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What changed in HF Foods Group Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HF Foods Group Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+250 added−252 removedSource: 10-K (2024-03-26) vs 10-K (2023-03-31)

Top changes in HF Foods Group Inc.'s 2023 10-K

250 paragraphs added · 252 removed · 185 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

59 edited+3 added−5 removed40 unchanged
Biggest changeFor 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 seven days. None of our suppliers accounted for more than 10% of our aggregate purchases during the years ended December 31, 2022 and 2021.
Biggest changeUpon receipt of ordered products, the delivery schedule is determined 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 seventy-two hours of placing the order. Products that are ordered through import brokers have lead times of up to seven days.
On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in the shareholders of HF Group Holding Corporation (“HF Holding”) becoming the majority shareholders of Atlantic, and changed its name to HF Foods Group Inc. On November 4, 2019, we consummated a merger transaction, resulting in B&R Global becoming a wholly-owned subsidiary of HF Group.
On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in the shareholders of HF Group Holding Corporation (“HF Holding”) becoming the majority shareholders of Atlantic, and changed its name to HF Foods Group Inc. On November 4, 2019, we consummated a merger transaction, resulting in B&R Global becoming a wholly-owned subsidiary of HF Foods.
We believe our wide range of Asian-centric product offerings is unmatched, as many of the items we offer are unique and specific to the Chinese restaurant industry.
We believe our wide range of Asian-centric product offerings is unmatched, as many of the items we offer are unique and specific to the Chinese and Asian restaurant industry.
We believe that our scale and deep knowledge of our customers’ needs provide a competitive advantage over our direct competitors and have contributed greatly to our success, including the following: • Wide array of Asian specialty products: These are not commonly provided by large distributors serving the mainstream market. • Deep understanding of Chinese culture: As our customers are primarily Chinese and Asian restaurants, most of our employees can speak Mandarin as well as the native dialects of our customers.
We believe that our scale and deep knowledge of our customers’ needs provide a competitive advantage over our direct competitors and have contributed greatly to our success, including the following: • Wide array of Asian specialty products: These are not commonly provided by large distributors serving the mainstream market. • Deep understanding of Asian culture: As our customers are primarily Chinese and Asian restaurants, most of our employees can speak Mandarin as well as the native dialects of our customers.
We continue to invest in technological advancements to develop state-of-the-art management information and operating systems, to further improve our operational efficiency, accuracy and customer satisfaction, and to cement our foothold as a leading foodservice distributor to Asian restaurants in the U.S. Features of Chinese Restaurants Set forth below are the principal characteristics of the Asian/Chinese restaurants we serve.
We continue to invest in technological advancements to develop state-of-the-art management information and operating systems, to further improve our operational efficiency, accuracy and customer satisfaction, and to cement our foothold as a leading foodservice distributor to Asian restaurants in the U.S. Features of Chinese and Asian Restaurants Set forth below are the principal characteristics of the Asian/Chinese restaurants we serve.
Capitalizing on our deep understanding of the Chinese culture, with over 1,000 employees and subcontractors, and supported by two outsourced call centers in China, we have become a trusted partner serving over 15,000 Asian restaurants providing sales and service support to customers who mainly converse in Mandarin or Chinese dialects.
Capitalizing on our deep understanding of the Chinese culture, with over 1,000 employees and subcontractors, and supported by two outsourced call centers in China, we have become a trusted partner serving approximately 15,000 Asian restaurants providing sales and service support to customers who mainly converse in Mandarin or Chinese dialects.
Distribution centers are decentralized and empowered to cater to local and regional customers’ needs by customizing their specific product portfolio. With respect to customer care and satisfaction, we offer a refund policy without penalty, which many of our small competitors in the market segment and the direct store distributors are unable to provide.
Distribution centers are empowered to cater to local and regional customers’ needs by customizing their specific product portfolio. With respect to customer care and satisfaction, we offer a refund policy without penalty, which many of our small competitors in the market segment and the direct store distributors are unable to provide.
Utilizing these outsourced call centers in China, customers embrace and appreciate our personal customer service conducted in their native Mandarin and other regional dialects such as Fuzhounese and Cantonese. Full sales support from the beginning of a sales order to post-sales service is offered through these call centers.
Utilizing these outsourced call centers in China, customers embrace and appreciate our personal customer service conducted in their native Mandarin and other regional dialects such as Fuzhounese and Cantonese. 6 Full sales support from the beginning of a sales order to post-sales service is offered through these call centers.
In that role, he led the Accounting, Finance, Financial Reporting, Treasury/Cash Management, Strategic and Financial Planning, M&A Due Diligence, and other financial responsibilities. Prior to Generate Life Sciences, Mr. Rodriguez served as Vice President of Accounting and Corporate Finance for California Pizza Kitchen, Inc. Mr.
In that role, he led Accounting, Finance, Financial Reporting, Treasury/Cash Management, Strategic and Financial Planning, M&A Due Diligence, and other financial responsibilities. Prior to Generate Life Sciences, Mr. Rodriguez served as Vice President of Accounting and Corporate Finance for California Pizza Kitchen, Inc. Mr.
Corporate History HF Group was originally incorporated in the State of Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp. (“Atlantic”), in order to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with, one or more businesses or entities.
Corporate History HF Foods was originally incorporated in the State of Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp. (“Atlantic”), in order to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with, one or more businesses or entities.
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 us to establish and maintain comprehensive, prevention-based controls across the food supply chain that are both verified and validated.
The recently published and pending rules under the Food Safety Modernization Act ("FSMA") will significantly expand food safety requirements, including those of HF Foods. Among other things, FDA regulations implementing the FSMA require us to establish and maintain comprehensive, prevention-based controls across the food supply chain that are both verified and validated.
We believe this is a key business strength and competitive advantage, as many of the restaurants' owners/chefs are migrants who feel less comfortable conversing in English. • Lower sales and administrative expenses: We outsource our telephone-based sales and customer service to two call centers located in China with Mandarin and Chinese dialect (Fuzhounese) speaking agents to better serve our customers. • Purchasing power: We capitalize on economies of scale and have strong relationships with both our domestic and foreign suppliers. • Warehouse location: We have strategically located distribution centers and cross-docks, supported by our fleet of delivery vehicles with most routes limited to 3 to 5 hours driving time, ensuring on-time delivery and order fill-rate. 5 • Technology: With our customized inventory management system, we are able to manage our customer relationships and inventory efficiently and reduce operating expenses. • Customer-specific marketing: Our employees’ bilingual capabilities provide a competitive advantage against other major providers in the industry.
We believe this is a key business strength and competitive advantage, as many of the restaurants’ owners/chefs are migrants who feel less comfortable conversing in English. • Lower sales and administrative expenses: We outsource our telephone-based sales and customer service to two call centers located in China with Mandarin and Chinese dialect speaking agents to better serve our customers. • Purchasing power: We capitalize on economies of scale and have strong relationships with both our domestic and foreign suppliers. • Warehouse location: We have strategically located distribution centers and cross-docks, supported by our fleet of delivery vehicles with most routes limited to three to five hours driving time, ensuring on-time delivery and order fill-rate. • Technology: With our customized inventory management system, we are able to manage our customer relationships and inventory efficiently and reduce operating expenses. • Customer-specific marketing: Our employees’ bilingual capabilities provide a competitive advantage against other major providers in the industry.
Supported by an extensive supplier network, we aim to provide a one-stop service with on-time delivery and high fulfillment rates, at competitive pricing. We offer over 2,000 different products to our clients, which include virtually all items needed to operate their restaurant business.
Supported by an extensive supplier network, we aim to provide a one-stop service with on-time delivery and high fulfillment rates, at competitive pricing. We offer over 2,000 different products to our customers, which include virtually all items needed to operate their restaurant business.
It also requires Chinese and Asian seasonings and spices, including peanut oil, Chinese cooking wine, vinegar, dark soy source, black bean sauce, pepper oil and chili oil. Most of the unique ingredients for Chinese cuisine are staple supplies of HF Group that are not widely available from mainstream U.S. suppliers.
It also requires Chinese and Asian seasonings and spices, including peanut oil, Chinese cooking wine, vinegar, dark soy source, black bean sauce, pepper oil and chili oil. Most of the unique ingredients for Chinese cuisine are staple supplies of HF Foods that are not widely available from mainstream U.S. suppliers.
On April 29, 2022, HF Group acquired substantially all of the assets of Sealand Food, Inc., one of the largest frozen seafood suppliers servicing the Asian/Chinese restaurant market along the eastern seaboard, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.
On April 29, 2022, HF Foods acquired substantially all of the assets of Sealand Food, Inc., one of the largest frozen seafood suppliers servicing the Asian/Chinese restaurant market along the eastern seaboard, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.
Our 24-hour after sale service call domestically and in China allows us to serve as a supportive and dependable business partner. Through vendor partnerships, we help our large customers source distinct products from their choice of vendors, either domestically or internationally.
Our 24-hour after sale service call center, located domestically and in China, allows us to serve as a supportive and dependable business partner. Through vendor partnerships, we help our large customers source distinct products from their choice of vendors, either domestically or internationally.
We believe that these powerful trends will continue and result in expanded opportunities for Asian/Chinese restaurants. As a leading foodservice distributor to Asian/Chinese restaurants in the U.S., these trends represent a significant growth opportunity for HF Group. Cultural Barriers to Entry .
We believe that these powerful trends will continue and result in expanded opportunities for Asian/Chinese restaurants. As a leading foodservice distributor to Asian/Chinese restaurants in the U.S., these trends represent a significant growth opportunity for HF Foods. Cultural Barriers to Entry .
Lin received his B.A. in Accounting and Finance from the Eugene Stetson School of Business and Economics in Georgia, a Master’s degree in Accountancy from the J. Whitney Bunting College of Business in Georgia, and a Master’s degree in Business Administration from the University of North Carolina at Chapel Hill.
Lin received his B.A. in Accounting and Finance from the Eugene Stetson School of Business and Economics at Mercer University in Georgia, a Master’s degree in Accountancy from the J. Whitney Bunting College of Business at Georgia College and State University in Georgia, and a Master’s degree in Business Administration from the University of North Carolina at Chapel Hill.
Food and Drug Administration (the "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 requirements for certain foods, and the food and color additive approval process.
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 requirements for certain foods, and the food and color additive approval process.
Our 100% satisfaction guarantee permits our customers to reject part of the order or the entire order within 24 hours of receipt without any penalty. We believe that this refund policy further cements the trust and loyalty of our customers toward our brand and company. Suppliers We consolidate procurement on bulk and frequently sold items.
Our 100% satisfaction guarantee permits our customers to reject part of the order or the entire order within twenty-four hours of receipt without any penalty. We believe that this refund policy further cements the trust and loyalty of our customers toward our brand and company. Suppliers We consolidate procurement on bulk and frequently sold items.
Second or third generation Chinese Americans living in the U.S. inherit their traditional cultural values, and ethnic languages, and our experience has been that people in these communities prefer to do business with Chinese Americans that speak their language and share their values. Unique Cooking Style and Ingredients for Chinese Cuisines .
First or second generation Chinese Americans living in the U.S. inherit their traditional cultural values, and ethnic languages, and our experience has been that people in these communities prefer to do business with Chinese Americans that speak their language and share their values. 5 Unique Cooking Style and Ingredients for Chinese Cuisines .
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov. Those filings are also available to the public on, or accessible through, our corporate website for free via the “Investor Relations” section at hffoodsgroup.com/investor-relations/.
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov. Those filings are also available to the public on, or accessible through, our corporate website for free via the “Investor Relations” section at investors.hffoodsgroup.com.
We believe we are the leading Chinese food distributor in the U.S. with a well-developed logistics infrastructure, strong financial means, and experienced management team that provides the marketplace with an avenue for consolidated purchasing, high fill rate, and efficient delivery frequency at a competitive price.
We are a leading Asian food distributor in the U.S. with a well-developed logistics infrastructure, strong financial means, and experienced management team that provides the marketplace with an avenue for consolidated purchasing, high fill rate, and efficient delivery frequency at a competitive price.
We are required to comply, and it is our policy to comply, with all applicable laws in the numerous jurisdictions in which we do business. 8 As a marketer and distributor of food products in the U.S., we are subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the U.S.
We are required to comply, and it is our policy to comply, with all applicable laws in the numerous jurisdictions in which we do business. As a marketer and distributor of food products in the U.S., we are subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug Administration (the "FDA").
The fragmented nature of the Asian foodservice market creates acquisition opportunities for our company to continue to expand its geographic footprint and customer base. 6 Competitive Advantages over New Entrants . Each distribution center requires a large amount of invested capital to support the full temperature-controlled logistics and warehouse operations to help customers grow their sales and profit.
The fragmented nature of the Asian foodservice market creates acquisition opportunities for us to continue to expand our geographic footprint and customer base. Competitive Advantages over New Entrants . Each distribution center requires a large amount of invested capital to support the full temperature-controlled logistics and warehouse operations to help customers grow their sales and profit.
Our distribution centers send their inventory procurement requests to regional buyers who are responsible for consolidation and fulfillment in the most cost-effective way. The consolidated procurement process allows HF Group to establish a meaningful vendor relationship under one brand.
Our distribution centers send their inventory procurement requests to buyers who are responsible for consolidation and fulfillment in the most cost-effective way. The consolidated procurement process allows HF Foods to establish a meaningful vendor relationship under one brand.
Most Chinese restaurants serviced by HF Group are generally family-owned with very few workers, who are usually immigrants from China or second generation Chinese Americans. These restaurant owners, especially the founders, are generally less sophisticated, with limited education and resources and appreciate value-added services from suppliers to help them improve their operational efficiency.
Most Chinese restaurants serviced by HF Foods are generally family-owned with very few workers, who are usually immigrants from China or first generation Chinese Americans. These restaurant owners, especially the founders, are generally less sophisticated, with limited education and resources and appreciate value-added services from suppliers to help them improve their operational efficiency.
Our Business and Products Our business features 18 strategically positioned distribution centers with over one million square feet of warehouse space and a fleet of over 400 vehicles to provide a wide variety of products with a strong focus on Asian specialty food ingredients essential for Asian cooking.
Our Business and Products Our business features eighteen strategically positioned distribution centers and cross-docks with over one million square feet of warehouse space and a fleet of over 400 vehicles to provide a wide variety of products with a strong focus on Asian specialty food ingredients essential for Asian cooking.
Primarily Serving Non-Chinese Americans . There are tens of thousands of Chinese restaurants spread throughout the U.S., primarily serving non-Chinese American customers.
Primarily Serving Non-Chinese Americans . There are tens of thousands of Chinese and Asian restaurants spread throughout the U.S., primarily serving non-Chinese American customers.
For the year ended December 31, 2022, the costs of managing our compliance with environmental laws and regulations was nominal. The U.S. Foreign Corrupt Practices Act ("FCPA") prohibits bribery of public officials to obtain or retain business in foreign jurisdictions.
For the year ended December 31, 2023, the costs of managing our compliance with environmental laws and regulations was nominal. The U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits bribery of public officials to obtain or retain business in foreign jurisdictions.
Lin also previously served as an independent director of HF Group from November 2019 to April 2022. Mr. Lin has worked in a number of positions at Blue Bird Corporation since 2011 until his resignation on April 1, 2022.
Lin also previously served as an independent director of HF Foods from November 2019 to April 2022. Mr. Lin worked in a number of positions at Blue Bird Corporation from 2010 until his resignation on April 1, 2022.
A large purchase volume and a centralized procurement process also allowed B&R Global favorable negotiating power with vendors that source high quality products at lower prices than many competitors. Xi Lin (aka Felix Lin) has served as Chief Operating Officer since May 1, 2022. Mr.
A large purchase volume and a centralized procurement process also allowed B&R Global favorable negotiating power with vendors that source high quality products at lower prices than many competitors. Xi Lin (aka Felix Lin) was appointed to serve as President effective February 12, 2024 and has served as Chief Operating Officer since May 1, 2022. Mr.
The majority of our procurement currently consists of goods purchased domestically and imported goods purchased through domestic brokers, such as frozen meat, seafood and fresh vegetables, which are procured through large suppliers or directly from producers. 4 The following table sets forth our broad range of products and sales percentage by category for the year ended December 31, 2022: Category Description Percentage Seafood Lobster, shrimp, crab, scallops and fish, such as tuna and Alaskan salmon 30% Asian Specialty Products with an Asian flair or flavor, including specialty noodles, rice, dry goods, such as dried mushrooms or dried beans, specialty sauces/seasonings, spring rolls, and canned products, such as preserved vegetables, bamboo shoots and water chestnuts 26% Meat and Poultry Beef, pork, chicken and duck 20% Fresh Produce Fresh, seasonal fruits and vegetables, such as celery, Chinese cabbage and winter melon which are widely used in Chinese cuisines 11% Packaging and Other Take-out accessories for customers, from bamboo chopsticks to takeout containers, plastic cups and sushi combo boxes 7% Commodity General commodities including oil, flour, salt and sugar 6% We have an extensive supplier network and established long-term relationships with our major suppliers.
The following table sets forth our broad range of products and sales percentage by category for the year ended December 31, 2023: Category Description Percentage Seafood Lobster, shrimp, crab, scallops and fish, such as tuna and Alaskan salmon 31% Asian Specialty Products with an Asian flair or flavor, including specialty noodles, rice, dry goods, such as dried mushrooms or dried beans, specialty sauces/seasonings, spring rolls, and canned products, such as preserved vegetables, bamboo shoots and water chestnuts 27% Meat and Poultry Beef, pork, chicken and duck 19% Fresh Produce Fresh, seasonal fruits and vegetables, such as celery, Chinese cabbage and winter melon which are widely used in Chinese cuisines 11% Packaging and Other Take-out accessories for customers, from bamboo chopsticks to takeout containers, plastic cups and sushi combo boxes 6% Commodity General commodities including oil, flour, salt and sugar 6% We have an extensive supplier network and established long-term relationships with our major suppliers.
ITEM 1. BUSINESS. Overview HF Foods Group Inc., operating through our subsidiaries (“HF Group,” the “Company,” “we,” “us,” or “our”), is a leading foodservice distributor to Asian restaurants, primarily Chinese restaurants located throughout the United States. HF Group was formed through a merger between two complementary market leaders, HF Group and B&R Global Holdings, Inc.
ITEM 1. BUSINESS. Overview HF Foods Group Inc., operating through our subsidiaries, is a leading foodservice distributor to Asian restaurants, primarily Chinese restaurants located throughout the United States. HF Foods was formed through a merger between two complementary market leaders, HF Foods and B&R Global Holdings, Inc. ("B&R Global"), on November 4, 2019.
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 our trucking business through the regulation of operations, safety, insurance and hazardous materials.
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 our trucking business through the regulation of operations, safety, insurance and hazardous materials.
He also held various other positions within Blue Bird Corporation in the Operations Management Department from 2015 to 2016, the Finance and Accounting Department in 2011 and from 2013 to 2015, and the Business Development Department in 2012. Mr.
He also held various other leadership positions within Blue Bird Corporation in the Manufacturing Operations and Supply Chain Departments from 2015 to 2016, the Finance and Accounting Department in 2011 and from 2013 to 2015, and the International Business Development and M&A Departments in 2012. Mr.
Three out of five members of our Board of Directors are Asian and two out of five are women. At the corporate level, nearly 47% of our director and above positions are held by women. Government Regulation Legal compliance is important to our operations.
In recent years, we have strengthened our commitment to diversity and inclusion. Three out of five members of our Board of Directors are Asian and two out of five are women. At the corporate level, nearly 50% of our director and above positions are held by women. Government Regulation Legal compliance is important to our operations.
("B&R Global"), on November 4, 2019. With 18 distribution centers and a fleet of over 400 refrigerated vehicles, our distribution network now spans 46 states covering approximately 95% of the contiguous United States.
With 18 distribution centers and cross-docks and a fleet of over 400 refrigerated vehicles, our distribution network now spans 46 states covering approximately 95% of the contiguous United States.
Information about our Executive Officers Name Age Position Xiao Mou Zhang 50 Chief Executive Officer Xi Lin 34 Chief Operating Officer Carlos Rodriguez 49 Chief Financial Officer Christine Chang 40 General Counsel and Chief Compliance Officer Xiao Mou Zhang (aka Peter Zhang) has served as Co-Chief Executive Officer and director since November 4, 2019 following the merger between HF Group and B&R Global Holdings Inc.
Customs and Border Protection, which is a part of the Department of Homeland Security. 9 Information about our Executive Officers Name Age Position Xiao Mou Zhang 51 Chief Executive Officer Xi Lin 35 President and Chief Operating Officer Carlos Rodriguez 50 Chief Financial Officer Christine Chang 41 General Counsel and Chief Compliance Officer Xiao Mou Zhang (aka Peter Zhang) has served as Co-Chief Executive Officer and director since November 4, 2019 following the merger between HF Foods and B&R Global Holdings Inc.
Utilizing brokers allows us 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 makes procurement adjustments according to market conditions.
Utilizing brokers allows us 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 makes procurement adjustments according to market conditions. In addition, they use a dual-sourcing method for their suppliers and can negotiate lower prices for comparable products.
Prior to his resignation, he was Vice President of Human Resource and External Affairs, with responsibility for human resources, government relations, training and strategic relationships.
Prior to his resignation, he was Vice President, with responsibility for compliance, human resources, government relations, corporate training, strategic relationships, and supply chain M&A.
HF Group and our products are also subject to state and local regulation through such measures as the licensing of our facilities; enforcement by state and local health agencies of state and local standards for our products; and regulation of our trade practices in connection with the sale of our products.
The FSMA also imposes new requirements for food products imported into the U.S. and provides the FDA with mandatory recall authority. 8 HF Foods and our products are also subject to state and local regulation through such measures as the licensing of our facilities; enforcement by state and local health agencies of state and local standards for our products; and regulation of our trade practices in connection with the sale of our products.
We have an extensive reach to our customers through localized, high frequency deliveries which allows them to reduce their inventory through higher inventory turnover and just-in-time inventory, and to reduce waste, especially in fresh products. Our temperature-controlled trucks deliver both short and medium distance routes daily to ensure on-time delivery and to achieve high fill rates to our customers.
We have an extensive reach to our customers through localized, high frequency deliveries which allows them to reduce their inventory through higher inventory turnover and just-in-time inventory, and to reduce waste, especially in fresh products.
Product offerings range from meat and poultry, perishable fresh produce, frozen seafood, general commodities and takeout food packaging materials to meet our customers’ demands.
Product offerings range from meat and poultry, perishable fresh produce, frozen seafood, general commodities and takeout food packaging materials to meet our customers’ demands. The majority of our procurement currently consists of goods purchased domestically, such as meat, poultry, produce and certain key commodities.
Department of Agriculture ("USDA"), the food away from home market grew to surpass spending on the food at home market. The foodservice industry declined sharply when COVID-19 restrictions adversely impacted restaurants' operations and foot traffic. As COVID-19 restrictions eased in 2021 and into 2022, both full service and fast food/take out restaurants have rebounded.
Department of Agriculture (“USDA”), the food away from home market grew to surpass spending on the food at home market. The foodservice industry declined sharply when COVID-19 restrictions adversely impacted restaurants’ operations and foot traffic.
Throughout our history, we have continued to maintain diversity and inclusion as one of our top priorities. 99% of our total workforce is made up of Hispanic, Black or African American, and Asian employees. In recent years, we have strengthened our commitment to diversity and inclusion.
Building a successful business based on diversity and inclusion has been part of our DNA since our inception. Throughout our history, we have continued to maintain diversity and inclusion as one of our top priorities. 99% of our total workforce is made up of Hispanic, Black or African American, and Asian employees.
Our Strategy We are differentiated from mainstream food distribution companies, such as Sysco Corporation ("Sysco"), US Foods Holding Corp. ("US Foods") and Performance Food Group Company ("PFGC"), through our strong understanding of Asian culture and cooking essentials, distinctive product portfolio and resourceful supply chains.
Our temperature-controlled trucks deliver both short and medium distance routes daily to ensure on-time delivery and to achieve high fill rates to our customers. 4 Our Strategy We are differentiated from mainstream food distribution companies, such as Sysco Corporation, US Foods Holding Corp. and Performance Food Group Company, through our strong understanding of Asian culture and cooking essentials, distinctive product portfolio, and resourceful supply chains.
We believe one of the key factors of our success is the commitment and loyalty of our workforce. All of our general managers and distribution level management team have been with the business since our inception. Their deep understanding of the business and the strong relationships they maintain with front line employees enable us to be a union free workforce.
We believe one of the key factors of our success is the commitment and loyalty of our workforce. All of our general managers and distribution level management team have been with the business since our inception.
The FCPA also requires us 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.
The FCPA also requires us 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. We have implemented appropriate policy and will continue to maintain a robust anti-corruption compliance program applicable to our operations.
On January 17, 2020, we acquired 100% equity membership interest in nine subsidiaries under B&R Group Realty Holding, LLC ("BRGR"), which owned warehouse facilities that were being leased to B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.
On January 17, 2020, we acquired 100% equity membership interest in nine subsidiaries under B&R Group Realty Holding, LLC ("BRGR"), which owned warehouse facilities that were being leased to B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana. 3 On December 30, 2021, HF Foods acquired substantially all of the assets of leading seafood suppliers Great Wall Seafood Supply, Inc., a Texas corporation, Great Wall Restaurant Supplier, Inc., an Ohio corporation, and First Mart Inc., an Illinois corporation (collectively the "Great Wall Group").
(inbound calls in the U.S. are redirected to China) for order taking, customer relationship management and after-sales service, offering customers a warm and friendly human interaction channel who speaks and understands their language and needs.
This is further complemented by our two outsourced sales call centers located in China which take customers' inbound calls during non-office hours in the U.S. for order taking, customer relationship management and after-sales service, offering customers a warm and friendly human interaction channel who speak and understand their language and needs.
We believe the long-term trend of increasing food away from home market consumption will resume and continue to be a key driver of demand for Asian/Chinese restaurants.
As COVID-19 restrictions eased in 2021 and into 2022, both full service and fast food/take out restaurants have rebounded, and we believe the long-term trend of increasing food away from home market consumption has resumed and continues to be a key driver of demand for Asian/Chinese restaurants.
This initiative is made possible from order placement to delivery due to our warehouse operations, optimized fleet management, material handling equipment and techniques, and efficient administrative and operating staffs. This is further complemented by our two outsourced sales call centers located in China which take customers' inbound calls during non-office hours in the U.S.
This initiative is made possible from order placement to delivery due to our warehouse operations, optimized fleet management, material handling equipment and techniques, and efficient administrative and operating staff.
Further, we are required to establish communication programs to transmit information about the hazards of certain chemicals present in some of the products we distribute. Our business and employment practices are also subject to regulation by numerous federal, state and local regulatory agencies, including, but not limited to, the U.S.
Our business and employment practices 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.
As we continue to transform our operations through new system and process improvements, training and development of our existing employees is vital. Diversity and Inclusion HF Foods was founded by Asian Americans. Building a successful business based on diversity and inclusion has been part of our DNA since our inception.
In 2023, we implemented learning modules which allow for the assignment of specific learning to employees based on role, compliance, and leadership development. We continue to transform our operations through new system and process improvements, training and development. Diversity and Inclusion HF Foods was founded by Asian Americans.
We have implemented appropriate policy and will continue to maintain a robust anti-corruption compliance program applicable to our operations. 9 For the purchase of items produced, harvested or manufactured outside of the U.S., we are subject to applicable customs laws regarding the import and export of various products.
For the purchase of items produced, harvested or manufactured outside of the U.S., we are subject to applicable customs laws regarding the import and export of various products. Certain activities, including working with customs brokers and freight forwarders, are subject to applicable regulation by U.S.
In addition, they use a dual-sourcing method for their suppliers and can negotiate lower prices for comparable products. 7 Each distribution center reviews the inventory level in the information system daily and submits purchase requests as needed to the procurement team at headquarters and regional offices.
Each distribution center reviews the inventory level in the information system daily and submits purchase requests as needed to the procurement team at headquarters and regional offices. The procurement teams at headquarters and our regional offices can alter or adjust purchasing decisions based on an analysis of the inventory data in the system.
Recruiting, Training, and Development Our ability to continue to retain, attract, and recruit top talent at all levels is key to our future success. In 2022, we launched an Operations Leadership Development Program aimed to develop the next generation of general manager leaders.
The overall impact was an increase in medical plan enrollment by 50%, dental plan enrollment by 135%, and vision plan enrollment by 103%, from the previous year. Recruiting, Training and Development Our ability to continue to retain, attract, and recruit top talent at all levels is key to our future success.
As of December 31, 2022, we have 1,070 total employees, which includes 890 permanent employees and 180 temporary employees through agencies. Compensation and Benefits We are committed to positively impacting the lives of our employees by offering competitive pay and affordable benefits. In 2022, we made the decision to completely revamp our compensation and benefits programs.
Compensation and Benefits We are committed to positively impacting the lives of our employees by offering competitive pay and affordable benefits. In 2023, we rolled out new benefit plan offerings along with education on those benefits in several language options to the employees.
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On December 30, 2021, HF Group acquired substantially all of the assets of leading seafood suppliers Great Wall Seafood Supply, Inc., a Texas corporation, Great Wall Restaurant Supplier, Inc., an Ohio corporation, and First Mart Inc., an Illinois corporation (collectively the "Great Wall Group").
Added
We also purchase a significant amount of goods through the import channel, such as frozen seafood, Asian Specialty, packaging and other commodities.
Removed
The procurement teams at headquarters and our regional offices can alter or adjust purchasing decisions based on an analysis of the inventory data in the system. Upon receipt of ordered products, the delivery schedule is determined based on the needs of each location. The lead-time for products is dependent on the product category and need.
Added
None of our suppliers accounted for more than 10% of our aggregate purchases during the years ended December 31, 2023 and 2022.
Removed
We rolled out a comprehensive management incentive bonus and long-term incentive equity plan to include a broader group of non-executive employees. We also adopted plans to enhance our benefit plan designs with lower employee premiums and offer more free benefits to our employees with an effective date in 2023.
Added
Their deep understanding of the business and the strong relationships they maintain with front line employees enable us to be a union free workforce. 7 As of December 31, 2023, we have 1,049 total employees, which includes 925 permanent employees and 124 temporary employees.
Removed
The FSMA also imposes new requirements for food products imported into the U.S. and provides the FDA with mandatory recall authority.
Removed
Certain activities, including working with customs brokers and freight forwarders, are subject to applicable regulation by U.S. Customs and Border Protection, which is a part of the Department of Homeland Security.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

64 edited+16 added−29 removed132 unchanged
Biggest changeImpairment analysis requires significant judgment by management and the fair value of goodwill, indefinite-lived intangible assets or other long-lived assets are sensitive to changes in key assumptions used in the projected cash flows, which include forecasted revenues and perpetual growth rates, among others, as well as current market conditions in both the United States and globally, all of which were unfavorably impacted by the COVID-19 pandemic.
Biggest changeWe may be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill, amortizable intangible assets, or other long-lived assets is determined, which would negatively affect our results of operations. 19 Impairment analysis requires significant judgment by management and the fair value of goodwill, amortizable intangible assets or other long-lived assets are sensitive to changes in key assumptions used in the projected cash flows, which include forecasted revenues and perpetual growth rates, among others, as well as current market conditions in both the United States and globally.
Future economic conditions affecting disposable consumer income, such as employment levels, business conditions, changes in housing market conditions, the availability of consumer credit, inflation, interest rates, tax rates and fuel and energy costs, could reduce overall consumer spending. • Food cost and fuel cost inflation experienced by consumers can lead to reductions in the frequency of and the amount spent by consumers for food away from home purchases, which could negatively impact our business by reducing demand for our products. 11 • Heightened uncertainty in the financial markets negatively affects consumer confidence and discretionary spending, which can cause disruptions with our customers and suppliers. • Liquidity issues and the inability of our customers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to conduct day-to-day transactions involving the collection of funds from such customers. • Liquidity issues and the inability of suppliers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to obtain the foodservice products and supplies needed by us in the quantities and at the prices requested.
Future economic conditions affecting disposable consumer income, such as employment levels, business conditions, changes in housing market conditions, the availability of consumer credit, inflation, interest rates, tax rates and fuel and energy costs, could reduce overall consumer spending. 11 • Food cost and fuel cost inflation experienced by consumers can lead to reductions in the frequency of and the amount spent by consumers for food away from home purchases, which could negatively impact our business by reducing demand for our products. • Heightened uncertainty in the financial markets negatively affects consumer confidence and discretionary spending, which can cause disruptions with our customers and suppliers. • Liquidity issues and the inability of our customers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to conduct day-to-day transactions involving the collection of funds from such customers. • Liquidity issues and the inability of suppliers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to obtain the foodservice products and supplies needed by us in the quantities and at the prices requested.
In addition to other factors, the price and volume volatility of our common stock may be affected by: • factors influencing consumer food choices; • the operating and securities price performance of companies that investors consider comparable to us; • announcements of strategic developments, acquisitions and other material events by us or our competitors; • changes in global financial markets and global economies and general market conditions, such as tariffs, interest rates, commodity and equity prices and the value of financial assets; • additions or departures of key personnel; • operating results that vary from the expectations of securities analysts and investors; • sales of our equity securities common stock by shareholders, including the owners of businesses we have acquired, management, or our founder and his affiliated trusts and family members; • actions by shareholders; • actions by the SEC or NASDAQ relating to investigations; and 22 • passage of legislation or other regulatory developments that adversely affect us or our industry.
In addition to other factors, the price and volume volatility of our common stock may be affected by: • factors influencing consumer food choices; • the operating and securities price performance of companies that investors consider comparable to us; • announcements of strategic developments, acquisitions and other material events by us or our competitors; • changes in global financial markets and global economies and general market conditions, such as tariffs, interest rates, commodity and equity prices and the value of financial assets; • additions or departures of key personnel; • operating results that vary from the expectations of securities analysts and investors; • sales of our equity securities common stock by shareholders, including the owners of businesses we have acquired, management, or our founder and his affiliated trusts and family members; • actions by shareholders; • actions by the SEC or NASDAQ relating to investigations; and • passage of legislation or other regulatory developments that adversely affect us or our industry.
Such acquisitions also involve numerous operational risks, including: • difficulties in integrating operations, technologies, services and personnel; • the diversion of financial and management resources from existing operations; • the risk of entering new markets; • the potential loss of existing or acquired strategic operating partners following an acquisition; • the potential loss of key employees following an acquisition and the associated risk of competitive efforts from such departed personnel; • possible legal disputes with the acquired company following an acquisition; and • the inability to generate sufficient revenue to offset acquisition or investment costs.
Such acquisitions also involve numerous operational risks, including: • difficulties in integrating operations, technologies, services and personnel; • the diversion of financial and management resources from existing operations; • the risk of entering new markets; 21 • the potential loss of existing or acquired strategic operating partners following an acquisition; • the potential loss of key employees following an acquisition and the associated risk of competitive efforts from such departed personnel; • possible legal disputes with the acquired company following an acquisition; and • the inability to generate sufficient revenue to offset acquisition or investment costs.
While COVID-19 did not significantly impact our operations in 2022, the impact of pandemics may have an adverse impact on numerous aspects of our business, financial condition and results of operations including, our growth, product costs, supply chain disruptions, labor shortages, logistics constraints, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, and the global economy and financial markets generally.
While COVID-19 did not significantly impact our operations in 2022 and 2023, the impact of pandemics may have an adverse impact on numerous aspects of our business, financial condition and results of operations including, our growth, product costs, supply chain disruptions, labor shortages, logistics constraints, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, and the global economy and financial markets generally.
In addition, we may enter into future affiliations with related parties or make other equity investments, which could have an adverse impact on us because of the financial accounting guidance regarding VIEs. 14 We may be unable to protect or maintain our intellectual property, which could result in customer confusion, a negative perception of our brand and adversely affect our business.
In addition, we may enter into future affiliations with related parties or make other equity investments, which could have an adverse impact on us because of the financial accounting guidance regarding VIEs. We may be unable to protect or maintain our intellectual property, which could result in customer confusion, a negative perception of our brand and adversely affect our business.
If our suppliers fail to comply with food safety or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted. We cannot assure you that we would be able to find replacement suppliers on commercially reasonable terms. In addition, we purchase seasonal Chinese vegetables and fruits from farms and other vendors.
If our suppliers fail to comply with food safety or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted. We cannot assure you that we would be able to find replacement suppliers on commercially reasonable terms. 12 In addition, we purchase seasonal Chinese vegetables and fruits from farms and other vendors.
Our shareholders will not have the opportunity to evaluate the relevant economic, financial and other information that our management team will use and consider in deciding whether or not to enter into a particular transaction. 21 We may be required to incur a significant amount of indebtedness in order to successfully implement our acquisition strategy.
Our shareholders will not have the opportunity to evaluate the relevant economic, financial and other information that our management team will use and consider in deciding whether or not to enter into a particular transaction. We may be required to incur a significant amount of indebtedness in order to successfully implement our acquisition strategy.
Our operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful. 20 There is a scarcity of and competition for acquisition opportunities. There are a limited number of operating companies available for acquisition that we deem to be desirable targets.
Our operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful. There is a scarcity of and competition for acquisition opportunities. There are a limited number of operating companies available for acquisition that we deem to be desirable targets.
The Company’s former Chairman and Co-CEO Zhou Min Ni, directly and indirectly through the trustee of the trusts established for the benefit of his family, beneficially owns approximately 25% of our common stock. As a result, Mr. Ni has sufficient voting power to significantly influence matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions.
The Company’s former Chairman and Co-CEO Zhou Min Ni, directly and indirectly through the trustee of the trusts established for the benefit of his family, beneficially owns approximately 22% of our common stock. As a result, Mr. Ni has sufficient voting power to significantly influence matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions.
We have taken and will continue to take appropriate actions to remediate such material weakness and inadequate disclosure controls and procedures; however, such continuous measures are still work-in-progress and may not be sufficient to address the material weaknesses identified or ensure that our disclosure controls and procedures are effective. We may also discover other material weaknesses in the future.
We have taken and will continue to take appropriate actions to remediate such material weakness and inadequate disclosure controls and procedures; however, such continuous measures are still works-in-progress and may not be sufficient to address the material weaknesses identified or ensure that our disclosure controls and procedures are effective. We may also discover other material weaknesses in the future.
However, we believe that the market participants serving Chinese restaurants are highly fragmented. Currently, we face competition from smaller and/or dispersed competitors focusing on the niche market serving Chinese/Asian restaurants, especially Chinese takeout restaurants. However, with the growing demand for Chinese cuisines, others are operating, or may begin operating in this niche market in the future.
In addition, we believe that the market participants serving Chinese restaurants are also highly fragmented. Currently, we face competition from smaller and/or dispersed competitors focusing on the niche market serving Chinese/Asian restaurants, especially Chinese takeout restaurants. However, with the growing demand for Chinese cuisines, others are operating, or may begin operating in this niche market in the future.
Risks related to acquisition financing. We have a limited amount of financial resources and our ability to make additional acquisitions without securing additional financing from outside sources is limited. In order to continue to pursue our acquisition strategy, we may be required to obtain additional financing.
We have a limited amount of financial resources and our ability to make additional acquisitions without securing additional financing from outside sources is limited. In order to continue to pursue our acquisition strategy, we may be required to obtain additional financing.
We may not be able to identify operating companies that complement our strategy, and even if we identify a company that does so, we may be unable to complete an acquisition of such a company for many reasons, including: • failure to agree on necessary terms, such as the purchase price; • incompatibility between our operational strategies and management philosophies with those of the potential acquiree; • competition from other acquirers of operating companies; • lack of sufficient capital to acquire a profitable company; and • unwillingness of a potential acquiree to work with our management.
We may not be able to identify operating companies that complement our strategy, and even if we identify a company that does so, we may be unable to complete an acquisition of such a company for many reasons, including: • failure to agree on necessary terms, such as the purchase price; • incompatibility between our operational strategies and management philosophies with those of the potential acquiree; • competition from other acquirers of operating companies; • lack of sufficient capital to acquire a profitable company; and • unwillingness of a potential acquiree to work with our management. 20 Risks related to acquisition financing.
Our management has concluded that (1) our internal controls over financial reporting were not effective as of December 31, 2022, (2) there existed material weaknesses in our internal control over financial reporting as of December 31, 2022, and (3) our disclosure controls and procedures were not effective as of December 31, 2022.
Our management has concluded that (1) our internal controls over financial reporting were not effective as of December 31, 2023, (2) there existed material weaknesses in our internal control over financial reporting as of December 31, 2023, and (3) our disclosure controls and procedures were not effective as of December 31, 2023.
Any prolonged diminution of global supply chains may impact the availability and price stability of future food supplies, which may in turn adversely impact our business. Our business has been affected and may in the future be affected by steps taken by the Chinese government to address the COVID-19 pandemic.
Any prolonged diminution of global supply chains may impact the availability and price stability of future food supplies, which may in turn adversely impact our business. Our business has been affected by the COVID-19 pandemic and may in the future be affected by steps taken by the Chinese government to address the COVID-19 pandemic or other pandemics.
A significant breach could affect our data framework or cause a failure to protect the personal information of our customers, suppliers or employees, or sensitive and confidential information regarding our business and could give rise to legal liability and regulatory action under data protection and privacy laws.
A significant cybersecurity incident could affect our data framework or cause a failure to protect the personal information of our customers, suppliers or employees, or sensitive and confidential information regarding our business and could give rise to legal liability and regulatory action under data protection and privacy laws.
ITEM 1A. RISK FACTORS. The following are significant factors known to us that could materially adversely affect our business, reputation, operating results, industry, financial position and/or future financial performance. The risks set forth in this Section 1A are presented as of December 31, 2022 and the periods then ended.
ITEM 1A. RISK FACTORS. The following are significant factors known to us that could materially adversely affect our business, reputation, operating results, industry, financial position and/or future financial performance. The risks set forth in this Section 1A are presented as of December 31, 2023 and the period then ended.
The market price and volume of our common stock may continue to experience fluctuations not only due to volatile stock market conditions but also due to government regulatory action, tax laws update, interest rates, the condition of the U.S. economy and a change in sentiment in the market regarding our industry, operations or business prospects.
The market price and volume of our common stock may continue to experience fluctuations not only due to volatile stock market conditions but also due to government regulatory action, tax law updates, interest rates, the condition of the U.S. economy and a change in sentiment in the market regarding our industry, operations or business prospects.
For more information on our related party transactions, see Note 14 - Related Party Transactions in our consolidated financial statements in this Annual Report on Form 10-K.
For more information on our related party transactions, see Note 13 - Related Party Transactions in our consolidated financial statements in this Annual Report on Form 10-K.
To the extent that business conditions deteriorate further, or if changes in key assumptions and estimates differ significantly from management’s expectations, it may be necessary to record additional future impairment charges, which could be material.
To the extent that business conditions may deteriorate, or if changes in key assumptions and estimates differ significantly from management’s expectations, it may be necessary to record impairment charges, which could be material.
Relevant factors, events and circumstances that affect the fair value of goodwill and indefinite-lived intangible assets may include external factors such as macroeconomic, industry, and market conditions, as well as cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit, or sustained decrease in share price.
Relevant factors, events and circumstances that affect the fair value of goodwill may include external factors such as macroeconomic, industry, and market conditions, as well as cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit, or sustained decrease in share price.
If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our earnings may be materially adversely affected. A significant expansion of our business and operations, in terms of geography or magnitude (such as with the Business Combination), could strain our administrative and operational resources.
If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our earnings may be materially adversely affected. A significant expansion of our business and operations, in terms of geography or magnitude, could strain our administrative and operational resources.
A significant breach of our cybersecurity infrastructure may result from actions by our employees, suppliers, third-party administrators, or unknown third parties or through cyber-attacks. The risk of a breach can exist whether software services are in our technology systems or are in cloud-based software services.
A significant cybersecurity incident involving our cybersecurity infrastructure may result from actions by our employees, suppliers, third-party administrators, or unknown third parties or through cyber-attacks. The risk of such an incident can exist whether software services are in our technology systems or are in cloud-based software services.
Any such breach of our or our suppliers’ cybersecurity infrastructure could have a material adverse effect on our business, results of operations and financial condition.
Any such cybersecurity incident involving our or our suppliers’ cybersecurity infrastructure could have a material adverse effect on our business, results of operations and financial condition.
In addition, our existing operations are solely in the United States. The geographic concentration of our operations creates an exposure to economic conditions in the United States and any financial downturn in the United States could materially adversely affect our financial condition and results of operations.
In addition, our existing operations are solely in the U.S. The geographic concentration of our operations creates an exposure to economic conditions in the U.S. and any financial downturn in the U.S. could materially adversely affect our financial condition and results of operations.
Please see the discussion of these conclusions below under Item 9A. “Controls and Procedures” of this Annual Report on Form 10-K.
Please refer to the discussion of these conclusions below, under Item 9A. “Controls and Procedures” of this Annual Report on Form 10-K.
Competition may increase intensively in the future, which may adversely impact our margins and ability to retain customers, and make it difficult to maintain our market share, growth rate and profitability. The foodservice distribution industry in the United States is fragmented and highly competitive, with local, regional, multi-regional distributors, and specialty competitors.
Competition may increase in the future, which may adversely impact our margins and ability to retain customers, and make it difficult to maintain our market share, growth rate and profitability. The foodservice distribution industry, as a whole, in the U.S. is fragmented and highly competitive, with local, regional, multi-regional distributors, and specialty competitors.
Breaches have occurred, and may occur again, in our systems and in the systems of our suppliers and third-party administrators. Any such breach could result in operational impairments, significant harm to our reputation and financial losses.
Intrusions and other incidents have occurred, and may occur again, in our systems and in the systems of our suppliers and third-party administrators. Any such incident could result in operational impairments, significant harm to our reputation and financial losses.
As of December 31, 2022, we utilized $53.1 million of the $100 million asset-secured revolving credit facility and $122.0 million of long-term mortgage and equipment loans, which could adversely affect our cash flow, our ability to raise additional capital or obtain financing in the future, or react to changes in business and repay other debts.
As of December 31, 2023, we utilized $58.6 million of the $100 million asset-secured revolving credit facility and $114.4 million of long-term mortgage and equipment loans, which could adversely affect our cash flow, our ability to raise additional capital or obtain financing in the future, or react to changes in business and repay other debts.
If our competitors implement new technologies more quickly or successfully than we do, such competitors may be able to provide lower cost or enhanced services of superior quality compared to those we provide, which could have an adverse effect on our results of operations. Our current indebtedness may adversely affect our liquidity position and ability of future financing.
If our competitors implement new technologies more quickly or successfully than we do, such competitors may be able to provide lower cost or enhanced services of superior quality compared to those we provide, which could have an adverse effect on our results of operations.
In addition, periods of rapidly increasing inflation may adversely affect our business due to the impact of such inflation on discretionary spending by consumers and our limited ability to increase prices in the current, highly competitive environment. A shortage of qualified labor could negatively affect our business and materially reduce earnings.
In addition, periods of rapidly increasing inflation may adversely affect our business due to the impact of such inflation on discretionary spending by consumers and our limited ability to increase prices in the current, highly competitive environment.
Our industry is characterized by low margins, and periods of significant or prolonged inflation or deflation affect our product and operational costs, which may negatively impact our profitability. The foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins. Volatile food costs have a direct impact on our industry.
Risk Factors Relating to Our Business and Industry Our industry is characterized by low margins, and periods of significant or prolonged inflation or deflation affect our product and operational costs, which may negatively impact our profitability. The foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins.
The impact of pandemics and the enactment of additional governmental regulations and restrictions may further adversely impact the global economy, the restaurant industry, and our business specifically, despite prior or future actions taken by us.
The impact of pandemics and the enactment of additional governmental regulations and restrictions may further adversely impact the global economy, the restaurant industry, and our business specifically, despite prior or future actions taken by us. A shortage of qualified labor could negatively affect our business and materially reduce earnings.
We sell our products based on the cost of such products plus a percent markup. The U.S. government is currently imposing and proposing increased tariffs on certain products imported into the U.S., including products imported from China.
The U.S. government is currently imposing increased tariffs on certain products imported into the U.S., including products imported from China, which may have an adverse impact on our future operating results. We sell our products based on the cost of such products plus a percent markup.
During 2022, we experienced significantly elevated commodity and supply chain costs including the cost of labor, sourced goods, energy, fuel, packaging materials and other inputs necessary for the distribution and production of our products, and elevated levels of inflation may continue or worsen in 2023.
Volatile food costs have a direct impact on our industry. During 2023, we experienced significantly elevated commodity and supply chain costs including the cost of labor, sourced goods, energy, fuel and other inputs necessary for the distribution of our products, and elevated levels of inflation may continue or worsen.
Future sales of our common stock may cause our stock price to decline. As of March 27, 2023, there were 53,827,531 shares of our common stock outstanding. Of this number, approximately 53.8 million shares of common stock were freely tradable without restriction, unless the shares were held by our affiliates.
Future sales of our common stock may cause our stock price to decline. As of March 22, 2024, there were 52,155,968 shares of our common stock outstanding. Of this number, approximately 52.2 million shares of common stock were freely tradable without restriction, unless the shares were held by our affiliates.
Input costs could increase at any point in time for a large portion of the products that we sell for a prolonged period. 12 Our inability to obtain adequate supplies of food items and related products as a result of any of the foregoing factors or otherwise could mean that we are unable to fulfill our obligations to customers, and customers may turn to other distributors.
Our inability to obtain adequate supplies of food items and related products as a result of any of the foregoing factors or otherwise could mean that we are unable to fulfill our obligations to customers, and customers may turn to other distributors.
The Russian invasion of Ukraine in February 2022 and the financial and economic sanctions and other measures imposed by the European Union, the United States, and other countries and organizations in response thereto is creating, and may continue to create, market disruption and volatility and instability in the geopolitical environment.
Conflicts such as the Russian invasion of Ukraine in February 2022 and the financial and economic sanctions and other measures imposed by the European Union, the U.S., and other countries and organizations in response thereto create market disruption and volatility and instability in the geopolitical environment.
Further, even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. 16 Our product liability insurance plans may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities.
Further, even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image.
Our operations are subject to various federal, state, and local laws, rules and regulations relating to the protection of the environment, including those governing: • the discharge of pollutants into the air, soil, and water; • the management and disposal of solid and hazardous materials and wastes; • employee exposure to hazards in the workplace; and • the investigation and remediation of contamination resulting from releases of petroleum products and other regulated materials.
Our operations are subject to various federal, state, and local laws, rules and regulations relating to the protection of the environment, including those governing: • the discharge of pollutants into the air, soil, and water; • the management and disposal of solid and hazardous materials and wastes; • employee exposure to hazards in the workplace; and • the investigation and remediation of contamination resulting from releases of petroleum products and other regulated materials. 17 In the course of business, we operate, maintain, and fuel vehicles; store fuel in on-site above ground containers; operate refrigeration systems; and use and dispose of hazardous substances and food waste.
Risk Factors Relating to Our Business and Industry Global health developments and economic uncertainty resulting from pandemics such as the COVID-19 pandemic, and governmental action related thereto, have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations.
Global health developments and economic uncertainty resulting from pandemics such as the COVID-19 pandemic, and governmental action related thereto, have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations. Through early 2021, we saw the impact of COVID-19 in our operations, including significant decreases in sales.
The extent to which this conflict escalates to other countries and the resulting impact on the global market remains uncertain. We are monitoring the conflict, but do not, and cannot, know if this situation will result in broader economic and security concerns or in material implications for our business.
The extent to which this or similar conflicts escalate and the resulting impact on the global market remains uncertain. We monitor such conflicts, but do not, and cannot, know if any such ongoing geopolitical conflicts will result in broader economic and security concerns or in material implications for our business.
Such proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liability, force us to cease use of certain trademarks or other intellectual property or force us to enter into licenses with others. Any one of these occurrences may have a material adverse effect on our business, results of operations and financial condition.
Such proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liability, force us to cease use of certain trademarks or other intellectual property or force us to enter into licenses with others.
Therefore, investors are not likely to receive any dividends on common stock in the near term, and capital appreciation, if any, of our common stock will be an investor’s sole source of gain for the foreseeable future.
Therefore, investors are not likely to receive any dividends on common stock in the near term, and capital appreciation, if any, of our common stock will be an investor’s sole source of gain for the foreseeable future. Anti-takeover provisions contained in our amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
There is an increased focus around the world by regulatory and legislative bodies at all levels towards policies relating to climate change and the impact of global warming, including the regulation of greenhouse gas (GHG) emissions, energy usage and sustainability efforts.
Any of these factors may disrupt our businesses and materially adversely affect our financial condition, results of operations and cash flows. 18 There is an increased focus around the world by regulatory and legislative bodies at all levels towards policies relating to climate change and the impact of global warming, including the regulation of greenhouse gas (GHG) emissions, energy usage and sustainability efforts.
Any work stoppages or labor disturbances as a result of employee dissatisfaction with their current employment terms could have a material adverse effect on our financial condition, results of operations and cash flows. We also expect that in the event of a work stoppage or labor disturbance, we could incur additional costs and face increased competition.
Any work stoppages or labor disturbances as a result of employee dissatisfaction with their current employment terms could have a material adverse effect on our financial condition, results of operations and cash flows.
If we are unable to renew or replace our current leases on favorable terms, or any of our current leases are terminated prior to expiration of their stated terms, and we cannot find suitable alternate locations, our operations and profitability could be negatively impacted. We currently have leases for some of our warehouses.
Any one of these occurrences may have a material adverse effect on our business, results of operations and financial condition. 15 If we are unable to renew or replace our current leases on favorable terms, or any of our current leases are terminated prior to expiration of their stated terms, and we cannot find suitable alternate locations, our operations and profitability could be negatively impacted.
Federal and state governments from time to time implement immigration laws, regulations or programs that regulate our ability to attract or retain qualified foreign employees. Some of these changes may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome or reduce the availability of potential employees.
Some of these changes may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome or reduce the availability of potential employees.
We provide foodservice distribution to Chinese/Asian restaurants, primarily Chinese takeout restaurants, which focus on serving Chinese food to non-Chinese Americans. Changes in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes, or a shift in preferences toward western foods) could reduce demand for our products.
Changes in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes, or a shift in preferences toward western foods) could reduce demand for our products.
In the event we determine to take such action, our customers may reduce their orders from us, which could negatively affect our profitability and operating results. Severe weather, natural disasters and adverse climate changes, as well as the legal, regulatory or market measures being implemented to address climate change, may materially adversely affect our financial condition and results of operations.
Severe weather, natural disasters and adverse climate changes, as well as the legal, regulatory or market measures being implemented to address climate change, may materially adversely affect our financial condition and results of operations.
We have identified material weaknesses in our internal control over financial reporting, which could affect our ability to ensure timely and reliable financial reports, affect the ability of our auditors to attest to the effectiveness of our internal controls, and weaken investor confidence in our financial reporting.
In addition, recruiting talent for our management team may increase operational costs substantially and may require longer hiring periods than ordinary employees. 22 We have identified material weaknesses in our internal control over financial reporting, which could affect our ability to ensure timely and reliable financial reports, affect the ability of our auditors to attest to the effectiveness of our internal controls, and weaken investor confidence in our financial reporting.
If we fail to comply with requirements imposed by applicable law and other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.
We also expect that in the event of a work stoppage or labor disturbance, we could incur additional costs and face increased competition. 16 If we fail to comply with requirements imposed by applicable law and other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.
We review our amortizable intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. We test goodwill and other indefinite-lived intangible assets for impairment at least annually, or more frequently if events or changes in circumstances indicate an asset may be impaired.
We test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate an asset may be impaired.
If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired.
If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business, results of operations and financial condition.
Our profitability may be impacted through increased costs to us which may affect our gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions. 17 The U.S. government is currently imposing increased tariffs on certain products imported into the U.S., including products imported from China, which may have an adverse impact on our future operating results.
Our profitability may be impacted through increased costs to us which may affect our gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.
Further, our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ and suppliers’ personal information, private information about employees, and financial and strategic information about us and our business partners. 18 These technology systems are vulnerable to disruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, espionage, cyber-attacks, viruses, theft and inadvertent releases of information.
These technology systems are vulnerable to disruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, espionage, cyber-attacks, viruses, theft and inadvertent releases of information.
These events could have a material adverse effect on our customers, our business partners and our third-party suppliers. We rely on technology in our business and any cybersecurity incident, other technology disruption or delay in implementing new technology could negatively affect our business and our relationships with customers.
The loss of a number of customers could adversely affect our business, financial condition, and results of operations. 13 We rely on technology in our business and any cybersecurity incident, other technology disruption or delay in implementing new technology could negatively affect our business and our relationships with customers.
Increased frequency or duration of extreme weather conditions could impair production capabilities, disrupt our supply chain or impact demand for our products.
Increased frequency or duration of extreme weather conditions could impair production capabilities, disrupt our supply chain or impact demand for our products. Input costs could increase at any point in time for a large portion of the products that we sell for a prolonged period.
Compliance with these laws and regulations, as well as others regarding the ingredients and nutritional content of food products, may be costly and time-consuming. We cannot make any assurances regarding our ability to effectively respond to changes in consumer culture preference, health perceptions or resulting new laws or regulations or to adapt our product offerings to trends in eating habits.
We cannot make any assurances regarding our ability to effectively respond to changes in consumer culture preference, health perceptions or resulting new laws or regulations or to adapt our product offerings to trends in eating habits. 14 We engage in transactions with related parties and such transactions present possible conflicts of interest that could have an adverse effect on us.
Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business, results of operations and financial condition. 15 Changes in and enforcement of immigration laws could increase our costs and adversely affect our ability to attract and retain qualified employees.
Changes in and enforcement of immigration laws could increase our costs and adversely affect our ability to attract and retain qualified employees. Federal and state governments from time to time implement immigration laws, regulations or programs that regulate our ability to attract or retain qualified foreign employees.
Some of our imported products and imported products purchased from domestic brokers may be subject to these increased tariffs and accordingly, our purchase costs will be increased. We may determine to increase our sales prices in order to pass these increased costs to our customers.
The U.S. government has imposed and continues to propose increased tariffs on certain products imported into the U.S., including products imported from China. Some of our imported products and imported products purchased from domestic brokers are subject to these increased tariffs and accordingly, our purchase costs have increased and may increase further.
In addition, any changes to benchmark rates may have an uncertain impact on our cost of funds and our access to the capital markets, which could impact our results of operations and cash flows. Impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets could adversely affect our financial condition and results of operation.
Impairment charges for goodwill, amortizable intangible assets or other long-lived assets could adversely affect our financial condition and results of operation. We review our amortizable intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
For more information on our goodwill impairment assessment and related impairment charge, see Note 9 - Goodwill and Acquired Intangible Assets in our consolidated financial statements of this Annual Report on Form 10-K. Risk Factors Relating to our Acquisition Strategy Our continued growth depends on future acquisitions of other distributors or wholesalers and enlarging our customer base.
The Company completed its most recent annual impairment assessment for goodwill as of the last day of the fourth quarter of fiscal year 2023 with no impairments noted. Risk Factors Relating to our Acquisition Strategy Our continued growth depends on future acquisitions of other distributors or wholesalers and enlarging our customer base.
Removed
In 2020 and through early 2021, we saw the impact of COVID-19 in our operations, including significant decreases in sales.
Added
For example, the combination of deflation on chicken pricing and elevated direct labor costs with respect to our chicken processing business contributed to loss of revenue and gross profit margin in that product category.
Removed
The loss of a number of customers could adversely affect our business, financial condition, and results of operations. We may fail to increase or maintain the highest margin portions of our business, including sales to restaurant customers. Our most profitable customers are independent restaurants.
Added
Further, our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ and suppliers’ personal information, private information about employees, and financial and strategic information about us and our business partners.
Removed
Our ability to continue to gain market share of independent restaurant customers is critical to achieving increased operating profits.
Added
Changes in consumer eating habits could materially and adversely affect our business, financial condition, and results of operations. We provide foodservice distribution to Chinese/Asian restaurants, primarily Chinese takeout restaurants, which focus on serving Chinese food to non-Chinese Americans.
Removed
Changes in the buying practices of independent restaurant customers, including their ability to require us to sell to them at discounted rates, or decreases in our sales to this type of customer could have a material negative impact on our profitability. 13 Changes in consumer eating habits could materially and adversely affect our business, financial condition, and results of operations.
Added
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.
Removed
We engage in transactions with related parties and such transactions present possible conflicts of interest that could have an adverse effect on us.
Added
We currently have leases for some of our warehouses.
Removed
In the course of business, we operate, maintain, and fuel vehicles; store fuel in on-site above ground containers; operate refrigeration systems; and use and dispose of hazardous substances and food waste.
Added
Our product liability insurance plans may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities.
Removed
Any of these factors may disrupt our businesses and materially adversely affect our financial condition, results of operations and cash flows.
Added
We may determine to increase our sales prices in order to pass these increased costs to our customers. In the event we determine to take such action, our customers may reduce their orders from us, which could negatively affect our profitability and operating results.
Removed
An increase in interest rates could adversely affect our cash flow and financial condition. We are subject to market risks relating to changes in the London Interbank Offered Rate ("LIBOR"). On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out the use of LIBOR by the end of 2021.
Added
These events could have a material adverse effect on our customers, our business partners and our third-party suppliers. Our current indebtedness may adversely affect our liquidity position and ability of future financing.

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Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−0 removed0 unchanged
Biggest changeWe believe that, in the aggregate, our real estate is suitable and adequate to serve the needs of our business.
Biggest changeWe also lease office space for a corporate location in Los Angeles, California. We believe that, in the aggregate, our real estate is suitable and adequate to serve the needs of our business.
ITEM 2. PROPERTIES. As of the date of this report, we operated 18 distribution centers with a total of approximately 1.3 million square feet of warehouse space including approximately 400 thousand square feet of refrigerated storage utilizing a mix of leased (31%) and owned (69%) facilities for distribution, warehousing inventory, service and administrative functions.
ITEM 2. PROPERTIES. As of the date of this report, we owned and/or operated eighteen distribution centers and cross-docks with a total of approximately 1.3 million square feet of warehouse space including approximately 400 thousand square feet of refrigerated storage utilizing a mix of leased (31%) and owned (69%) facilities for distribution, warehousing inventory, service and administrative functions.
The table below lists the aggregate square footage, by state for these operating facilities as of December 31, 2022.
The table below lists the aggregate square footage, by state for these operating facilities as of December 31, 2023.
Location Number of Facilities Total Square Feet Arizona 1 51,000 California 5 301,000 Colorado 1 53,000 Florida 1 136,200 Georgia 1 123,000 Illinois 1 135,000 North Carolina 2 236,000 Texas 2 65,000 Utah 2 81,000 Washington 1 65,000 Virginia 1 43,000 Totals 18 1,289,200 In addition, we lease our corporate headquarters, in Las Vegas, Nevada, consisting of approximately 5,000 square feet with a term of 6.5 years beginning March 17, 2021.
Location Number of Facilities Total Square Feet Arizona 1 51,000 California 5 295,500 Colorado 1 53,000 Florida 1 136,200 Georgia 1 123,000 Illinois 1 135,000 North Carolina 2 236,000 Texas 2 65,000 Utah 2 81,000 Washington 1 65,000 Virginia 1 43,000 Totals 18 1,283,700 We lease our corporate headquarters located in Las Vegas, Nevada, consisting of approximately 5,000 square feet with a term of 6.5 years that began on March 17, 2021.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

5 edited+9 added−7 removed6 unchanged
Biggest changeAs previously disclosed, in March 2020, an analyst report suggested certain improprieties in the Company’s operations, and in response to those allegations, the Company’s Board of Directors appointed a Special Committee of Independent Directors (the “Special Investigation Committee”) to conduct an internal independent investigation with the assistance of counsel.
Biggest changeThere also exists the possibility of a material adverse effect on our financial statements for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable. 25 As previously disclosed, in March 2020, an analyst report suggested certain improprieties in the Company’s operations, and in response to those allegations, the Company’s Board of Directors appointed a Special Committee of Independent Directors (the “Special Investigation Committee”) to conduct an internal independent investigation with the assistance of counsel.
We also hired a Vice President and Head of Internal Audit in April 2022 who reports directly to the Chief Financial Officer and to the Audit Committee Chair, and in November 2022, we hired a Vice President of Compliance and Associate General Counsel, who reports directly to the General Counsel and Chief Compliance Officer. ITEM 4. MINE SAFETY DISCLOSURES.
We also hired a Vice President and Head of Internal Audit in April 2022 who reports directly to the Chief Financial Officer and to the Audit Committee Chair. In November 2022, we hired a Vice President of Compliance and Associate General Counsel, who reports directly to the General Counsel and Chief Compliance Officer.
We have also instituted structural changes including the retirement of the former Co-Chief Executive Officer and Chairman of the Board. We now have an independent Chairman of the Board and, as of January 31, 2023, three other independent directors on the Board.
The Company has also instituted structural changes including the appointment of an independent Chairman of the Board to replace the former Co-Chief Executive Officer and Chairman of the Board. In addition, as of January 31, 2023, three other independent directors serve on the Company’s Board of Directors.
Adverse outcomes in some or all of these matters may result in significant monetary damages or injunctive relief against us that could adversely affect our ability to conduct our business. There also exists the possibility of a material adverse effect on our financial statements for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.
Adverse outcomes in some or all of these matters may result in significant monetary damages or injunctive relief against us that could adversely affect our ability to conduct our business.
While the SEC investigation is ongoing, the Special Investigation Committee has made certain factual findings based on evidence adduced during its investigation, and made recommendations to management regarding improvements to Company operations and structure, including but not limited to its dealings with related parties. The Company is working to implement those improvements.
After the conclusion of its internal investigation, the Special Investigation Committee made recommendations to management regarding improvements to Company operations and structure, including but not limited to its dealings with related parties. The Company has implemented numerous improvements and continues to improve its compliance program.
Removed
The Special Investigation Committee and the Company are cooperating with the SEC. 25 On May 20, 2022, the Board of Directors of HF Group received a letter from a stockholder, James Bishop (the “Bishop Demand”).
Added
The Special Investigation Committee and the Company have been cooperating with the SEC. Certain factual findings based on evidence adduced by the Special Investigation Committee during its internal investigation were incorporated into the Company’s restatement filed on January 31, 2023.
Removed
The Bishop Demand alleges that certain current and former officers and directors of HF Group engaged in misconduct and breached their fiduciary duties, and demands that HF Group investigate the allegations and, if warranted, assert claims against those current or former officers and directors. Many of the allegations contained in the Bishop Demand were the subject of the Class Actions.
Added
The Company also created a Special Litigation Committee which determined to pursue claims against certain former officers and directors.
Removed
On June 30, 2022, the Board of Directors of HF Group resolved to form a special committee (the “Special Litigation Committee”) comprised of independent directors and advised by counsel to analyze and evaluate the allegations in the Bishop Demand in order to determine whether the Company should assert any claims against the current or former officers and directors.
Added
As a result, pursuant to the previously disclosed settlement agreement (as amended on November 1, 2023, the “Settlement Agreement”) between the Company and certain parties to the verified stockholder derivative complaint filed by James Bishop in the Court of Chancery of the State of Delaware, on October 16, 2023, the Company received $1.5 million on behalf of Zhou Min Ni, a former Chairman and Chief Executive Officer of the Company, and Chan Sin Wong, a former President and Chief Operating Officer of the Company (together, the “Ni Defendants”).
Removed
On August 19, 2022, James Bishop filed a verified stockholder derivative complaint in the Court of Chancery of the State of Delaware (the “Delaware Action”), which asserts similar allegations to those set forth in the Bishop Demand.
Added
Subsequently, on December 1, 2023, the Company received 1,997,423 shares (valued at $7.75 million) of the Company’s common stock, based on the closing price of $3.88 on October 13, 2023, plus a cash payment of approximately $0.1 million of accrued interest through the date of payment, in satisfaction of the Ni Defendant’s payment obligations totaling $9.25 million under the Settlement Agreement.
Removed
On September 21, 2022, Bishop and the Company filed a stipulation to stay the Delaware Action for 90 days, which the court granted on September 22, 2022. On December 20, 2022, Bishop and the Company filed a stipulation to extend the stay of the Delaware Action for an additional 60 days, which the court granted on December 21, 2022.
Added
Pursuant to the terms of the Settlement Agreement, Mr. Ni, Ms. Wong and Jonathan Ni, the former Chief Financial Officer of the Company, agreed to give up any rights to indemnification or the advancement of fees in connection with the SEC investigation and any actions the SEC might take against them relating to the SEC investigation.
Removed
On March 15, 2023, the Court of Chancery entered an order approving a joint stipulation submitted by Bishop and HF Foods to stay the case for an additional 60 days.
Added
On October 13, 2023, the Company received a “Wells Notice” from the staff of the SEC (the “Wells Notice”) relating to the previously disclosed formal, non-public SEC investigation of allegations that the Company and certain of its current and former directors and officers violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements.
Removed
The Special Litigation Committee is in the process of analyzing and evaluating the claims alleged in the Bishop Demand and Delaware Action, and has not determined whether any claims should be asserted or the probability of recovery for such claims.
Added
A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law and invites recipients to submit a response if they wish. The Company made a submission in response to the Wells Notice explaining why an enforcement action would not be appropriate.
Added
Following that submission, the staff of the SEC determined that it would no longer be recommending that the SEC file an enforcement action against the Company at this time pending a potential agreed-upon resolution between the Company and the SEC.
Added
The Company is in negotiations with the SEC over a potential resolution, which could include fines and penalties, but the terms of that settlement are not set and the Company has made no formal offer of settlement to the SEC as of this filing. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 26 PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+5 added−0 removed4 unchanged
Biggest changeFurther, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. ITEM 6. [RESERVED] 27
Biggest changeFurther, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith. Recent Sales of Unregistered Securities None.
Holders of Record As of March 27, 2023, there were 53,827,531 shares of our common stock outstanding held by 41 shareholders of record.
Holders of Record As of March 22, 2024, there were 52,155,968 shares of our common stock outstanding held by 41 shareholders of record.
Added
Issuer Purchases of Equity Securities On December 1, 2023, pursuant to the settlement agreement (as amended, the “Settlement Agreement”) between the Company and certain parties to the verified stockholder derivative complaint (the “Delaware Action”) filed by James Bishop in the Court of Chancery of the State of Delaware, the Company received 1,997,423 shares of the Company’s common stock (the “Settlement Shares”), from Zhou Min Ni, a former Chairman and Chief Executive Officer of the Company, and Chan Sin Wong, a former President and Chief Operating Officer of the Company (together with Mr.
Added
Ni, the “Ni Defendants”), in addition to cash. All of the Settlement Shares received as consideration from the Ni Defendants have been placed by the Company in treasury. See Note 16 - Commitments and Contingencies to the consolidated financial statements and Part I – Item 3. – Legal Proceeding s in this Annual Report on Form 10-K for more information.
Added
Stock Performance Graph The following graph compares the cumulative total return on our common stock with the cumulative total returns on the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500”), and the Standard and Poor’s Food and Staples Retailing Index from December 31, 2018 to December 31, 2023.
Added
The graph assumes an investment of $100 in our common stock and each of the indices on December 31, 2018 and the reinvestment of dividends, as applicable.
Added
The cumulative total return on our common stock as presented is not necessarily indicative of future performance. 27 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/30/2022 12/29/2023 HF Foods Group Inc. $100 $147 $57 $64 $31 $40 S&P 500 $100 $131 $156 $200 $164 $207 S&P Food and Staples Retailing Index $100 $127 $148 $185 $166 $192 ITEM 6. [RESERVED] 28

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

44 edited+30 added−26 removed25 unchanged
Biggest changeEBITDA and Adjusted EBITDA The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure: Year Ended December 31, Change (In thousands) 2022 2021 Amount % Net income (loss) $ 235 $ 22,821 $ (22,586) (99.0)% Interest expense 7,457 4,091 3,366 82.3% Income tax provision (benefit) (231) 4,503 (4,734) (105.1)% Depreciation and amortization 24,936 19,126 5,810 30.4% EBITDA 32,397 50,541 (18,144) (35.9)% Lease guarantee expense 5,744 — 5,744 100.0% Change in fair value of interest rate swap contracts (817) (1,425) 608 (42.7)% Stock-based compensation expense 1,257 635 622 98.0% Acquisition and integration costs 1,130 1,090 40 3.7% Impairment 422 — 422 100.0% Adjusted EBITDA $ 40,133 $ 50,841 $ (10,708) (21.1)% Adjusted EBITDA margin 3.4 % 6.4 % Adjusted EBITDA was $40.1 million for the year ended December 31, 2022, a decrease of $10.7 million or 21.1%, compared to $50.8 million for the year ended December 31, 2021.
Biggest changeThe decrease of $2.6 million was primarily driven by a decrease in our income from operations of $1.6 million, an increase in interest expense of $4.0 million, a change in fair value of interest rate swap contracts of $2.4 million, and a change in other income of $0.7 million, partially offset by a favorable change in lease guarantee expense of $6.1 million. 32 EBITDA and Adjusted EBITDA The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure: Year Ended December 31, Change ($ in thousands) 2023 2022 Amount Net (loss) income $ (2,662) $ 235 $ (2,897) Interest expense 11,478 7,457 4,021 Income tax expense (benefit) 41 (231) 272 Depreciation and amortization 25,918 24,936 982 EBITDA 34,775 32,397 2,378 Lease guarantee (income) expense (377) 5,744 (6,121) Change in fair value of interest rate swap contracts 1,580 (817) 2,397 Stock-based compensation expense 3,352 1,257 2,095 Business transformation costs (1) 929 — 929 Acquisition-related costs — 1,130 (1,130) Other non-routine expense (2) 3,124 — 3,124 Asset impairment charges 1,200 422 778 Adjusted EBITDA $ 44,583 $ 40,133 $ 4,450 _________________ (1) Represents non-recurring costs associated with the launch of strategic projects including supply chain management improvements and technology infrastructure initiatives.
Overview We market and distribute Asian specialty food products, seafood, fresh produce, frozen and dry food, and non-food products primarily to Asian restaurants and other foodservice customers throughout the United States. HF Group was formed through a merger between two complementary market leaders, HF Foods Group Inc. and B&R Global.
Overview We market and distribute Asian specialty food products, seafood, fresh produce, frozen and dry food, and non-food products primarily to Asian restaurants and other foodservice customers throughout the United States. HF Foods was formed through a merger between two complementary market leaders, HF Foods Group Inc. and B&R Global.
Capitalizing on our deep understanding of the Chinese culture, with over 1,000 employees and subcontractors and supported by two call centers in China, we have become a trusted partner serving over 15,000 Asian restaurants, providing sales and service support to customers who mainly converse in Mandarin or other Chinese dialects.
Capitalizing on our deep understanding of the Chinese culture, with over 1,000 employees and subcontractors and supported by two call centers in China, we have become a trusted partner serving approximately 15,000 Asian restaurants, providing sales and service support to customers who mainly converse in Mandarin or other Chinese dialects.
If, in future periods, the financial performance of the reporting unit does not meet forecasted expectations, or a decline occurs in the market price of our common stock, it may cause a change in the results of the impairment assessment and, as such, could result in an impairment of goodwill.
If, in future periods, the financial performance of the reporting unit does not meet forecasted expectations, or a prolonged decline occurs in the market price of our common stock, it may cause a change in the results of the impairment assessment and, as such, could result in an impairment of goodwill.
Impairment of Long-lived Assets We assess our long-lived assets such as property and equipment and intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Impairment of Long-lived Assets We assess our long-lived assets such as property and equipment and intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group 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 which the assets are expected to generate.
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 which the assets or asset groups are expected to generate.
As of December 31, 2022, we have no off balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.
As of December 31, 2023, we have no off balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.
EBITDA and Adjusted EBITDA are not defined under GAAP and are subject to important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of HF Group’s results as reported under GAAP.
EBITDA and Adjusted EBITDA are not defined under GAAP and are subject to important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of HF Foods’ results as reported under GAAP.
On December 30, 2021, HF Group acquired a leading seafood supplier, the Great Wall Group, resulting in the addition of 3 distribution centers, located in Illinois and Texas (the “Great Wall Acquisition”). On April 29, 2022, HF Group acquired substantially all of the assets of Sealand Food, Inc.
On December 30, 2021, HF Foods acquired a leading seafood supplier, the Great Wall Group, resulting in the addition of three distribution centers, located in Illinois and Texas (the “Great Wall Acquisition”). On April 29, 2022, HF Foods acquired substantially all of the assets of Sealand Food, Inc.
We review the carrying value of goodwill whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually for goodwill and indefinite lived intangible assets as required by ASC Topic 350, Intangibles — Goodwill and Other .
We review the carrying value of goodwill whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually for goodwill as required by ASC Topic 350, Intangibles — Goodwill and Other .
(the "Sealand Acquisition"), one of the largest frozen seafood suppliers servicing the Asian/Chinese restaurant market along the eastern seaboard, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee. See Note 8 - Acquisitions to the consolidated financial statements in this Annual Report on Form 10-K for additional information regarding recent acquisitions.
(the “Sealand Acquisition”), one of the largest frozen seafood suppliers servicing the Asian/Chinese restaurant market along the eastern seaboard, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee. See Note 7 - Acquisitions to the consolidated financial statements in this Annual Report on Form 10-K for additional information regarding recent acquisitions.
Results of Operations The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2022 and 2021 . The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
Results of Operations Comparison of Year Ended December 31, 2023 to Year Ended December 31, 2022 The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2023 and 2022 . The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in " Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations " of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on January 31, 2023.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “ Part II – Item 7. – Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 31, 2023.
However, there are a number of factors that could potentially arise which might result in shortfalls in anticipated cash flow, such as the demand for our products, economic conditions, government intervention in response to a potential resurgence of COVID-19, competitive pricing in the foodservice distribution industry, and our bank and suppliers being able to provide continued support.
However, there are a number of factors that could potentially arise which might result in shortfalls in anticipated cash flow, such as the demand for our products, economic conditions, competitive pricing in the foodservice distribution industry, and our bank and suppliers being able to provide continued support.
Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill or indefinite-lived intangible assets may not be recoverable, include a decline in stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry.
Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill may not be recoverable, include a sustained decline in stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry.
We have grown our distribution network to 18 distribution centers servicing 46 states and covering approximately 95% of the contiguous United States with a fleet of over 400 refrigerated vehicles.
We have grown our distribution network to eighteen distribution centers and cross-docks servicing forty-six states and covering approximately 95% of the contiguous United States with a fleet of over 400 refrigerated vehicles.
Liquidity and Capital Resources As of December 31, 2022, we had cash of approximately $24.3 million, checks issued not presented for payment of $21.9 million and access to approximately $46.9 million in additional funds through our $100.0 million line of credit, subject to a borrowing base calculation.
Liquidity and Capital Resources As of December 31, 2023, we had cash of approximately $15.2 million, checks issued not presented for payment of $4.5 million and access to approximately $37.6 million in additional funds through our $100.0 million line of credit, subject to a borrowing base calculation.
We test goodwill for impairment at least annually, as of December 31, or whenever events or changes in circumstances indicate that goodwill might be impaired. We have concluded we are one aggregated reporting unit for purposes of testing goodwill for impairment due to similar economic characteristics of our businesses reviewed by our segment manager.
We test goodwill for impairment at least annually, as of December 31, or whenever events or changes in circumstances indicate that goodwill might be impaired. We have concluded we are one reporting unit for purposes of testing goodwill for impairment.
We believe that among our significant accounting policies, which are described in Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity.
To the extent that there are material differences between these estimates and the actual results, future financial statements will be affected. 34 We believe that among our significant accounting policies, which are described in Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity.
For additional information on EBITDA and Adjusted EBITDA, see the section entitled “EBITDA and Adjusted EBITDA” below. 29 Financial Review Highlights for 2022 included: • Net revenue: Net revenue was $1,170.5 million in 2022, compared to $796.9 million in 2021, an increase of $373.6 million, or 46.9%.
For additional information on EBITDA and Adjusted EBITDA, see the section entitled “EBITDA and Adjusted EBITDA” below. Financial Review Highlights for 2023 included: • Net revenue: Net revenue was $1,148.5 million in 2023, compared to $1,170.5 million in 2022, a decrease of $22.0 million, or 1.9%.
Distribution, selling and administrative expenses as a percentage of net revenue increased from 15.3% in 2021 to 16.7% in 2022, primarily due to the costs disclosed above partially offset by strong revenue growth. • Net income attributable to HF Foods Group Inc .: Net income was $0.5 million in 2022 compared to net income of $22.1 million in 2021.
Distribution, selling and administrative expenses as a percentage of net revenue increased to 17.0% in 2023 from 16.7% in 2022, primarily due to the costs disclosed above combined with the decrease in revenue year over year. 30 • Net (loss) income attributable to HF Foods Group Inc .: Net loss attributable to HF Foods Group Inc. was $2.2 million in 2023 compared to net income of $0.5 million in 2022.
Distribution, Selling and Administrative Expenses Distribution, selling and administrative expenses consist primarily of salaries, stock-based compensation and benefits for employees and contract laborers, trucking and fuel expenses, utilities, maintenance and repair expenses, insurance expenses, depreciation and amortization expenses, selling and marketing expenses, professional fees and other operating expenses.
Cost of revenue generally changes as we incur higher or lower costs from suppliers and as the customer and product mix changes. 29 Distribution, Selling and Administrative Expenses Distribution, selling and administrative expenses consist primarily of salaries, stock-based compensation and benefits for employees and contract laborers, trucking and fuel expenses, utilities, maintenance and repair expenses, insurance expenses, depreciation and amortization expenses, selling and marketing expenses, professional fees and other operating expenses.
We are dedicated to serving the vast array of Asian and Chinese restaurants in need of high-quality and specialized food ingredients at competitive prices. COVID-19 Impact The impact of the COVID-19 pandemic had an adverse effect on our business, financial condition and operational results in 2020.
We are dedicated to serving the vast array of Asian and Chinese restaurants in need of high-quality and specialized food ingredients at competitive prices.
The following table summarizes cash flow data for the years ended December 31, 2022 and 2021: Years Ended December 31, Change (In thousands) 2022 2021 Amount % Net cash provided by operating activities $ 31,284 $ 17,509 $ 13,775 78.7% Net cash used in investing activities (50,786) (41,082) (9,704) 23.6% Net cash provided by financing activities 28,999 28,784 215 0.7% Net increase in cash and cash equivalents $ 9,497 $ 5,211 $ 4,286 NM ____________________ NM - Not meaningful 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 includes the effect of working capital changes.
The following table summarizes cash flow data for the years ended December 31, 2023 and 2022: Years Ended December 31, (In thousands) 2023 2022 Change Net cash provided by operating activities $ 15,804 $ 31,284 $ (15,480) Net cash used in investing activities (1,514) (50,786) 49,272 Net cash (used in) provided by financing activities (23,347) 28,999 (52,346) Net (decrease) increase in cash and cash equivalents $ (9,057) $ 9,497 $ (18,554) 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 includes the effect of working capital changes.
Cost of revenue primarily includes inventory costs (net of supplier consideration), inbound freight, customs clearance fees and other miscellaneous expenses. Cost of revenue generally changes as we incur higher or lower costs from suppliers and as the customer and product mix changes.
Cost of revenue primarily includes inventory costs (net of supplier consideration), inbound freight, customs clearance fees and other miscellaneous expenses.
Management has considered the historical experience, the economy, the trends in the foodservice distribution industry to determine the expected collectability of accounts receivable and the realization of inventories as of December 31, 2022. 32 On March 31, 2022, we amended the Credit Agreement with J.P. Morgan extending our line of credit for five years.
Management has considered the historical experience, the economy, the trends in the foodservice distribution industry to determine the expected collectability of accounts receivable and the realization of inventories as of December 31, 2023.
If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. 34 A quantitative goodwill impairment analysis requires valuation of the respective reporting unit, which requires complex analysis and judgment.
If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. 35 As a result of our 2023 financial performance in comparison to previous forecasts, combined with our level of stock price, we performed a quantitative impairment assessment.
Net Income Attributable to Our Shareholders Net income attributable to our shareholders was $0.5 million for the year ended December 31, 2022, compared to $22.1 million for the year ended December 31, 2021.
Net (Loss) Income Attributable to HF Foods Group Inc. Net loss attributable to HF Foods Group Inc. was $2.2 million for the year ended December 31, 2023 , compared to net income of $0.5 million for the year ended December 31, 2022.
We also consider the amount of headroom for the reporting unit when determining whether an impairment existed. Headroom is the difference between the fair value of a reporting unit and its carrying value. No goodwill impairment was recorded for the year ended December 31, 2021.
Our market capitalization is calculated using the number of common shares issued and common stock publicly traded price. We also consider the amount of headroom for the reporting unit when determining whether an impairment existed. Headroom is the difference between the fair value of a reporting unit and its carrying value.
We believe we are differentiated from our competitors given our extensive footprint, strong vendor and customer relationships, and value-added service offerings, all of which have allowed and will continue to allow us to better serve our customers. 28 How to Assess HF Group’s Performance In assessing our performance, we consider a variety of performance and financial measures, including principal growth in net revenue, gross profit, distribution, selling and administrative expenses, as well as certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA.
How to Assess HF Foods’ Performance In assessing our performance, we consider a variety of performance and financial measures, including principal growth in net revenue, gross profit, distribution, selling and administrative expenses, as well as certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA.
Based on current sales volume, which has been increasing steadily quarter-on-quarter since the outbreak of COVID-19 in the first half of 2020, we believe that our cash flow generated from operations is sufficient to meet our normal working capital needs for at least the next twelve months.
We believe that our cash flow generated from operations is sufficient to meet our normal working capital needs for at least the next twelve months. However, our ability to repay our current obligations will depend on the future realization of our current assets.
Year Ended December 31, Change (In thousands) 2022 2021 Amount % Net revenue $ 1,170,467 $ 796,884 $ 373,583 46.9% Cost of revenue 964,955 645,372 319,583 49.5% Gross profit 205,512 151,512 54,000 35.6% Distribution, selling and administrative expenses 194,953 122,030 72,923 59.8% Income from operations 10,559 29,482 (18,923) (64.2)% Interest expense 7,457 4,091 3,366 82.3% Other income (1,829) (508) (1,321) 260.0% Change in fair value of interest rate swap contracts (817) (1,425) 608 (42.7)% Lease guarantee expense 5,744 — 5,744 100.0% Income before income tax provision 4 27,324 (27,320) (100.0)% Income tax (benefit) provision (231) 4,503 (4,734) (105.1)% Net income and comprehensive income 235 22,821 (22,586) (99.0)% Less: net (loss) income attributable to noncontrolling interests (225) 676 (901) (133.3)% Net income and comprehensive income attributable to HF Foods Group Inc. $ 460 $ 22,145 $ (21,685) (97.9)% 30 The following table sets forth the components of our consolidated results of operations expressed as a percentage of net revenue for the periods indicated: Year Ended December 31, 2022 2021 Net revenue 100.0 % 100.0 % Cost of revenue 82.4 % 81.0 % Gross profit 17.6 % 19.0 % Distribution, selling and administrative expenses 16.7 % 15.3 % Income (loss) from operations 0.9 % 3.7 % Interest expense (0.6) % (0.5) % Other income, net 0.2 % — % Change in fair value of interest rate swap contracts 0.1 % 0.2 % Lease guarantee expense (0.5) % — % Income before income tax provision — % 3.4 % Income tax (benefit) provision — % 0.5 % Net income — % 2.9 % Less: net income attributable to noncontrolling interests — % 0.1 % Net income and comprehensive income attributable to HF Foods Group Inc. — % 2.8 % Net Revenue Net revenue for the year ended December 31, 2022 increased by $373.6 million or 46.9% compared to the same period in 2021.
Year Ended December 31, Change ($ in thousands) 2023 2022 Amount Net revenue $ 1,148,493 $ 1,170,467 $ (21,974) Cost of revenue 944,462 964,955 (20,493) Gross profit 204,031 205,512 (1,481) Distribution, selling and administrative expenses 195,062 194,953 109 Income from operations 8,969 10,559 (1,590) Interest expense 11,478 7,457 4,021 Other income (1,091) (1,829) 738 Change in fair value of interest rate swap contracts 1,580 (817) 2,397 Lease guarantee (income) expense (377) 5,744 (6,121) (Loss) income before income taxes (2,621) 4 (2,625) Income tax expense (benefit) 41 (231) 272 Net (loss) income and comprehensive (loss) income (2,662) 235 (2,897) Less: net loss attributable to noncontrolling interests (488) (225) (263) Net (loss) income and comprehensive (loss) income attributable to HF Foods Group Inc. $ (2,174) $ 460 $ (2,634) The following table sets forth the components of our consolidated results of operations expressed as a percentage of net revenue for the periods indicated: Year Ended December 31, 2023 2022 Net revenue 100.0 % 100.0 % Cost of revenue 82.2 % 82.4 % Gross profit 17.8 % 17.6 % Distribution, selling and administrative expenses 17.0 % 16.7 % Income from operations 0.8 % 0.9 % Interest expense 1.0 % 0.6 % Other income (0.1) % (0.2) % Change in fair value of interest rate swap contracts 0.1 % (0.1) % Lease guarantee expense — % 0.5 % (Loss) income before income taxes (0.2) % — % Income tax expense (benefit) — % — % Net (loss) income and comprehensive (loss) income (0.2) % — % Less: net loss attributable to noncontrolling interests — % — % Net (loss) income and comprehensive (loss) income attributable to HF Foods Group Inc.
See Note 9 - Goodwill and Acquired Intangible Assets to the consolidated financial statements in this Annual Report on Form 10-K for additional information.
The fair value of the reporting unit exceeded the reporting unit carrying value by approximately $10%, or $45.0 million. No goodwill impairment was recorded for the year ended December 31, 2023. See Note 8 - Goodwill and Acquired Intangible Assets to the consolidated financial statements in this Annual Report on Form 10-K for additional information.
Based on the above considerations, management believes we have sufficient funds to meet our working capital requirements and debt obligations in the next twelve months.
Legal Proceedings in this Annual Report on Form 10-K and Note 16 - Commitments and Contingencies to the consolidated financial statements herein for additional information. Management believes we have sufficient funds to meet our working capital requirements and debt obligations in the next twelve months.
Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements in this Annual Report on Form 10-K.
We impaired our acquired developed technology attributable to Syncglobal, Inc. and recognized impairment expense of $0.4 million in distribution, selling and administrative expenses in the consolidated statements of operations during the year ended December 31, 2022. 36 Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements in this Annual Report on Form 10-K.
Interest Expense and Bank Charges Interest expense for the year ended December 31, 2022 increased by $3.4 million or 82.3%, compared to the year ended December 31, 2021, primarily due to higher utilization of our line of credit coupled with the higher interest-rate environment, and, to a lesser extent, the increase of $46.0 million to our mortgage-secured term loan.
Interest Expense Interest expense for the year ended December 31, 2023 increased by $4.0 million or 53.9% , compared to the year ended December 31, 2022, primarily due to a sharply higher interest-rate environment.
Additionally, average floating interest rates for the year ended December 31, 2022 increased by approximately 1.64% on the line of credit and 2.26% on the mortgage-secured term loan, compared to the same period in 2021, which further contributed to higher interest expense. 31 Income Tax (Benefit) Provision Income tax (benefit) provision was an income tax benefit of $0.2 million for the year ended December 31, 2022, compared to income tax provision of $4.5 million for the year ended December 31, 2021, primarily due to decreased income before taxes.
Average floating interest rates on our floating-rate debt for the year ended December 31, 2023 increased by approximately 3.4% on the line of credit and 3.4% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2022.
In addition, we corroborated the reasonableness of the total fair value of the reporting unit by assessing the implied control premium based on our market capitalization. Our market capitalization is calculated using the number of common shares outstanding and common stock publicly traded price.
The results of testing as of December 31, 2023, concluded that the estimated fair value exceeded carrying value, and no impairment existed as of that date. In addition, we corroborated the reasonableness of the total fair value of the reporting unit by assessing the implied control premium based on our market capitalization.
Gross profit margin for 2022 decreased from 19.0% in 2021 to 17.6% in 2022. • Distribution, selling and administrative expenses : Distribution, selling and administrative expenses increased by $72.9 million, or 59.8%, mainly due to an increase in payroll and related labor costs and sales related cost, driven by net revenue growth and recent acquisitions, along with increased professional fees and delivery costs.
Gross profit margin of 17.8% for 2023 increased from 17.6% in the prior year. • Distribution, selling and administrative expenses : Distribution, selling and administrative expenses increased by $0.1 million, or 0.1%, mainly due to settlement amounts received partially offset by an increase in payroll and related labor costs as well as insurance costs.
We impaired our acquired developed technology and recognized impairment expense of $0.4 million in distribution, selling and administrative expenses in the consolidated statements of operations during the year ended December 31, 2022 . We did not record any impairment loss on our long-lived assets during the year ended December 31, 2021.
We impaired machinery used in the operations within HF Foods Industrial, Inc. and recognized impairment expense of $1.2 million in distribution, selling and administrative expenses in the consolidated statements of operations during the year ended December 31, 2023 .
Distribution, selling and administrative expenses as a percentage of net revenue increased to 16.7% in 2022 from 15.3% in 2021 primarily due to higher professional fees and increased headcount.
Distribution, selling and administrative expenses as a percentage of net revenue increased to 17.0% for the year ended December 31, 2023 from 16.7% in the same period in 2022, primarily due to the costs disclosed above combined with the decrease in revenue year over year.
Our average daily line of credit balance increased by $38.5 million, or 233.1%, to $55.0 million in 2022 from $16.5 million in 2021, and our average daily real estate term loan balance increased by $42.2 million, or 59.3%, to $113.4 million in 2022 from $71.2 million in 2021.
Our average daily line of credit balance decreased by $10.2 million, or 18.5%, to $44.9 million for the year ended December 31, 2023 from $55.0 million for the year ended December 31, 2022, and our average daily JPMorgan Chase mortgage-secured term loan balance increased by $6.5 million, or 6.4%, to $108.6 million for the year ended December 31, 2023 from $102.1 million for the year ended December 31, 2022.
We use a combination of discounted cash flow (“DCF”) models and market data, such as earnings-based multiples for comparable companies. DCF models require detailed forecasts of cash flows, including assumptions such as revenue growth rates, margin rates and capital investments, and estimates of weighted-average cost of capital which we believe approximates the rate from a market participant’s perspective.
The income approach requires detailed forecasts of cash flows, including significant assumptions such as revenue growth rates, gross profit margin, and an estimate of weighted-average cost of capital which we believe approximate the assumptions from a market participant’s perspective. The market approaches are primarily impacted by an enterprise value multiple of EBITDA.
These principles require 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, impairment of long-lived assets and income taxes.
Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, cash flow and related disclosure of contingent assets and liabilities.
Removed
All states across the country issued some form of stay-at-home orders, shutdowns, voluntary containment measures, and social distancing . The operations of our restaurant customers were also severely disrupted due to the significant decline in consumer demand for food away from home.
Added
This decrease was primarily attributable to deflationary pricing in imported frozen seafood, Asian Specialty, poultry, and, to a lesser extent, the exit of our chicken processing businesses. • Gross profit : Gross profit was $204.0 million in 2023 compared to $205.5 million in 2022, a decrease of $1.5 million, or 0.7%. The decrease was primarily attributable to lower revenue.
Removed
The government mandates forced many of our restaurant customers to temporarily close or convert to take-out or delivery-only operations. As a result, there was a significant decline in net revenue beginning from the last two weeks of March 2020 through September 2020, negatively impacting our overall financial results in 2020.
Added
During 2023, we received legal settlements amounts totaling $9.25 million and $1.7 million, of which we paid $0.9 million, for a net settlement totaling $10.0 million. These net settlement amounts were recorded as a reduction of distribution, selling and administrative expenses.
Removed
Since the third quarter of 2020, we've experienced a quarter-on-quarter recovery in net revenue. The impact of COVID-19 seen in 2020 has generally subsided. Our net revenue for 2021 strongly recovered to 96% of pre-COVID-19 pandemic levels and net revenue for 2022 increased 47% as compared to 2021.
Added
The decrease of $2.6 million was primarily driven by a decrease in our income from operations of $1.6 million, an increase in interest expense of $4.0 million, a change in fair value of interest rate swap contracts of $2.4 million, and a change in other income of $0.7 million, partially offset by a favorable change in lease guarantee expense of $6.1 million. • Exit of chicken processing businesses: During the second half of 2023, we exited both of our low margin chicken processing businesses on the east and west coast as part of our commitment to refocusing on our core business.
Removed
Based on current sales volumes and adjusted cost structures, we continue to generate positive operating cash flow on a weekly basis and do not have immediate liquidity concerns. We remain optimistic on the long-term prospects for our business although we may continue to face intermittent government restrictions on our restaurant customers' business operations.
Added
(0.2) % — % 31 Net Revenue Net revenue for the year ended December 31, 2023 decreased by $22.0 million, or 1.9%, compared to the same period in 2022. This decrease was primarily attributable to deflationary pricing product categories such as frozen seafood, poultry, Asian Specialty and packaging.
Removed
As a market leader in servicing the Asian/Chinese restaurant sector, we believe that we are well-positioned for long-term success. The fragmented nature of the Asian/Chinese foodservice industry and the environment during COVID-19 created opportunities for a company with the necessary expertise and a comprehensive cultural understanding of this unique customer base.
Added
The revenue decrease due to pricing was partially offset by higher volume and the Seafood revenue generated due to the Sealand Acquisition which has a full year of revenue in 2023 compared to a partial year in 2022.
Removed
This increase was primarily attributable to recent acquisitions, product cost inflation, and, to a lesser extent, the strong recovery of restaurant demand from the COVID-19 pandemic. • Gross profit : Gross profit was $205.5 million in 2022 compared to $151.5 million in 2021, an increase of $54.0 million, or 35.6%.
Added
Gross Profit Gross profit was $204.0 million for the year ended December 31, 2023 compared to $205.5 million in the same period in 2022 , a decrease of $1.5 million, or 0.7% .
Removed
The increase was primarily attributable to the additional revenue generated due to recent acquisitions.
Added
The gross profit decrease was primarily attributable to decreases in revenue from Meat and Poultry, and to a lesser extent, Packaging and Other, partially offset by the increased revenue from Asian Specialty, the additional Seafood revenue generated due to the Sealand Acquisition and the successful execution of our Seafood centralized purchasing program.
Removed
The decrease of $21.6 million was driven by the decrease in gross profit margin and the increase in distribution, selling and administrative expenses as a percentage of net revenue. • Sealand Acquisition : On April 29, 2022, we acquired substantially all of the operating assets of Sealand Food, Inc.
Added
During the year ended December 31, 2023, poultry pricing came down from the elevated levels we benefited from during the same period in 2022. Gross profit margin for 2023 of 17.8% increased from 17.6% in the prior year.
Removed
("Sealand") including equipment, machinery and vehicles for an aggregate purchase price of $20.0 million in cash, as well as $14.4 million of acquired saleable inventory and additional fixed assets for approximately $0.5 million. The acquisition was completed to expand our territory along the East Coast, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.
Added
Distribution, Selling and Administrative Expenses Distribution, selling and administrative expenses of $195.1 million for the year ended December 31, 2023 remained consistent with prior year expenses of $195.0 million.
Removed
The increase was primarily due to the additional revenue generated by recent acquisitions and overall product cost inflation. Organic growth contributed $121.1 million and recent acquisitions, which shifted our product mix to higher Seafood sales compared to the same period in 2021, contributed the remaining $252.5 million.
Added
For 2023, there was a decrease in professional fees as a result of the net settlement amounts received totaling $10.0 million, partially offset by increases of $7.3 million in payroll and related labor costs, inclusive of the additional costs due to the Sealand Acquisition, and $2.0 million in insurance related costs.
Removed
Gross Profit Gross profit was $205.5 million for 2022 compared to $151.5 million in the prior year, an increase of $54.0 million, or 35.6%. The increase was primarily attributable to the additional revenue generated due to recent acquisitions. Gross profit margin for 2022 decreased from 19.0% in 2021 to 17.6% in 2022.
Added
Professional fees decreased $12.9 million, or $2.9 million net of the settlement amounts received, to $13.9 million for the year ended December 31, 2023 , from $26.8 million for the year ended December 31, 2022. In addition, we recognized an asset impairment of $1.2 million related to the exit of our chicken processing facility.
Removed
The decrease was primarily attributable to the shift in product mix to higher Seafood sales, increases in fuel costs, incremental lower margin sales from newly acquired customers, timing of inventory purchases, higher than expected fluctuations in key commodity pricing and a higher-than-normal gross profit margin in the prior year due to our strong sales recovery to above pre-COVID-19 pandemic levels in 2021.
Added
Income Tax Expense (Benefit) Income tax expense (benefit) was an income tax expense of approximately $41,000 for the year ended December 31, 2023, compared to income tax benefit of $0.2 million for the year ended December 31, 2022, primarily due to the impact of non-deductible items, change in valuation allowance, and state taxes, partially offset by the expiration of the statute of limitations in relation to unrecognized tax benefits, tax credits, and other tax adjustments during the year ended December 31, 2023.
Removed
Distribution, Selling and Administrative Expenses Distribution, selling and administrative expenses increased by $72.9 million, or 60%, primarily due to an increase of $28.8 million in payroll and related labor costs, inclusive of the additional costs due to recent acquisitions, increased professional fees of $14.1 million, from $12.7 million in 2021 to $26.8 million in 2022, primarily driven by legal costs and increased compliance costs as a result of (a) the SEC and SIC investigations and (b) responding to an SEC comment letter and the filing of our delinquent reports, as well as an $8.4 million increase in sales-related costs driven by revenue growth and recent acquisitions.
Added
(2) Includes contested proxy and related legal and consulting costs and facility closure costs.
Removed
The decrease of $21.7 million, or 97.9%, is primarily due to the distribution, selling, and administrative costs and interest expense described above, partially offset by our strong business recovery to above pre-COVID-19 pandemic levels. In addition, we recorded a non-recurring charge of $5.7 million related to a guarantee of a lease obligation.
Added
We are party to an amortizing interest rate swap contract with JPMorgan Chase for an initial notional amount of $120.0 million, expiring in March 2028, as a means to partially hedge our existing floating rate loans exposure.
Removed
Adjusted EBITDA margin decreased to 3.4% for the year ended December 31, 2022 from 6.4% in the prior year. The decrease in Adjusted EBITDA margin was primarily attributable to a 150 basis point decrease in gross profit and a 130 bps increase in distribution, selling and administrative expenses.
Added
Pursuant to the agreement, we will pay the swap counterparty a fixed rate of 4.11% in exchange for floating payments based on CME Term SOFR.
Removed
However, our ability to repay our current obligations will depend on the future realization of our current assets.
Added
Effective as of April 20, 2023, we and certain parties to the Delaware Action reached an agreement to settle the Delaware Action on the terms and conditions set forth in a binding term sheet (the “Binding Term Sheet”), which was incorporated into a long-form settlement agreement on May 5, 2023 and filed with the Court of Chancery on May 8, 2023.
Removed
The amendment provided for a $100.0 million asset-secured revolving credit facility with a 1-month SOFR plus a credit adjustment of 0.1% plus 1.375% per annum, as well as an increase to our mortgage-secured term loan from $69.0 million to $115.0 million.
Added
The Binding Term Sheet provided for, among other things, the dismissal of the Delaware Action with prejudice, thereby resolving all existing and potential liability against all named defendants in the Delaware Action, in exchange for Zhou Min Ni, a former Chairman and Chief Executive Officer of the Company, and Chan Sin Wong, a former President and Chief Operating Officer of the Company, making a payment to the Company in the sum of $9.25 million (the “Settlement Amount”).
Removed
In April of 2022, the $46.0 million increase to the mortgage-secured term loan was used to pay down our $100.0 million line of credit. We also received a waiver through January 31, 2023 associated with the timing of our filing of our 2021 audited financial statements.
Added
The full terms of the settlement of the Delaware Action were incorporated into the long-form settlement agreement, which was subject to approval of the Court of Chancery (as amended on November 1, 2023, the “Settlement Agreement”).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+2 added−0 removed2 unchanged
Biggest changeHowever, it is impossible to predict the future availability or price of diesel fuel. The price and supply of diesel fuel fluctuates based on external factors not within our control, including geopolitical developments, supply and demand for oil and gas, regional production patterns, weather conditions and environmental concerns.
Biggest changeThe price and supply of diesel fuel fluctuates based on external factors not within our control, including geopolitical developments, supply and demand for oil and gas, regional production patterns, weather conditions and environmental concerns. Increases in the cost of diesel fuel could increase our cost of goods sold and operating costs to deliver products to our customers.
We manage our debt portfolio to achieve an overall desired proportion of fixed and floating rate debts and may employ interest rate swaps as a tool from time to time to achieve that position. To manage our interest rate risk exposure, we entered into three interest rate swap contracts to hedge the floating rate term loans.
We manage our debt portfolio to achieve an overall desired proportion of fixed and floating rate debts and may employ interest rate swaps as a tool from time to time to achieve that position. To manage our interest rate risk exposure, we entered into four interest rate swap contracts to hedge the floating rate term loans.
In a hypothetical scenario, a 1% change in the applicable rate would cause the interest expense on our floating rate debt to change by approximately $1.6 million per year. Fuel Price Risk We are also exposed to fluctuations risk in the price and availability of diesel fuel.
In a hypothetical scenario, a 1% change in the applicable rate would cause the interest expense on our floating rate debt to change by approximately $0.6 million per year. Fuel Price Risk We are also exposed to risks relating to fluctuations in the price and availability of diesel fuel.
Our floating rate debt interest is based on the floating 1-month SOFR plus a predetermined credit adjustment rate plus the bank spread. The remaining 5.9% of our debt are on a fixed rate or a floating rate with hedging.
Our floating rate debt interest is based on the floating 1-month SOFR plus a predetermined credit adjustment rate plus the bank spread. The remaining 64.8% of our debt is on a fixed rate or a floating rate with hedging.
See Note 10 - Derivative Financial Instruments to the consolidated financial statements in this Annual Report on Form 10-K for additional information. 35 As of December 31, 2022, our aggregate floating rate debt’s outstanding principal balance without hedging was $164.8 million, or 94.1% of total debt, consisting of long-term debt and revolving line of credit (see Note 11 - Debt to the consolidated financial statements in this Annual Report on Form 10-K).
As of December 31, 2023, our aggregate floating rate debt’s outstanding principal balance without hedging was $60.8 million, or 35.2% of total debt, consisting primarily of our revolving line of credit (see Note 10 - Debt to the consolidated financial statements in this Annual Report on Form 10-K).
Increases in the cost of diesel fuel could increase our cost of goods sold and operating costs to deliver products to our customers. We do not actively hedge the price fluctuation of diesel fuel in general. Instead, we seek to minimize fuel cost risk through delivery route optimization and fleet utilization improvement. 36
We do not actively hedge the price fluctuation of diesel fuel in general. Instead, we seek to minimize fuel cost risk through delivery route optimization and fleet utilization improvement. 37
We require significant quantities of diesel fuel for our vehicle fleet, and the inbound delivery of the products we sell is also dependent upon shipment by diesel-fueled vehicles. We currently are able to obtain adequate supplies of diesel fuel, and average prices in 2022 increased 52.1%, compared to average prices in 2021.
We require significant quantities of diesel fuel for our vehicle fleet, and the inbound delivery of the products we sell is also dependent upon shipment by diesel-fueled vehicles. Additionally, elevated fuel costs can negatively impact consumer confidence and discretionary spending and thus reduce the frequency and amount spent by consumers for food-away-from-home purchases.
Added
See Note 9 - Derivative Financial Instruments to the consolidated financial statements in this Annual Report on Form 10-K for additional information.
Added
We currently are able to obtain adequate supplies of diesel fuel, and average prices in 2023 decreased in comparison to average prices in 2022, decreasing 15.5% on average. However, it is impossible to predict the future availability or price of diesel fuel.

Other HFFG 10-K year-over-year comparisons