i
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K (“Annual Report” or “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. The statements contained in this Report that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Report may include, for example, statements about our:
The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws and/or if and when management knows or has a reasonable basis on which to conclude that previously disclosed projections are no longer reasonably attainable.
part I
Introduction
We are a blank check company formed under the laws of the State of Delaware on May 19, 2016. We were formed 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 are not be limited to any particular industry or geographic region, although have focused our search on target businesses being operated by and/or serving ethnic minorities in the United States, especially within Asian-American communities.
Recent Developments
On March 28, 2018, we entered into a merger agreement (the “Merger Agreement”) with HF Group Merger Sub Inc., our wholly-owned subsidiary (the “Merger Sub”) and HF Group Holding Corporation (“HF”), a leading foodservice distributor operated by Chinese American serving Chinese/Asian restaurants, primarily Chinese takeout restaurants located in the southeastern United States. We will be filing Current Report on Form 8-K in the coming days with a more detailed description of the transaction.
Our Management Team
We will seek to capitalize on the comprehensive experience and contacts of our executive officers in consummating an initial business combination. Our management team is comprised of Richard Xu, Chairman and Chief Executive Officer, Tom W. Su, President, and Peiling He, our Chief Financial Officer. Our management team brings a wealth of experience in identifying, negotiating with and conducting due diligence on potential candidates for acquisition.
Mr. Xu and Ms. He have experience with initial public offerings and business combinations for blank check companies. They have worked together on the formation, initial public offering and business combination for two blank check companies, Sino Mercury Acquisition Corp. (“Sino Mercury”) and E-compass Acquisition Corp. (“E-compass”). Mr. Xu served as President of Sino Mercury which consummated an initial public offering in September 2014 and closed its business combination with Wins Finance Holdings Inc. (“Wins Finance”) in October 2015, and served as Wins Finance’s President until July 2016. Ms. He served as Chief Financial Officer of Sino Mercury and served as Chief Finance Officer of Wins Finance until August 2016. Also, Mr. Xu was the Chairman and Chief Executive Officer of E-compass and Ms. He was the Chief Financial Officer of E-compass. E-compass consummated its initial public offering in August 2015, acquired NYM Holding, Inc. and reincorporated into the State of Delaware through its wholly owned subsidiary, iFresh, Inc. (“iFresh”), in February 2017. Mr. Xu served as Vice President of iFresh until March 2017 and Ms. He served as Chief Financial Officer of iFresh until May 2017.
Mr. Xu has over 10 years of experience in mergers and acquisitions, including cross-border transactions involving the United States and China, and has successfully closed more than 10 transactions, which Mr. Xu actively participated in (in a variety of capacities) from initial deal sourcing and negotiation through consummation. Ms. He also has over 10 years of extensive experience with mergers and acquisitions, especially with respect to target sourcing, financial due diligence, deal structuring, negotiation and post-merger rule compliance. 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.
With a management team with experience in mergers and acquisitions for blank check companies, connections to the Asian-American community in the United States, and experience in business development, we believe we can source attractive deals and find good investment opportunities from private and public sources to create value for stockholders.
However, past performance by our management team is not a guarantee either (i) of success with respect to any business combination we may consummate or (ii) that we will be able to locate a suitable candidate for our initial business combination. In addition, our management team is currently involved in other businesses and is not required to devote any specific minimum amount of time to our business, which may result in a conflict of interest in allocating their time between our operations and our search for a business combination and their other businesses. See “Management — Directors and Executive Officers.”
Acquisition Strategy
We have focused our search on businesses being operated by ethnic minorities or providing products or services to ethnic minorities in the United States, especially within Asian-American communities. However, we are not limited to this geographic region or to these types of companies. We may focus on other industries or geographic regions if we believe that those industries or regions are better able to provide attractive financial returns or if an opportunity outside of the United States or in a different industry was brought to our attention at any time we are in search of a target business.
Ethnic minorities, especially Asian-Americans, are making a more and more powerful impact on American society, and with the growing population, buying power and social influence of ethnic minorities, our management team believes that companies catering to ethnic minorities have the potential for future growth. The reasons for this include the following:
Growing population: According to Nielsen-The Asian-American Consumer 2015 Report, the Asian-American population grew 46% from 2002 to 2014, making it the fastest-growing multicultural segment in the United States, and it is expected to grow 150% between now and 2050 according to U.S. Census projections (Source: U.S. Census Bureau, Population Division, “Annual Estimates of the Resident Population 2013 (Race Alone or in Combination)”). Though the Asian-American population currently represents just 6% of the U.S. population, its relative affluence, distinctive tastes, and unique culture make it necessary for vendors and service providers to understand and market to the Asian-American community in a compelling and authentic fashion.
Expanding buying power: According to Nielsen-The Asian-American Consumer 2015 Report, Asian-American buying power was $770 billion in 2014 and is expected to increase to $1 trillion by 2018 (Source: Selig Center for Economic Growth, Multicultural Economy 2014). The 180% gain from 2000 through 2014 nearly triples the increase in buying power projected for non-Hispanic whites (69%) over the same period. Asian-American buying power is nearly four times larger than that of the highly-coveted U.S. millennial segment (at $200 billion), and it is larger than the entire economies of all but 18 countries worldwide, just below the 2014 GDP of Turkey and larger than those of Saudi Arabia and Switzerland (Source: International Monetary Fund World Economic Outlook 2014). It is also larger than the total buying power of all U.S. states with the exception of California, Texas, and New York (Source: Selig Center for Economic Growth, Multicultural Economy 2014).
Distinctive consumer expenditures: The Asian-American consumer market is distinctive in many key respects. According to Nielsen-The Asian-American Consumer 2015 Report, Asian-American households are generally wealthier than the average American household. The three categories where Asian-Americans outspend total consumers by the highest percentage are personal insurance, apparel, and housing. As described in the Report, higher personal insurance spending is likely attributed to a strong desire to protect assets and family while higher apparel spending aligns with a strong loyalty to brand names. Higher housing expenditures may be driven by the need for more space given the larger household size of Asian-American households compared to the general population (3.1 vs. 2.7) and by the clustering of many Asian-Americans in metro areas where housing prices may command a higher cost.
Our acquisition selection process will leverage the industry experience of our executive officers, including their extensive contacts, relationships and access to acquisition opportunities, private equity and venture capital sponsor relationships as well as relationships with management teams of public and private companies, investment bankers, attorneys and accountants who we believe should provide us with a significant pipeline of business combination opportunities. We will focus on, but not be limited to, companies being operated by and/or serving ethnic minorities in the United States, especially within Asian-American communities, and may also consider other opportunities. Past performance by our management team is not a guarantee of success with respect to locating a target business to acquire.
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Consistent with this strategy, we have identified the below general criteria and guidelines that we believe are important in evaluating prospective target businesses. We will use these criteria and guidelines in evaluating acquisition opportunities, but we may decide to enter into our initial business combination with a target business that does not meet any or all of these criteria and guidelines.
Subsequent to the consummation of our initial business combination, we believe that the strengths of our management team will be valuable to any business with which we may consummate our initial business combination, although the specific roles, if any, they may have following our initial business combination cannot be determined at this time.
Competitive Strengths
We believe our competitive strengths to be the following:
Management team
We believe the experience and contacts of our management team will give us distinct advantages in sourcing, structuring and consummating business combinations. We have a management team with extensive experience in mergers and acquisitions, including cross-border transactions, target sourcing, financial due diligence, deal structuring and negotiation, as well as finance and investment in the United States. We believe we can source attractive deals and find good investment opportunities from private and public sources to create value for stockholders. We believe that the network of contacts and relationships of our management team will provide us with an important source of investment opportunities.
Status as a public company
We believe our structure will make us an attractive business combination partner to target businesses. As an existing public company, we offer a target business an alternative to the traditional initial public offering through a merger or other business combination. In this situation, the owners of the target business would exchange their shares of stock in the target business for shares of our stock or for a combination of shares of our stock and cash, allowing us to tailor the consideration to the specific needs of the sellers. We believe target businesses might find this method a more certain and cost effective method to becoming a public company than the typical initial public offering. In a typical initial public offering, there are additional expenses incurred in marketing, roadshow and public reporting efforts that will likely not be present to the same extent in connection with a business combination with us. Furthermore, once the business combination is consummated, the target business will have effectively become public, whereas an initial public offering is always subject to the underwriters’ ability to complete the offering, as well as general market conditions that could prevent the offering from occurring. Once public, we believe the target business would then have greater access to capital and an additional means of providing management incentives consistent with stockholders’ interests than it would have as a privately-held company. It can offer further benefits by augmenting a company’s profile among potential new customers and vendors and aid in attracting talented employees.
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While we believe that our status as a public company will make us an attractive business partner, some potential target businesses may view the inherent limitations in our status as a blank check company, such as our lack of an operating history and our requirements to seek stockholder approval of any proposed initial business combination and provide holders of public shares the opportunity to convert their shares into cash from the trust account, as a deterrent and may prefer to effect a business combination with a more established entity or with a private company.
Transaction flexibility
We offer a target business a variety of options such as providing the owners of a target business with shares in a public company and a public means to sell such shares, providing cash for stock, and providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to consummate our initial business combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, since we have no specific business combination under consideration, we have not taken any steps to secure third party financing and it may not be available to us.
Competitive Weaknesses
We believe our competitive weaknesses to be the following:
Limited Financial Resources
Our financial reserves will be relatively limited when contrasted with those of venture capital firms, leveraged buyout firms and operating businesses competing for acquisitions. In addition, our financial resources could be reduced because of our obligation to convert shares held by our public stockholders as well as any tender offer we conduct.
Limited technical and human resources
As a blank check company, we have limited technical and human resources. Many venture capital funds, leveraged buyout firms and operating businesses possess greater technical and human resources than we do and thus we may be at a disadvantage when competing with them for target businesses.
Delay associated with stockholder approval or tender offer
We may be required to seek stockholder approval of our initial business combination. If we are not required to obtain stockholder approval of an initial business combination, we will allow our stockholders to sell their shares to us pursuant to a tender offer. Both seeking stockholder approval and conducting a tender offer will delay the consummation of our initial business combination. Other companies competing with us for acquisition opportunities may not be subject to similar requirement, or may be able to satisfy such requirements more quickly than we can. As a result, we may be at a disadvantage in competing for these opportunities.
Effecting Our Initial Business Combination
General
We are not presently engaged in any substantive commercial business. We intend to utilize cash derived from the proceeds of the IPO and the private placements of private units, our capital stock, debt or a combination of these in effecting our initial business combination. Although substantially all of the net proceeds of the IPO and the private placements of private units are intended to be applied generally toward effecting a business combination as described in this Report, the proceeds are not otherwise being designated for any more specific purposes. Our initial business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares. In the alternative, we may seek to consummate a business combination with a company that may be financially unstable or in its early stages of development or growth. While we may seek to effect simultaneous business combinations with more than one target business, we will probably have the ability, as a result of our limited resources, to effect only a single business combination.