF Group’s CEO and other experienced managers. All the inventory procurement of all the distribution centers are summarized and sent to the procurement team in in Greensboro, North Carolina. Centralized procurement allows the Group to have negotiating power with its suppliers and to control procurement costs.

 

HF Group maintain a large supplier network through a vendor pool with carefully selection of suppliers to ensure the product quality, availability and competitive pricing. Eighty percent of sales volume currently consists of domestic goods such as frozen meat and vegetables, which are procured through large suppliers or directly from the producer. The remaining 20% are imported specialty products. The procurement team directly manages HF Group’s major vendors for large and frequent purchases and engages brokers for its smaller suppliers of specialty goods. Utilizing brokers allows HF Group to maintain lower costs due to the brokers’ volume.

 

The key procurement team members closely monitor the supply market for seasonal products such as vegetables and make procurement adjustments according to market conditions. In addition, they use dual-sourcing method for their suppliers and can negotiate lower prices for comparable products. For high volume sale products such as certain vegetables and meats, HF Group usually negotiates long term agreements with its suppliers to ensure stabile pricing and minimize risk due to market fluctuation.

 

Each distribution center reviews the inventory level in the information system on daily basis and submits purchase requests as needed to the procurement team at the headquarters. The procurement team in the headquarters also can make decisions based on an analysis of the inventory data in the system. Upon completion of the procurement of the products, the delivery schedule is based on the needs of each location. The lead-time for products is dependent on the product category and need. For perishable goods, products are usually delivered by suppliers within 72 hours of placing the order. Products that are ordered through import brokers have lead times of up to 7 days.

 

Warehousing

 

HF Group uses its information system for warehouse management with daily inventory monitoring. The system allows the Group to manage its inventory in an efficient way. It optimizes the inventory level and turnover, reducing waste. And it helps save on labor costs to track and record the inventory.

 

Inventory levels are maintained based on the category of products. Perishable goods are kept at 7 days levels. This includes produce and frozen goods. Non-perishable goods are held in greater quantities of inventory based on the pricing of the market. Non-Perishable items are carefully monitored for pricing changes. As they have extended shelf life, there is an advantage to ordering larger quantities of stock. The inventory will, generally, turnover in just over three weeks, average for distributors of similar size. Maintaining this level of inventory allows HF Group to manage surge in demand.

 

70 

 

 

Products are stored throughout warehouses in the HF Group distribution centers. A routine inventory count is taken weekly to ensure stock quantity and replenishment needs. Forty percent of the inventory consists of fresh meats and produce; this inventory is counted daily and turns over on average in about 10 days. The other 60% consists of frozen and dry goods which are physically inventoried annually with top 50 items in volume with interim cycle counts every two weeks and average turnover of about 30 days. Perishable items are stored in freezers for a period of 7 to 15 days, depending on the shelf life. Non-perishable items are stored on racks until shelf life is reached or product is sold, whichever comes first. Products are broken down from their pallets and sold in their original packaging. Items stored in the warehouse are not removed from their original packaging. Each package is sold as one unit and priced accordingly.

 

Locations

 

HF Group currently has three distribution centers located in Greensboro, North Carolina, Ocala, Florida, and Atlanta, Georgia, with a total of of 400,000 square feet of storage, including refrigerated storage of 95,000 square feet. The distribution centers are located on the route of many of HF Group’s suppliers; delivery of each truckload can be made to each location with one large order. Each warehouse is equipped with multiple loading docks, allowing parallel methods of loading goods to the trucks during the start of each shift. Warehouse locations are also located in industrial regions, allowing large delivery trucks to enter without the need of acquiring permits.

 

It is important for HF Group to strategically place its warehouses within certain markets to maximize their market capture. HF Group currently strategically places its warehouses within markets that are not saturated and has limited competitors. This allows the Group to quickly penetrate the market and develop customer relationships that will assist in promotion of their products and services. Upon penetrating the market, HF Group will establish its warehouse into the regions to streamline its distribution network. This strategy is to improve the delivery routes and maximize the utilization of their delivery vehicles.

 

The table below summarizes the details of the three distribution centers:

 

Location  Total Size
(Square
Feet)
   Size of
Refrigerated Storage
(Square Feet)
   Year
Established
   Number of
Truck
 
                 
Greensboro, NC   170,000    45,000    2002    50 
Ocala, FL   130,000    30,000    2008    35 
Atlanta, GA   100,000    25,000    2006    20 
Total:   400,000    100,000         105 

 

Fleet Management

 

Currently HF Group currently owns a fleet of 105 refrigerated vehicles. Each vehicle is 24 feet long and has a 12,000 lb capacity. All vehicles are identical in make and model. This is essential, as the fleet can be maintained by a single set of mechanics and suppliers for commonality. These vehicles are maintained by an in-house mechanic and follow a strict maintenance schedule. Each vehicle has a 7-year life cycle of approximately 250,000 miles. Each vehicle is refueled daily upon return from their delivery route. When each delivery vehicle reaches its usable life, they will be retired and replaced with larger vehicles that are 30 feet long and have a capacity of 36,000 lbs. This change in vehicle is dictated by the growth of HF Group. The Group also operates a fleet of 12 tractors and 17 trailers for long-haul operations.

 

Promotion and Marketing

 

HF Group doesn’t advertise in the media or magazines. HF Group has found that it is more efficient to telemarket and having drivers promote the company on delivery. HF Group has its drivers visit the Chinese/Asian restaurants along their delivery route. The drivers are trained to market HF Group’s products to non-customers along their route. Telemarketing is conducted by sales persons from the outsourced call center in China.

 

71 

 

 

Competitive Strengths

 

HF Group believes they have the following competitive strengths that differentiate it from competitors in the niche industry sector of food service distribution to Chinese restaurants:

 

A Large Array of Products to Meet the Demands of Customers

 

HF Group offers over 1,000 products ranging from meats, vegetables and specialty products to packaging materials. Compared with the mainstream U.S. foodservice distributors, HF Group’s products are selected to meet the demand of Chinese restaurants. A large array of products allows Chinese restaurants to purchase from HF Group almost all of the products they need for operation, and receive one-stop service, which can help them run their business more efficiently with limited operation resources.

 

Cultural Understanding and Language Advantages

 

The majority of Chinese restaurants are owned and operated by Fuzhounese. By offering the customers service in their native language, the sales persons can communicate smoothly and efficiently with HF Group’s customers and understand what the customers need. With cultural understanding and a common language, sales people can design a product portfolio for HF Group’s customers and use a precision marketing strategy to promote the Group’s products. The location of the outsourced call center controls costs by employing skilled sales persons wat lower wages in China as compared with the U.S.

 

Outsourced Customer Call Center with Low Costs

 

HF Group uses an outsourced call center located in China to manage it sales order, customer development, sales promotion and post-sales services. The outsourced call center is located in Fuzhou, the capital city of Fujian Province of China, with local employees speaking Mandarin, Fuzhou dialect and English. By offering the customers service in their native language, the sales persons can communicate smoothly and efficiently with HF Group’s customers and understand what the customers need. With cultural understanding and a common language, sales people can design a product portfolio for HF Group’s customers and use a precision marketing strategy to promote the HF Group’s products. The location of the outsourced call center controls costs by employing skilled sales persons at lower wages in China as compared with the U.S.

 

Cost Efficiency with Economies of Scale

 

HF Group has developed its business around its three distribution centers in ten states in the southeastern United States. It covers over 3,200 Chinese restaurants and has annual sales of$295.5 million for the year ended December 31, 2017. HF Group believes it is the leading Asian/Chinese food service distributor in the regions covered by its distribution network. Compared with small and local distributors, HF Group operates in a more cost-efficient way and earns economies of scale, which allows it to offer products with competitive prices to its customers.

 

Strong Negotiation Power with Vendors

 

With a large purchase volume and a centralized procurement management, HF Group has strong negotiating power with its vendors and is able to source high quality products at lower prices than many competitors. HF Group’s inventory procurement team is led by Mr. Zhou Min Ni, founder and Chief Executive Officer, who has 20 years of operational experience in the industry. With a developed inventory procurement system supported by strong negotiating power and an experienced management team, HF Group can offer its customers highg quality products at competitive prices.

 

Developed Logistics Infrastructure

 

HF Group has developed a sophisticated infrastructure with three distribution centers of a total storage capacity of 400,000 square feet and a fleet of 105 refrigerated vehicles and 12 tractors and 17 trailers. Its distribution network covers ten states in the southeastern United States, including North Carolina, South Carolina, Georgia, Florida, Alabama, Virginia, West Virginia, Tennessee, Kentucky, and Mississippi. In conjunction with the development of its logistics infrastructure and business expansion, HF Group has also developed its proprietary information system to manage its customer relationships and inventory. The logistics infrastructure results in significant advantages for HF Group and results in a high entry barrier for potential competitors. In addition, it is difficult for HF Group’s competitors in the market, which are mostly smaller wholesalers, brokers and grocery stores, to compete with HF given HF Group’s economies of scale and developed logistics infrastructure.

 

72 

 

 

Proprietary Information System

 

IHF Group has developed its proprietary electronic information system for its customer relationship and inventory management. All customer information including preferences, purchase and payment history is recorded in the system and can be used to provide post-sales services and promotion. HF Group uses its system to daily monitor its inventory, which provides prompt management of inventory and important information to make operating decisions. The use of the electronic information system improves HF Group’s management efficiency and reduces operating costs and makes HF Group more competitive in its industry.

 

Experienced Management and Proven Growth

 

The key management and founders of HF Group include Mr. Zhou Min Ni, Chief Executive Officer and his wife Chan Sin Wong, President, who founded the business and grew it into a regional leader with three distribution centers serving over 3,200 Chinese restaurants in ten states in the southeastern United States. Besides the two founders, HF Group has also built a team with operational experience, financial expertise and IT knowledge to grow the company. With an experienced management team that has grown the business over the past 20 years, HF Group believes that it is ready to expand its business into other underserved regions through consolidation of small competitors.

 

Competition

 

The foodservice distribution industry is large and highly competitive. There are a few very large distributors serving the mainstream market after decades of developments. However, with natural cultural barriers, the mainstream foodservice distributors haven’t yet earned a significant market share for Chinese restaurants. The management of HF Group believes that the market participants in the niche market segment that HF Group is serving are highly fragmented and immature. With the continuing growth of demand for Chinese cuisine, this industry sector is has significant opportunity for consolidation.

 

The competitors serving the industry sector for Chinese restaurants include a large number of small wholesalers, some medium-sized distributors, as well as large mainstream market players. However, HF Group believe there is no dominating market player in this segment yet. HF Group’s customers also make purchase from local farms, retailers and grocery stores. Small wholesalers usually supply specialized items such as spices, specialized sauces, and specialty foods, which may also be carried in HF Group’s product lists. But the smaller wholesalers are not able offer the broadline products that HF Group does. Compared with the medium-sized distributors and large mainstream market players, HF has advantages of offering relatively broadline products, efficient operation infrastructure, and culture understanding to maintain its market position and continue for steady growth.

 

Trademarks and Other Intellectual Property

 

HF Group owns three self-owned Trademarks: US Trademark 4,422,688, Han Feng, Inc., US Trademark 4,381,017, Han Feng, Inc., and Common law trademark used for Han Feng.

 

Insurance

 

HF Group uses a combination of insurance and self-insurance to provide coverage for potential liability for worker’s compensation, automobile and general liability, product liability, director and officer’s liability, employee health care benefits and other casualty and property risks. Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency or insurance carriers, and changes in discount rates could all affect ultimate settlements of claims. HF Group evaluates its insurance requirements on an ongoing basis to ensure it maintains adequate levels of coverage.

 

73 

 

 

Properties

 

HF Group headquarter is located 6001 West Market Street, Greensboro, North Carolina 27409, which is owned by the Group. The following set forth the properties owned or leased by HF Group:

 

Location Owned/Leased Use
6001 West Market St Greensboro, NC 27409 Owned warehouse
303 Albemarle St., Lexington, NC 27292 Owned warehouse
80 Coleman Blvd, Pooler, GA 31322 Owned warehouse
601 SW 33nd Ave Ocala, FL 34474 Owned warehouse
520-530 SW 31st Ave., Ocala, FL 34474 Owned warehouse
Shop Road Extension, Columbia, SC Owned land
114 Furlong Industrial Dr, Kernersville, NC Owned warehouse
36 Enterprise Blvd., Atlanta, GA Leased warehouse

 

Employees

 

As of December 31, 2017, HF Group had approximately 400 employees, 350 of whom are full-time employees and the remaining 50 of whom work part-time. HF Group has 80 employees who have worked for it for 10 years or more. HF Group employees are not unionized nor, to HF Group’s knowledge, are there any plans for them to unionize. HF Group has never experienced a strike or significant work stoppage. HF Group regards its employee relations to be good.

 

Government Regulation

 

Legal compliance is pertinent to the operations of HF Group.  HF Group is required to comply, and it is its policy to comply, with all applicable laws in the numerous jurisdictions in which HF group does business.

 

In the U.S., as a marketer and distributor of food products, we are subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug Administration (FDA). The FDA regulates food safety and quality through various statutory and regulatory mandates, including manufacturing and holding requirements for foods through good manufacturing practice regulations, hazard analysis and critical control point (HACCP) requirements for certain foods, and the food and color additive approval process. The agency also specifies the standards of identity for certain foods, prescribes the format and content of information required to appear on food product labels, regulates food contact packaging and materials, and maintains a Reportable Food Registry for the industry to report when there is a reasonable probability that an article of food will cause serious adverse health consequences. For certain product lines, we are also subject to the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable Agricultural Commodities Act, the Packers and Stockyard Act and regulations promulgated by the U.S. Department of Agriculture (USDA) to interpret and implement these statutory provisions. The USDA imposes standards for product safety, quality and sanitation through the federal meat and poultry inspection program. The USDA reviews and approves the labeling of these products and also establishes standards for the grading and commercial acceptance of produce shipments from our suppliers. HF Group is also subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, which imposes certain registration and record keeping requirements on facilities that manufacture, process, pack or hold food for human or animal consumption.

 

The recently published and pending rules under the Food Safety Modernization Act (FSMA) will significantly expand food safety requirements, including those of HF Group. Among other things, FDA regulations implementing the FSMA require HF Group to establish and maintain comprehensive, prevention-based controls across the food supply chain that are both verified and validated. The FSMA further imposes new requirements for food products imported into the U.S. and provides the FDA with mandatory recall authority.

 

HF Group and its products are also subject to state and local regulation through such measures as the licensing of its facilities; enforcement by state and local health agencies of state and local standards for its products; and regulation of its trade practices in connection with the sale of its products.  HF Group’s facilities are subject to regulations issued pursuant to the U.S. Occupational Safety and Health Act by the U.S. Department of Labor.  These regulations require HF Group to comply with certain manufacturing, health and safety standards to protect employees from accidents and to establish hazard communication programs to transmit information on the hazards of certain chemicals which may be present in products that HF Group distributes.

 

HF Group’s distribution facilities must be registered with the FDA biennially and are subject to periodic government agency inspections by the FDA and USDA. HF Group’s facilities are generally inspected at least annually by federal and/or state authorities. Further, HF group is required to establish communication programs to transmit information about the hazards of certain chemicals present in some of the products it distributes.

 

HF group’s business and employment of employees are also subject to regulation by numerous federal, state and local regulatory agencies, including, but not limited to, the U.S. Department of Labor, which sets employment practice standards for workers, and the U.S. Department of Transportation, as well as its agencies, the Surface Transportation Board, the Federal Highway Administration, the Federal Motor Carrier Safety Administration, and the National Highway Traffic Safety Administration, which collectively regulate HF Group’s trucking operations through the regulation of operations, safety, insurance and hazardous materials. HF group must comply with the safety and fitness regulations promulgated by the Federal Motor Carrier Safety Administration, including those relating to drug and alcohol testing and hours-of service. Such matters as weight and dimension of equipment also fall under federal and state regulations. In addition, we are subject to the U.S. False Claims Act, and similar state statutes, which prohibit the submission of claims for payment to the government that are false and the knowing retention of overpayments.

 

The U.S. Foreign Corrupt Practices Act (FCPA) prohibits bribery of public officials to obtain or retain business in foreign jurisdictions.  The FCPA also requires HF Group to keep accurate books and records and to maintain internal accounting controls to detect and prevent bribery and to ensure that transactions are properly authorized.  HF group will be required to implement and continue to develop a robust anti-corruption compliance program applicable to its operations to detect and prevent bribery and to comply with these and other anti-corruption laws in countries where it may operate.

 

Legal Proceedings

 

On or about January 4, 2017, Kirnland Food Distribution, Inc., a subsidiary of HF Group, entered into a tolling agreement with the United States Department of Labor, Wage and Hour Division, Atlanta Regional Office, in connection with that agency’s administrative investigation of the company’s compliance with laws regulating employee wage payment and prior undertaking of back wages payments. That inquiry remains open and the company has received no notice of findings or assessment in connection with that inquiry. Except for this investigation, there is no material other litigation, arbitration, governmental proceeding or any other legal proceeding currently pending or known to be contemplated against HF Group which could materially adversely affect the operations or financial condition of the HF Group.

 

74 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HF Group holding corporation

 

You should read the following description of HF Group’s results of operations and financial condition in conjunction with the section above titled “Risk Factors” and its consolidated audited financial statements presented in this filing.

 

Overview

 

HF Group Holding Corporation, acting through its subsidiaries (sometimes referred to in this proxy statement as “HF Group” or the “Group”), is a leading foodservice distributor operated by Chinese Americans, providing Chinese restaurants, primarily Chinese takeout restaurants located in the southeastern United States, with good quality food and supplies at competitive prices. Since its inception in 1997, fueled by increasing demand in the Chinese foods market segment, which is highly fragmented with unsophisticated competitors and has natural cultural barriers  to enter, HF Group has grown its business and currently serves approximately 3,200 restaurant customers in ten states with its deep understanding of Chinese Culture and its good old-fashioned business know-how in Chinese community.

 

Outlook

 

HF Group plans to expand its business through acquisition of other distributors and wholesalers, which heavily depends on having sufficient capital. If HF Group is not able to obtain equity or debt financing, or borrowings from bank loans, it may not be able to execute its plan to acquire smaller competitors. Even if HF Group is able to make such acquisitions, HF Group may not be able to successfully integrate the acquired business and improve their profitability as it plans, which could have a material adverse effect on its financial condition and future operating performance.

 

HF Group’s net revenue for the year ended December 31, 2017 was $295.5 million, an increase of $16.0 million or 5.7%, from $279.5 million for year ended December 31, 2016. Net income attributable to HF Group’s stockholders for the year ended December 31, 2017 was $9.6 million, an increase of $4.9 million, or 104.6%, from $4.7 million for the year ended December 31, 2016. Adjusted EBITDA for the year ended December 31, 2017 was $14.0 million, an increase of $6.0 million, or 75.4%, from $8.0 million for the year ended December 31, 2016. For additional information on Adjusted EBITDA, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of HF Group Holding Corporation — Adjusted EBITDA,”below.

 

How to Assess HF Group’s Performance

 

In assessing performance, HF Group considers a variety of performance and financial measures, including principal growth in net sales, gross profit and Adjusted EBITDA. The key measures that we use to evaluate the performance of HF Group’s business are set forth below:

 

Net Revenue

 

Net revenue is equal to gross sales minus sales returns; sales incentives that HF Group offers to its customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. HF Group’s net sales are driven by changes in case volumes, product inflation that is reflected in the pricing of its products, and mix of products sold.

 

Gross Profit

 

Gross profit is equal to net sales minus cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration), inbound freight, custom clearance fees and other miscellaneous expenses. Cost of goods sold generally changes as HF Group incurs higher or lower costs from suppliers and as the customer and product mix changes.

 

75 

 

 

Distribution, General and Administrative Expenses

 

Distribution, general and administrative expenses primarily consist of salaries and benefits for employees and contract labors, trucking and fuels expenses, utilities, maintenance and repairs expenses, insurance expense, depreciation and amortization expenses, selling and marketing expenses, professional fees and other operating expenses.

 

Income taxes Provision

 

Prior to January 1, 2018, seven of HF Group’s subsidiaries elected under the Internal Revenue Code to be S corporations, and three subsidiaries were formed as partnerships. An S corporation or partnership is considered a flow-through entity and is generally not subject to federal or state income tax on corporate level. In lieu of corporate income taxes, the stockholders and members of these entities are taxed on their proportionate share of the entities’ taxable income. Only one subsidiary did not elect to be treated as S corporation and is the only entity that is subject to corporate income taxes under this report. Effective January 1, 2018, all of the S corporation and partnership entities have been converted to C corporations and will be taxed at corporate level going forward. Accordingly, the Company shall account for income taxes of all these entities under ASC 740.

 

Adjusted EBITDA

 

HF Group believes that Adjusted EBITDA is a useful performance measure and can be used to facilitate a comparison of HF Group’s operating performance on a consistent basis from period to period and to provide for a more complete understanding of factors and trends affecting HF Group’s business than GAAP measures alone can provide. HF Group’s management believes that Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect its operating performance. HF Group’s management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company’s financial measures with the companies in the same industry, many of which present similar non-GAAP financial measures to investors. HF Group presents Adjusted EBITDA in order to provide supplemental information that Management considers relevant for the readers of its consolidated financial statements included elsewhere in this Proxy Statement, and such information is not meant to replace or supersede U.S. GAAP measures.

 

HF Group’s management defines Adjusted EBITDA as net income (loss) before interest expense, income taxes, and depreciation and amortization, further adjusted to exclude certain unusual, non-cash, non-recurring, cost reduction, and other adjustment items. The definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies in the industry. Adjusted EBITDA is not defined under U.S. GAAP and is subject to important limitations as analytical tools, you should not consider them in isolation or as substitutes for analysis of HF Group results as reported under U.S. GAAP. For example, Adjusted EBITDA:

 

●     excludes certain tax payments that may represent a reduction in cash available to HF Group;

     does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

●     does not reflect changes in, or cash requirements for, HF Group’s working capital needs; and

     does not reflect the significant interest expense, or the cash requirements, necessary to service HF Group’s debt.

 

Results of Operations for 2017 and 2016

 

The following table sets forth a summary of HF Group’s consolidated results of operations for the years ended December 31, 2017 and 2016. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

   For the years ended December 31,   Changes 
   2017   2016   Amount   % 
Net revenue  $295,549,980   $279,500,235   $16,049,745    5.7%
Cost of revenue   251,615,013    243,193,112    8,421,901    3.5%
Gross profit   43,934,967    36,307,123    7,627,844    21.0%
Distribution, selling and administrative expenses   32,924,877    30,578,840    2,346,037    7.7%
Income from operations   11,010,090    5,728,283    5,281,807    92.2%
Interest income   21,105    1,634    19,471    1191.6%
Interest expenses and bank charges   (1,339,897)   (1,076,088)   (263,809)   24.5%
Other income   1,010,038    369,379    640,659    173.4%
Income before income tax provision   10,701,336    5,023,208    5,678,128    113.0%
Provision for income taxes   623,266    191,922    431,344    224.7%
Net income   10,078,070    4,831,286    5,246,784    108.6%
Less: net income attributable to noncontrolling interest   431,999    116,122    315,877    272.0%
Net income attributable to HF Group Holding Corporation  $9,646,071   $4,715,164   $4,930,907    104.6%

 

76 

 

 

Net Revenue

 

HF Group’s net revenue was $295.5 million for the year ended December 31, 2017, which consisted of $275.5 million, or 93.2% of net revenue, sold to independent restaurants (Chinese/Asian restaurants) and $20.0 million, or 6.8% of net revenue, sold as wholesale to smaller distributors. Net revenue was $279.5 million for the year ended December 31, 2016, which consisted of $259.4 million, or 92.8% of net revenue, sold to independent restaurants and $20.1 million, or 7.2% of net revenue, as wholesale to smaller distributors.

 

The following table sets forth the breakdown of HF Group’s net revenue:

 

   For the years ended December 31,         
   2017   2016   Changes 
   Amount   %   Amount   %   Amount   % 
Net revenue                              
Sales to independent restaurants  $275,481,019    93.2%  $259,402,812    92.8%  $16,078,207    6.2%
Wholesale   20,068,961    6.8%   20,097,423    7.2%   (28,462)   -0.1%
Total  $295,549,980    100.0%  $279,500,235    100.0%  $16,049,745    5.7%

 

Compared with the year ended December 31, 2016, HF Group’s net revenue increased by $16.0 million, or 5.7%, for the year ended December 31, 2017, which was primarily attributable to a $16.0 million increase in sales to independent restaurants. The increase was a result of HF Group’s continuing effort to provide better products to its customers and improve its customer service.

 

HF Group conducts wholesale as supplemental business for foodservice distribution to restaurants, by purchasing full truckloads of product from suppliers and redistributing to smaller distributors who are typically not large enough to order truckload quantities, or do not want to keep inventory for long periods. The larger purchase can improve overall bargaining power with manufacturers by increasing total order quantity. The net revenue from wholesale for the year ended December 31, 2017 showed a 0.1% decrease compared with the year ended December 31, 2016.

 

Cost of sales and Gross Profit

 

The following tables set forth the calculation of gross profit and gross margin for HF Group’s sales to independent restaurants, wholesale and total net revenue:

 

   For the years ended December 31,   Changes 
   2017   2016   Amount   % 
                 
Sales to independent restaurants                    
Net revenue  $275,481,019   $259,402,812   $16,078,207    6.2%
Cost of revenue   232,914,638    224,361,340    8,553,298    3.8%
Gross profit  $42,566,381   $35,041,472   $7,524,909    21.5%
Gross Margin   15.5%   13.5%   1.9%     
                     
Wholesale                    
Net revenue  $20,068,961   $20,097,423   $-28,462    -0.1%
Cost of revenue   18,700,375    18,831,772    -131,397    -0.7%
Gross profit  $1,368,586   $1,265,651   $102,935    8.1%
Gross Margin   6.8%   6.3%   0.5%     
                     
Total sales                    
Net revenue  $295,549,980   $279,500,235   $16,049,745    5.7%
Cost of revenue   251,615,013    243,193,112    8,421,901    3.5%
Gross profit  $43,934,967   $36,307,123   $7,627,844    21.0%
Gross Margin   14.9%   13.0%   1.9%     

 

HF Group’s cost of revenue was $251.6 million for the year ended December 31, 2017, an increase of $8.4 million, or 3.5%, from $243.2 million for the year ended December 31, 2017, which was primarily attributable to the increase of $8.6 million in cost of revenue for the sales to independent restaurants, from $224.4 million for the year ended December 31, 2016 to $232.9 million for the year ended December 31, 2017. The increase was mainly attributable to the increase in sales.

 

HF Group’s gross profit was $43.9 million for the year ended December 31, 2017, an increase of $7.6 million, or 21.0%, from $36.3 million for the year ended December 31, 2017, which was primarily attributable to the increase of $7.5 million of increase in gross profit derived from sales to independent restaurants from $35.0 million for the year ended December 31, 2016 to $42.5 million for the year ended December 31, 2017. The increase was mainly a combined result of the increase in sales and improved gross margin derived from sales to independent restaurants.

 

HF Group’s gross margin increased from 13.0% for the year ended December 31, 2016 to 14.9% for the year ended December 31, 2017, representing an increase of 190 basis points, which primarily resulted from the increase of 200 basis point in gross margin from the sales to independent restaurants from 13.5% for the year ended December 31, 2016 to 15.5% for the year ended December 31, 2017. The increase in gross margin was mainly attributable to (a) the offering of better products and value-added services with higher gross margins, (b) a lower purchase price negotiated with vendors as a result of larger purchase volumes and strengthened negotiating power with vendors, and (c) the improvement of the centralized procurement function resulting in more efficient management of inventory, logistics and vendor payment.

 

Distribution, selling and Administrative Expenses

 

Distribution, selling and administrative expenses were $32.9 million for the year ended December 31, 2017, an increase of $2.3 million, or 7.7%, from $30.6 million for the year ended December 31, 2016. The increase was mainly attributable to: (a) an increase of $0.7 million in professional fee paid for legal service, consulting, auditing and others in regard with the Group’s restructure and preparing for the merger with Atlantic; (b) an increase of $0.6 million in fuel expense which was primarily due to the increase of fuel prices in 2017; (c) an increase of $0.4 million in insurance expenses for the Group’s increasing insurance coverage; (d) an increase of $0.3 million incurred by a new subsidiary included in the Group in 2017; and (e) an increase of 0.2 million selling expenses payment to the outsourced call center in consistent with the increase of sales revenue.

 

77 

 

 

Interest Expenses and Bank Charges

 

Interest expenses and bank charges are primarily generated from lines of credit, capital leases and long-term debt. Interest expenses and bank charges were $1.3 million for the year ended December 31, 2017, an increase of $0.3 million or 24.5% compared with $1.0 million for the year ended December 31, 2016, which was primarily the result of an increase in long-term debt.

 

Other Income

 

Other income primarily consists of non-operating income and rental income. Other income was $1.0 million for the year ended December 31, 2017 as compared to $0.4 million for the year ended December 31, 2017, representing an increase of $0.6 million, which was primarily attributable to rental income of $0.5 million derived from a subsidiary acquired in 2017, the financial results of which were not included in 2016 consolidated financial statements.

 

Income taxes Provision

 

HF Group’s provision for income taxes increased by $0.4 million, or 224.7%, from $0.2 million for the year ended December 31, 2016 to $0.6 million for the year ended December 31, 2017, as a result of the increase of current income tax from one subsidiary which was treated as C corporation and taxed for the two years ended December 31, 2017 and 2016.

 

Net Income Attributable to Non-Controlling Interest

 

HF Group’s net income attributable to non-controlling interest was derived from one minority owned subsidiary and increased by $0.3 million or 272.0% from $0.1 million for the year ended December 31, 2016 to $0.4 million for the year ended December 31, 2017, as a result of the increase of net income of the subsidiary of which we have a non-controlling interest.

 

Net Income Attributable to HF Group’s Stockholder

 

As a result, HF Group’s net income attributable to HF Group’s stockholder increased by $4.9 million, or 104.6%, from $4.7 million for the year ended December 31, 2016 to $9.6 million for the year ended December 31, 2017.

 

Adjusted EBITDA

 

The following table sets forth of the calculation of HF Group’s adjusted EBITDA:

 

   For the years ended December 31,   Changes 
   2017   2016   Amount   % 
                 
Net income  $10,078,070   $4,831,286   $5,246,784    108.6%
Interests expenses   1,268,953    1,059,262    209,691    19.8%
Income tax provision   623,266    191,922    431,344    224.7%
Depreciation & Amortization   2,004,374    1,885,597    118,777    6.3%
Adjusted EBITDA  $13,974,663   $7,968,067   $6,006,596    75.4%
Percentage of revenue   4.7%   2.9%   1.9%     

 

HF Group’s adjusted EBITDA was $14.0 million for the year ended December 31, 2017, an increase of $6.0 million, or 75.4%, compared to $8.0 million for the year ended December 31, 2016, mainly attributable to the increase of gross profit as a result of increase in net revenue and gross margin derived from the sales to independent restaurants with the Group’s continuing effort to offer better products and value-added services to its customers, strengthen its negotiation power with suppliers, and improve the operation efficiency for centralized procurement, inventory and logistics management. The percentage of revenue for adjusted EBITDA was 4.7% and 2.9% for the years ended December 31, 2017 and 2016, respectively.

 

78 

 

 

Liquidity and Capital Resources

 

As of December 31, 2017, HF Group had cash of approximately $6.1 million. HF Group has funded working capital and other capital requirements primarily by equity contribution from shareholders, cash flow from operations, and bank loans. Cash is required to pay purchase costs for inventory, salaries, fuel and trucking expenses, selling expenses, rental expenses, income taxes, other operating expenses and repay debts. Although HF Group’s management believes that the cash generated from operations will be sufficient to meet its normal working capital needs for at least the next twelve months, its ability to repay its current obligation will depend on the future realization of its current assets. HF Group’s management has considered the historical experience, the economy, trends in the foodservice distribution industry, the expected collectability of the accounts receivables and the realization of the inventories as of December 31, 2017. Based on the above considerations, HF Group’s management is of the opinion that HF Group has sufficient funds to meet its working capital requirements and debt obligations as they become due. However, there is no assurance that management will be successful in their plan. There are a number of factors that could potentially arise that could result in shortfalls to the Group’s plan, such as the demand for its products, economic conditions, the competitive pricing in the foodservice distribution industry and its bank and suppliers being able to provide continued supports. If the future cash flow from operations and other capital resources are insufficient to fund its liquidity needs, HF Group may be forced to reduce or delay its expected acquisition plan, sell assets, obtain additional debt or equity capital or refinance all or a portion of its debt.

 

The following table summarizes HF Group’s cash flow data for the years ended December 31, 2017 and 2016:

 

   For the years ended December 31, 
   2017   2016 
         
Net cash provided by operating activities  $15,286,862   $4,554,280 
Net cash used in investing activities   (5,468,604)   (429,125)
Net cash used in financing activities   (9,688,359)   (2,458,592)
Net increase in cash and cash equivalents  $129,899   $1,666,563 

 

Operating Activities

 

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, changes in deferred income taxes and others, and adjusted for the effect of working capital changes. Net cash provided by operating activities was approximately $15.3 million for the year ended December 31, 2017, an increase of $10.7 million, or 235.7%, compared to $4.6 million for the year ended December 31, 2016. The increase was a result of an increase of cash generated from net income of $5.2 million and an increase of $5.4 million from change of working capital mainly resulting from the change in other current assets.

 

Investing Activities

 

Net cash used in investing activities was approximately $5.5 million for the year ended December 31, 2017, an increase of $5.1 million, or 1174.4%, compared to $0.4 million for the year ended December 31, 2016. The increase was a combined result of an increase of $4.8 million used in payment made for related party loans, an increase of $0.8 million used in payments made for long-term notes receivables, offset by a decrease of $0.5 million used in purchase of property and equipment.

 

Financing Activities

 

Net cash used in financing activities was approximately $9.7 million for the year ended December 31, 2017, an increase of $7.2 million, or 294.1%, compared with $2.5 million for the year ended December 31, 2016. The increase was a combined result of an increase of $3.2 million used in cash distribution to shareholders, and increase of $1.3 million used in repayment of credit line, and a decrease of $2.7 million of proceeds received from credit line and long-term debt.

 

Commitments and Contractual Obligations

 

The following table presents the company’s material contractual obligations as of December 31, 2017:

 

Contractual Obligations  Total   Less than
1 year
   1-3 years   3-5 years   More than 
 Line of credit  $11,894,146   $11,894,146   $   $   $ 
 Long term debt   15,621,704    1,372,125    2,090,720    3,118,145    9,040,714 
 Capital lease obligations   552,538    434,003    118,535         
 Operating lease obligations   404,910    292,790    102,840    9,280     
 Total  $28,473,298   $13,993,064   $2,312,095   $3,127,425   $9,040,714 

 

Off -balance Sheet Arrangements

 

HF Group is not a party to any off -balance sheet arrangements.

 

79 

 

 

Critical Accounting Estimates

 

The discussion and analysis of HF Group’s financial condition and results of operations are based upon its financial statements, which have been prepared in accordance with GAAP. These principles require HF Group’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, cash flow and related disclosure of contingent assets and liabilities. The estimates include, but are not limited to, accounts receivable, revenue recognition, impairment of long-lived assets and income taxes. HF Group bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and the actual results, future financial statements will be affected.

 

HF Group’s management believes that among their significant accounting policies, which are described in Note 2 to the audited consolidated financial statements of HF Group included in this proxy statement, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, HF Group’s management believes these are the most critical to fully understand and evaluate its financial condition and results of operations.

 

Accounts receivable

 

Accounts receivable represent amounts due from customers in the ordinary course of business and are recorded at the invoiced amount and do not bear interest. Receivables are presented net of the allowance for doubtful accounts in the accompanying Consolidated Balance Sheets. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. When the Company is aware of a customer’s inability to meet its financial obligation, a specific allowance for doubtful accounts is recorded, reducing the receivable to the net amount the Company reasonably expects to collect. In addition, allowances are recorded for all other receivables based on historic collection trends, write-offs and the aging of receivables. The Company uses specific criteria to determine uncollectible receivables to be written off, including bankruptcy, accounts referred to outside parties for collection, and accounts past due over specified periods. As of December 31, 2017, and 2016, the allowances for doubtful accounts were $567,108 and $670,280, respectively.

 

Revenue recognition

 

The Company recognizes revenues under FAS Codification Topic 605 (“ASC 605”). Revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured.

 

The Company recognizes revenue from the sale of product when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery.

 

Sales taxes invoiced to customers and remitted to governmental authorities are excluded from net sales.

 

Impairment of Long-lived Assets

 

The Company assesses its long-lived assets such as property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Factors which may indicate potential impairment include a significant underperformance related to the historical or projected future operating results or a significant negative industry or economic trend. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair value.

 

Income taxes

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

80 

 

 

The Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

 

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company does not believe that there was any uncertain tax position at December 31, 2017 and 2016.

 

Recent accounting pronouncements

 

In May 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU 2014-09 by one year. For public entities, the guidance in ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), and for all other entities, ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. Preliminarily, the Company plans to adopt Topic 606 using the retrospective transition method and is continuing to evaluate the impact its pending adoption of Topic 606 will have on its consolidated financial statements. The Company believes that its current revenue recognition policies are generally consistent with the new revenue recognition standards set forth in ASU 2014-09. Potential adjustments to input measures are not expected to be pervasive to the majority of the Company’s contracts The Company does not expect that adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet with a corresponding liability and disclosing key information about leasing arrangements. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim reporting periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is evaluating the impact of the adoption of this revised guidance on its consolidated financial statements.

 

81 

 

 

In October 2016, the FASB issued ASU No. 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control”. The amendments affect reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. Specifically, the amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim reporting periods within fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company does not expect that adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.

 

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The amendments should be applied using a retrospective transition method to each period presented. The adoption of this guidance will increase cash and cash equivalents by the amount of the restricted cash on the Company’s consolidated statement of cash flows.

 

82 

 

 

SELECTED HISTORICAL FINANCIAL INFORMATION OF Atlantic

 

The following table sets forth selected historical financial information derived from Atlantic’s audited financial statements for the year ended December 31, 2017 and the period from May 19, 2016 (inception) to December 31, 2016.

 

The historical results of Atlantic included below and elsewhere in this proxy statement are not necessarily indicative of the future performance of Atlantic. You should read the following selected financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Atlantic ” and the financial statements and the related notes appearing elsewhere in this proxy statement.

 

   For the Year ended December 31, 2017   For the Period
from May 19,
2016 (Inception)
to December 31, 2016
 
Income Statement Data:          
Net revenue  $   $ 
Gross profit  $   $ 
Net loss attributable to common stock holders  $(75,729)  $(700)
Basic and diluted net loss per share  $(0.06)  $(0.00)
Weighted average shares outstanding, basic and diluted   1,368,301    1,000,000 
         
   December 31, 2017   December 31,
2016
 
Balance Sheet Data:          
Total assets  $45,927,972   $199,775 
Total liabilities  $1,143,625   $175,475 
Common stock subject to possible redemption  $39,784,346   $ 
Total stockholders’ equity  $5,000,001   $24,300 

 

83 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF ATLANTIC

 

 The following discussion should be read in conjunction with our Financial Statements and footnotes thereto contained in this report.

 

Overview  

 

We were formed on May 19, 2016 for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more target businesses. Our efforts to identify a prospective target business will not be limited to any particular industry or geographic region, although we intend to focus our search on target businesses being operated by and/or serving ethnic minorities in the United States, especially within Asian-American communities. We intend to utilize cash derived from the proceeds of our initial public offering in effecting our initial business combination.

 

We presently have no revenue, have had losses since inception from incurring formation costs and have no other operations other than the active solicitation of a target business with which to complete a business combination. We have relied upon the sale of our securities and loans from our officers and directors to fund our operations.

 

On August 14, 2017, we consummated our initial public offering (“IPO”) of 4,000,000 units (the “Units”). Each Unit consists of one share of common stock, and one right to receive 1/10 of a share of common stock at the closing of our initial business combination. The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of $40,000,000. We granted the underwriters a 45-day option to purchase up to 600,000 additional Units to cover over-allotments, if any. Simultaneously with the closing of the IPO, we consummated a private placement (“Private Placement”) of 320,000 units (the “Private Units”) at a price of $10.00 per Private Unit, generating total proceeds of $3,200,000. Subsequently, the underwriters exercised the over-allotment option in part and, on August 21, 2017, the underwriters purchased 425,000 over-allotment option Units, which were sold at an offering price of $10.00 per Unit, generating gross proceeds of $4,250,000. On August 21, 2017, simultaneously with the sale of the over-allotment units, we consummated the private sale of an additional 21,250 Private Units, generating gross proceeds of $212,500. On August 22, 2017, the underwriters canceled the remainder of the over-allotment option. In connection with the cancellation of the remainder of the over-allotment option, we canceled an aggregate of 43,753 shares of common stock issued to our initial shareholders prior to the IPO and Private Placement. A total of $45,135,000 of the net proceeds from the sale of Units in the IPO (including the over-allotment option units) and the Private Placements on August 14, 2017 and August 21, 2017 were placed in a trust account established for the benefit of our public stockholders.

 

As of December 31, 2017, a total of $45,318,185 was in the trust account established for the benefit of our public shareholders.

 

Our management has broad discretion with respect to the specific application of the net proceeds of the initial public offering and the private placement, although substantially all of the net proceeds are intended to be applied generally towards consummating a business combination successfully.

 

Results of Operations

 

Our entire activity from inception up to August 14, 2017 was in preparation for the IPO. Since the IPO, our activity has been limited to the evaluation of business combination candidates, and we will not be generating any operating revenues until the closing and completion of our initial business combination. We expect to generate small amounts of non-operating income in the form of interest income on cash and cash equivalents. Interest income is not expected to be significant in view of current low interest rates on risk-free investments (treasury securities). We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. We expect our expenses to increase substantially after this period.

 

84 

 

 

For the year ended December 31, 2017, we had a net income of $54,914, which consisted of interest income of $183,185 generated from the trust account, partially offset by general and administrative expense of $93,901 and State franchise taxes of $34,370. For the period from May 19, 2016 (inception) to December 31, 2016, we had a net loss of $700 related to formation and operating costs.

 

Liquidity and Capital Resources

 

As of December 31, 2017, we had cash of $560,204 outside of our trust account.

 

Our liquidity needs have been satisfied to date through receipt of $25,000 from the sale of the insider shares and loans from insiders in an aggregate amount of $175,000, which was converted into Private Units as part of the Private Placement at the closing of the IPO, and the funds received in the IPO and Private Placement that are held outside the trust account.

 

We intend to use substantially all of the net proceeds of the IPO, including the funds held in the trust account, in connection with our initial business combination and to pay our expenses relating thereto, including a deferred underwriting commission payable to Chardan Capital Markets, LLC in an amount equal to 2.5% of the total gross proceeds raised in the IPO upon consummation of our initial business combination. To the extent that our capital stock is used in whole or in part as consideration to effect our initial business combination, the remaining proceeds held in the trust account as well as any other net proceeds not expended will be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses.

 

We anticipate that the funds held outside of our trust account will be sufficient to allow us to operate 12 months from the filing date of this proxy statement, assuming that a business combination is not consummated during that time.

 

If our estimates of the costs of undertaking due diligence and negotiating our initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing either to consummate our initial business combination or because we become obligated to convert a significant number of our public shares upon consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of our initial business combination. Following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.

 

Off-Balance Sheet Arrangements

 

We did not have any off-balance sheet arrangements as of December 31, 2017.

 

85 

 

 

Atlantic’S BUSINESS

 

Overview

 

Atlantic is a special purpose company incorporated under the laws of the State of Delaware on May 19, 2016. Pursuant to Atlantic’s Amended and Restated Certificate of Incorporation, it was formed with 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, which we refer to as a “target business.”

 

Atlantic’s Amended and Restated Certificate of Incorporation also provide that its corporate existence will cease and it will liquidate the trust account (described below) and distribute the funds included therein to the holders of common stock sold in our initial public offering if it does not consummate a business combination by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination.

 

Offering Proceeds Held in Trust

 

On August 14, 2017, we consummated our initial public offering (“IPO”) of 4,000,000 units (the “Units”). Each Unit consists of one share of common stock, and one right to receive 1/10 of a share of common stock at the closing of our initial business combination. The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of $40,000,000. We granted the underwriters a 45-day option to purchase up to 600,000 additional Units to cover over-allotments, if any. Simultaneously with the closing of the IPO, we consummated the private placement (“Private Placement”) of 320,000 units (the “Private Units”) at a price of $10.00 per Private Unit, generating total proceeds of $3,200,000.

 

Subsequently, the underwriters exercised the over-allotment option in part and, on October 21, 2017, the underwriters purchased 425,000 over-allotment option Units, which were sold at an offering price of $10.00 per Unit, generating gross proceeds of $4,250,000. On August 21, 2017, simultaneously with the sale of the over-allotment units, we consummated the private sale of an additional 21,250 Private Units, generating gross proceeds of $212,500. On August 22, 2017, the underwriters canceled the remainder of the over-allotment option. In connection with the cancellation of the remainder of the over-allotment option, we canceled an aggregate of 43,753 shares of common stock issued to our initial shareholders prior to the IPO and Private Placement.

 

A total of $45,135,000 of the net proceeds from the sale of Units in the initial public offering (including the over-allotment option units) and the private placements on August 14, 2017 and August 21, 2017, were placed in a trust account established for the benefit of our public stockholders.

 

Business Combination Activities

 

On March 28, 2018, Atlantic entered into the Acquisition Agreement, pursuant to which, through a series of transactions, Merger Sub will be merged with and into HF Group and HF Group will become a wholly-owned subsidiary of Atlantic. In the event that the Business Combination is not consummated by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, Atlantic’s corporate existence will cease and Atlantic will distribute the proceeds held in the trust account to its public shareholders. See “The Acquisition Agreement” for more information.

 

Redemption Rights

 

Pursuant to Atlantic’s Amended and Restated Certificate of Incorporation, Atlantic shareholders (except the initial shareholders and the officers and directors of Atlantic) will be entitled to redeem their Atlantic common stock for a pro rata share of the trust account (currently anticipated to be no less than approximately $10.20 per common share for shareholders) net of taxes payable.

 

86 

 

 

Atlantic will consummate its initial business combination only if public shareholders holding less than 3,884,661 shares of common stock elect to redeem their common stock for cash based on the financial numbers as of December 31, 2017.

 

Atlantic’s initial shareholders do not have redemption rights with respect to any common stock owned by them, directly or indirectly (nor will they seek appraisal rights with respect to such common stock if appraisal rights would be available to them).

 

Limitations on Redemption and Voting Rights Upon Consummation of the Acquisition

 

Atlantic’s Amended and Restated Certificate of Incorporation provides that any public shareholder that has redemption rights, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined under Section 13 of Exchange Act), will be restricted from (i) seeking redemption rights with respect to an aggregate of more than 25% of the common stock sold in the IPO (but only with respect to the amount over 25% of the common stock sold in the IPO) and (ii) voting with respect to an aggregate of more than 25% of the shares included in the common stock sold in the IPO. A group will be deemed to exist if (i) persons file or would be required to file a Schedule 13D or 13G indicating the presence of a group, or (ii) persons acknowledge to us, or otherwise make it known, that they are acting, or intend to act, as a group. We believe this restriction will discourage shareholders from accumulating large blocks of common stock in an attempt by such holders to use their redemption right as a means to force us or our management to purchase their common stock at a significant premium to the then current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than 25% of the common stock sold in the IPO could seek redemption, regardless of the merits of the transaction, if such holder’s common stock are not purchased by us or our management at a premium to the then current market price or on other undesirable terms. By limiting our shareholders’ ability to cause us to redeem the common stock sold in the IPO per shareholder or group, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block a transaction which is favored by our other public shareholders. However, this limitation also makes it easier for us to complete a business combination which is opposed by a significant number of public shareholders.

 

Automatic Dissolution and Subsequent Liquidation of Trust Account if No Business Combination

 

Atlantic’s Amended and Restated Certificate of Incorporation provides that we will continue in existence only until the date that is 18 months from the closing of the IPO, or February 14, 2019, or the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination. If Atlantic has not completed a business combination by such date, it will trigger its automatic dissolution. This has the same effect as if our board of directors and shareholders had formally voted to approve our winding up and dissolution and formally began a voluntary winding up procedure under the Companies Law. As a result, no vote would be required from Atlantic’s shareholders to commence such a voluntary winding up and dissolution. Atlantic views this provision terminating its corporate life by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, as an obligation to its shareholders and will not take any action to amend or waive this provision to allow it to survive for a longer period of time. Atlantic’s initial shareholders have waived their rights to participate in any liquidation distribution with respect to their initial shares. There will be no distribution from the trust account with respect to Atlantic’s rights which will expire worthless. Atlantic will pay the costs of liquidation from its remaining assets outside of the trust fund. If such funds are insufficient, Wai Fun Cheng, Ren Hua Zheng, Richard Xu and Tom W. Su have contractually agreed to advance it the funds necessary to complete such liquidation (currently anticipated to be no more than $15,000) and have contractually agreed not to seek repayment of such expenses.

 

87 

 

 

The proceeds deposited in the trust account could, however, become subject to the claims of Atlantic’s creditors (which could include vendors and service providers Atlantic has engaged to assist it in any way in connection with its search for a target business and that are owed money by us, as well as target businesses themselves) which could have higher priority than the claims of its public shareholders. Wai Fun Cheng, Ren Hua Zheng, Richard Xu and Tom W. Su have contractually agreed that, if Atlantic liquidates prior to the consummation of a business combination, they will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Atlantic for services rendered or contracted for or products sold to it, but only if such a vendor or prospective target business does not execute such a waiver. Accordingly, if a claim brought by a target business or vendor did not exceed the amount of funds available to Atlantic outside of the trust account balance, our initial shareholders would not have any personal obligation to indemnify such claims as they would be paid from such available funds. However, if a claim exceeded such amounts, the only exceptions to the obligations of Atlantic’s initial shareholders to pay such claim would be if the party executed a valid and binding waiver agreement enforceable under law. If they refused to satisfy their obligations, Atlantic would be required to bring a claim against them to enforce its indemnification rights. Furthermore, as Atlantic’s board cannot waive these indemnification obligations because it would be a breach of their fiduciary obligations, if they refused to satisfy their obligations, Atlantic would be required to bring a claim against them to enforce Atlantic’s indemnification rights. Accordingly, although such agreements are legally binding obligations on the part of Atlantic’s initial shareholders, Atlantic may have difficulty enforcing its rights under such agreements. Therefore, the actual per-share liquidation price could be less than $10.20, due to claims of creditors.

 

Atlantic’s public shareholders will be entitled to receive funds from the trust account only in the event of the expiration of its existence and its automatic dissolution and subsequent liquidation or if they properly redeem their respective common stock for cash upon consummation of the Business Combination. In no other circumstances will a shareholder have any right or interest of any kind to or in the trust account.

 

Additionally, in any liquidation proceedings of the company, the funds held in its trust account may be included in its estate and subject to the claims of third parties with priority over the claims of its shareholders. To the extent any such claims deplete the trust account, Atlantic cannot assure you it will be able to return to its public shareholders the liquidation amounts payable to them. Additionally, Atlantic cannot assure you that third parties will not seek to recover from its shareholders amounts owed to them by it. Furthermore, Atlantic’s board may be viewed as having breached their fiduciary duties to its creditors and/or may have acted in bad faith, and thereby exposing itself and the company to claims for having paid public shareholders from the trust account prior to addressing the claims of creditors. Atlantic cannot assure you that claims will not be brought against it for these reasons.

 

If we are unable to consummate the Business Combination by the date that is 18 months from the closing of the IPO, or February 14, 2019, or by the date that is 24 months from the closing of the IPO, or August 14, 2019, if we extend the period of time to consummate a business combination, the trustee of the trust account will liquidate the investments constituting the trust account and will turn over the proceeds to Atlantic’s transfer agent for distribution to its public shareholders. Concurrently, Atlantic shall pay, or reserve for payment, from funds not held in trust, its liabilities and obligations, although it cannot assure you that there will be sufficient funds for such purpose. If there are insufficient funds held outside the trust account for such purpose, Wai Fun Cheng, Ren Hua Zheng, Richard Xu and Tom W. Su have contractually agreed that, if Atlantic liquidates prior to the consummation of a business combination, they will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Atlantic for services rendered or contracted for or products sold to it, but only if such a vendor or prospective target business does not execute such a waiver. However, because Atlantic is a special purpose company, rather than an operating company, and its operations have been limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from its vendors and service providers (such as accountants, lawyers, investment bankers, etc.) and potential target businesses. As described above, pursuant to the obligation contained in its underwriting agreement, Atlantic sought to have all vendors, service providers and prospective target businesses execute agreements with it waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust account. However, not all of these parties executed a waiver (for example, Atlantic’s independent accountants). As a result, Atlantic believes the claims that could be made against it will be limited, thereby lessening the likelihood that any claim would result in any liability extending to the trust. Atlantic therefore believes that any necessary provision for creditors will be reduced and should not have a significant impact on its ability to distribute the funds in the trust account to its public shareholders. There is no guarantee that they will not seek recourse against the trust account. A court could also conclude that such agreements are not legally enforceable. As a result, if Atlantic liquidates, the per-share distribution from the trust account could be less than $10.20.

 

Facilities

 

Atlantic maintains its principal executive offices at 1250 Broadway, 36th Floor, New York, New York 10001, Telephone: 646-912-8918.

 

88 

 

 

Employees

 

Atlantic has three (3) executive officers. These individuals are not obligated to devote any specific number of hours to our matters and devote only as much time as they deem necessary to our affairs. The amount of time they devote in any time period will vary based on whether a target business has been selected for the business combination and the stage of the business combination process the company is in. Accordingly, once management locates a suitable target business to acquire, they will spend more time investigating such target business and negotiating and processing the business combination (and consequently spend more time to our affairs) than they would prior to locating a suitable target business. We do not intend to have any full time employees prior to the consummation of a business combination.

 

89 

 

 

DIRECTORS, EXECUTIVE OFFICERS, EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE

 

Current Directors and Executive Officers

 

Atlantic’s current directors and executive officers before the consummation of the Business Combination are as follows:

 

Name   Age   Position
Richard Xu   41   Chief Executive Officer and Chairman
Tom W. Su   43   President
Peiling He   38   Chief Financial Officer and Secretary
Ren Hua Zheng   47   Director
Wai Fun Cheng   66   Director

 

Richard Xu served as our Chief Executive Officer, Secretary and director from our inception until May 2017 and was reappointed Chairman and Chief Executive Officer in June 2017. Mr. Xu served as the Chairman and Chief Executive Officer of E-compass Acquisition Corp., a special purpose acquisition company, from September 2014 until its business combination with NYM Group Inc. in February 2017, and then served as the Vice President to iFresh, Inc. (the successor to E-compass Acquisition Corp.) until March 2017. Mr. Xu served as the President and a member of the board of directors of Sino Mercury Acquisition Corp. from its inception in March 2014 until its business combination with Wins Finance Group Ltd. in October 2015 and served as the President and a member of the board of directors of Wins Finance Holdings Inc. (the successor to Sino Mercury Acquisition Corp.) from that time until July 2016. From October 2010 to August 2014, Mr. Xu served as President of CIFCO International Group, a financial advisory firm focused on overseas investments in Chinese enterprises. From May 2009 to October 2010, Mr. Xu was a Director of the Investment Banking Division of Maxim Group, an investment banking and securities broker-dealer based in New York City, where he was responsible for the firm’s Chinese investments. From September 2005 to May 2009, Mr. Xu was a Partner of Viking Investment Co., an investment banking firm that he co-founded with responsibility for overseas restructuring, mergers and acquisitions, and financing of Chinese private companies. From 2004 to 2006, Mr. Xu served as a trader at Suisse American Securities, a subsidiary of Credit Suisse Group. Prior to that, Mr. Xu served as a Vice President at Asia power Investment PTE Ltd., a public company in Singapore. Mr. Xu’s experience in mergers and acquisitions, includes cross-border transactions involving the United States and China, over the last 10 years include more than 10 transactions, which Mr. Xu actively participated in (in a variety of capacities) from initial deal sourcing and negotiation through consummation. Mr. Xu obtained his Bachelor Degree from Tsinghua University in Beijing, and a Master’s Degree in Computer Science from the Courant Institute of New York University.

 

 Tom W. Su has served as our President since June 2017. Mr. Su is the Co-Founder of Chadsel LLC, an investment company in the United States, and has served as its Director focusing on fundraising and market development, since March 2012. Mr. Su has also served as Vice Chairman of American Fujianese Business Association Inc. for operation supervision since December 2009 and worked as founder of United States New York Asian Association, a New York Asian association since September 1999. From September 2016 to February 2017, Mr. Su was Vice President of E-compass Acquisition Corp. focusing on finance and investor relationships and from July 2015 to August 2016, Mr. Su was founder of Ivy Tiger Capital LLC. Mr. Su has experience and connections to investments and businesses operated by ethnic minorities which we believe will be a source of potential targets for us. Mr. Su studied for art design in Xiamen Academy of Arts and Design, Fuzhou University in China from September 1991 to March 1994.

 

90 

 

 

Peiling He served as our Chief Financial Officer and Treasurer from our inception until May 2017, and was reappointed Chief Financial Officer and Secretary in June 2017. Ms. He served as the Chief Financial Officer of E-compass Acquisition Corp., a special purpose acquisition company, from October 2014 until February 2017, and then served as the Chief Financial Officer to iFresh, Inc., the successor to E-compass Acquisition Corp. until May 2017. Ms. He served as the Chief Financial Officer of Sino Mercury Acquisition Corp. from its inception in March 2014 until its business combination with Wins Finance Group Ltd. in October 2015 and served as the Chief Financial Officer of Wins Finance Holdings Inc. from that time to August 2016. From May 2012 to August 2014, Ms. He served as Chief Financial Officer of Deyu Agriculture Corp. (formerly, Eco Building International Inc.), an agriculture company operated in China. She also served as Deyu Agriculture Corp.’s Acting Chief Financial Officer from February 2012 to May 2012 and its Financial Controller from October 2011 to February 2012. Ms. He served as an audit manager for Deloitte Touche Tohmatsu CPA Ltd. in China from July 2005 through September 2011, where she worked for multinational corporations and Chinese corporate clients, including private companies and publicly listed companies in the United States. Ms. He’s experience in mergers and acquisitions includes conducting target sourcing, financial due diligence and deal negotiation as financial expert, including several transactions in financial, consumer products, retail and manufacturing industries. Ms. He earned a Master’s Degree in Management from the Chinese Academy of Sciences and a Bachelor’s Degree in Accounting from Tsinghua University in China. Ms. He is also a Certified Public Accountant of China and Certified General Accountant of Canada.

 

 Ren Hua Zheng has served as our Independent Director since June 2017. Mr. Zheng was founder of Hope Kitchen Cabinets and Stone Supply LLC, a cabinet decoration company in the United States. and has served as Manager of since January 2006. Mr. Zheng has served as Property Manager of H&C Brother LLC, Orland Property LLC, B&J Investment LLC and 5904 5th Ave LLV since January 1999. Mr. Zheng’s experience includes strategy implementation, sale and marketing, staff training, cost analysis and financial budget supervision in enterprise operation.

 

 Wai Fun Cheng has served as our Independent Director since June 2017. Mr. Cheng was Founder of W.Y. Industries, Inc., a company providing products in the food packaging industries and served as its President since 1977. Mr. Cheng grew W.Y. Industries from a small plastics manufacturing company to one serving customers throughout the United States internationally. Mr. Cheng has 40 years of experience on hands-on managerial experience and business acumen, including strategy, finance, operations, sales, and marketing, and developed deep understanding of critical business drivers within the industry. Mr. Cheng obtained GED Diploma in NY State Adult Education in May 1976.

 

Audit Committee

 

Effective August 8, 2017, we established an audit committee of the board of directors, which consists of Ren Hua Zheng and Wai Fun Cheng, each of whom is an independent director under the Nasdaq’s listing standards. Ren Hua Zheng serves as chairman of the audit committee. The audit committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited to:

 

  reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommend to the board whether the audited financial statements should be included in our Form 10-K;
     
  discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements;
     
  discussing with management major risk assessment and risk management policies;
     
  monitoring the independence of the indepe