~~Table of Contents~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________________ to _______________________.

Commission File Number: 001-38180

HF FOODS GROUP INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)			81-2717873 (I.R.S. Employer Identification No.)

~~19319 Arenth Avenue, City of Industry, CA 91748~~6325 South Rainbow Boulevard, Suite 420, Las Vegas, NV 89118
(Address of principal executive offices) (Zip Code)

~~(626) 338-1090~~(888) 905-0988

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value	HFFG	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒☐ No ☐☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 12, 2021,~~January 27, 2023, the registrant had ~~51,913,411~~53,706,392 shares of common stock outstanding.

~~Table of Contents~~

HF FOODS GROUP INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022

TABLE OF CONTENTS


Description		Page

PART I.	FINANCIAL INFORMATION
Item 1.	~~Item 1~~ Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of ~~Operations~~ I ncome and Comprehensive Income (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows (Unaudited)	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	3
	~~Condensed Consolidated Statements of Cash Flows (Unaudited)~~	45
	Notes to Unaudited Condensed Consolidated Financial Statements	56
Item 2.	~~Item 2~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations	4025
Item 3.	Q~~Item 3 Quantitative~~uantitative and Qualitative Disclosures about Market Risk	5034
Item 4.	~~Item 4~~ Controls and Procedures	5035

PART II.	OTHER INFORMATION
Item 1.	L~~Item 1 Legal~~egal Proceedings	5236
Item 1A.	~~Item 1A~~ Risk Factors	5336
Item 2.	~~Item 2~~ Unregistered Sales of Equity Securities and Use of Proceeds	5336
Item 3.	~~Item 3~~ Defaults Upon Senior Securities	5336
Item 4.	~~Item 4~~ Mine Safety Disclosures	5336
Item 5.	~~Item 5~~ Other Information	5336
Item 6.	~~Item 6~~ Exhibits	5437

SIGNATURE PAGE		5538

~~Table of Contents~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


		As of
		September 30, 2021		December 31, 2020
(In thousands, except share data)						(In thousands, except share data)	June 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
CURRENT ASSETS	CURRENT ASSETS					CURRENT ASSETS
Cash	Cash	$	15,543,177	$	9,580,853	Cash	$	18,818	$	14,792
Accounts receivable, net	Accounts receivable, net	34,103,832		24,857,322		Accounts receivable, net	42,700		36,281
Accounts receivable - related parties	Accounts receivable - related parties	954,230		1,261,463		Accounts receivable - related parties	878		249
Inventories	Inventories	77,239,478		58,535,040		Inventories	130,198		102,690
Advances to suppliers - related parties		—		196,803
Other current assets	Other current assets	2,640,233		4,614,164		Other current assets	10,036		5,559

TOTAL CURRENT ASSETS	TOTAL CURRENT ASSETS	130,480,950		99,045,645		TOTAL CURRENT ASSETS	202,630		159,571
Property and equipment, net	Property and equipment, net	141,740,117		136,869,085		Property and equipment, net	142,006		145,908
Operating lease right-of-use assets	Operating lease right-of-use assets	2,551,286		931,630		Operating lease right-of-use assets	13,999		11,664
Long-term investments	Long-term investments	2,443,885		2,377,164		Long-term investments	2,732		2,462
Intangible assets, net		167,629,925		175,797,650
Customer relationships, net						Customer relationships, net	163,031		159,161
Trademarks and other intangibles, net						Trademarks and other intangibles, net	39,203		35,891
Goodwill	Goodwill	68,511,941		68,511,941		Goodwill	85,118		80,257
Other long-term assets	Other long-term assets	1,145,167		694,490		Other long-term assets	2,524		2,032
TOTAL ASSETS	TOTAL ASSETS	$	514,503,271	$	484,227,605	TOTAL ASSETS	$	651,243	$	596,946

LIABILITIES AND STOCKHOLDERS' EQUITY						LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES	CURRENT LIABILITIES					CURRENT LIABILITIES
Bank overdraft		$	19,422,811	$	14,839,747
Checks issued not presented for payment						Checks issued not presented for payment	$	20,183	$	17,834
Line of credit	Line of credit	23,020,114		18,279,062		Line of credit	60,017		55,293
Accounts payable	Accounts payable	42,044,350		28,602,570		Accounts payable	57,107		57,745
Accounts payable - related parties	Accounts payable - related parties	2,499,872		1,572,427		Accounts payable - related parties	2,101		1,941
Current portion of long-term debt, net	Current portion of long-term debt, net	5,677,453		5,641,259		Current portion of long-term debt, net	6,638		5,557
Current portion of obligations under finance leases	Current portion of obligations under finance leases	270,160		286,903		Current portion of obligations under finance leases	2,371		2,274
Current portion of obligations under operating leases	Current portion of obligations under operating leases	687,040		308,148		Current portion of obligations under operating leases	3,494		2,482
Accrued expenses and other liabilities	Accrued expenses and other liabilities	3,841,327		6,178,144		Accrued expenses and other liabilities	12,447		12,138
Obligations under interest rate swap contracts		341,165		993,516

TOTAL CURRENT LIABILITIES	TOTAL CURRENT LIABILITIES	97,804,292		76,701,776		TOTAL CURRENT LIABILITIES	164,358		155,264
Long-term debt, net of current portion	Long-term debt, net of current portion	83,708,244		88,008,803		Long-term debt, net of current portion	118,511		81,811
Promissory note payable - related party	Promissory note payable - related party	5,000,000		7,000,000		Promissory note payable - related party	—		4,500
Obligations under finance leases, non-current	Obligations under finance leases, non-current	8,448,619		766,885		Obligations under finance leases, non-current	11,613		11,676
Obligations under operating leases, non-current	Obligations under operating leases, non-current	2,010,664		623,482		Obligations under operating leases, non-current	10,602		9,251
Deferred tax liabilities	Deferred tax liabilities	44,199,536		46,325,226		Deferred tax liabilities	36,780		39,455
Lease guarantee liability, net of current portion						Lease guarantee liability, net of current portion	5,625		—
TOTAL LIABILITIES	TOTAL LIABILITIES	241,171,355		219,426,172		TOTAL LIABILITIES	347,489		301,957
Commitments and contingencies (Note 15)						Commitments and contingencies (Note 15)
SHAREHOLDERS’ EQUITY	SHAREHOLDERS’ EQUITY					SHAREHOLDERS’ EQUITY
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		—		—
Common Stock, $0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		5,191		5,191
Preferred stock, $0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 and December 31, 2021						Preferred stock, $0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 and December 31, 2021	—		—
Common stock, $0.0001 par value, 100,000,000 shares authorized, 53,706,392 shares issued and outstanding as of June 30, 2022 and December 31, 2021						Common stock, $0.0001 par value, 100,000,000 shares authorized, 53,706,392 shares issued and outstanding as of June 30, 2022 and December 31, 2021	5		5
Additional paid-in capital	Additional paid-in capital	583,928,639		587,579,093		Additional paid-in capital	597,738		597,227
Accumulated deficit	Accumulated deficit	(314,179,103)		(327,150,398)		Accumulated deficit	(298,606)		(306,284)
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.	TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.	269,754,727		260,433,886		TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.	299,137		290,948
Non-controlling interests		3,577,189		4,367,547
Noncontrolling interests						Noncontrolling interests	4,617		4,041
TOTAL SHAREHOLDERS’ EQUITY	TOTAL SHAREHOLDERS’ EQUITY	273,331,916		264,801,433		TOTAL SHAREHOLDERS’ EQUITY	303,754		294,989
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	514,503,271	$	484,227,605	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	651,243	$	596,946

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Contents~~

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Net revenue - third parties $ 213,178,708 $ 137,631,565 $ 560,630,604 $ 409,446,496
Net revenue - related parties 2,363,341 2,287,377 7,839,509 10,835,878
TOTAL NET REVENUE 215,542,049 139,918,942 568,470,113 420,282,374
Cost of revenue - third parties 171,431,310 112,535,923 453,990,363 335,202,455
Cost of revenue - related parties 2,198,771 2,220,161 8,003,887 10,329,232
TOTAL COST OF REVENUE 173,630,081 114,756,084 461,994,250 345,531,687
GROSS PROFIT 41,911,968 25,162,858 106,475,863 74,750,687
Distribution, selling and administrative expenses 30,972,019 25,050,419 89,003,273 79,549,580
Goodwill impairment loss — — — 338,191,407
TOTAL OPERATING EXPENSES 30,972,019 25,050,419 89,003,273 417,740,987
INCOME (LOSS) FROM OPERATIONS 10,939,949 112,439 17,472,590 (342,990,300)
Other Income (Expenses)
Interest income — 133 — 396
Interest expense (703,845) (840,851) (2,155,328) (3,116,739)
Other income 558,138 270,452 1,470,887 940,832
Change in fair value of interest rate swap contracts 52,314 (20,022) 1,370,950 (1,284,276)
Total Other Income (Expenses), net (93,393) (590,288) 686,509 (3,459,787)
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) 10,846,556 (477,849) 18,159,099 (346,450,087)
PROVISION (BENEFIT) FOR INCOME TAXES 2,637,444 (80,910) 4,621,749 (2,052,426)
NET INCOME (LOSS) 8,209,112 (396,939) 13,537,350 (344,397,661)
Less: net income attributable to non-controlling interests 357,345 226,865 566,055 168,988
NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC. $ 7,851,767 $ (623,804) $ 12,971,295 $ (344,566,649)
Earnings (loss) per common share - basic and diluted $ 0.15 $ (0.01) $ 0.25 $ (6.61)
Weighted average shares - basic 51,913,411 52,145,096 51,913,411 52,145,096
Weighted average shares - diluted 51,932,712 52,145,096 51,919,932 52,145,096


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Net revenue - third parties	$	298,138	$	190,460	$	574,289	$	347,450
Net revenue - related parties	1,504		3,086		3,568		5,476
TOTAL NET REVENUE	299,642		193,546		577,857		352,926

Cost of revenue - third parties	245,716		154,920		471,349		282,559
Cost of revenue - related parties	1,356		3,492		3,211		5,805
TOTAL COST OF REVENUE	247,072		158,412		474,560		288,364

GROSS PROFIT	52,570		35,134		103,297		64,562

Distribution, selling and administrative expenses	45,843		29,790		86,251		57,879

INCOME FROM OPERATIONS	6,727		5,344		17,046		6,683

Other Expense (Income)

Interest expense	1,549		928		2,827		1,830
Other income	(163)		(428)		(939)		(864)
Change in fair value of interest rate swap contracts	(208)		112		(566)		(1,319)
Lease guarantee expense	(42)		—		5,889		—
Total Other Expense (Income), net	1,136		612		7,211		(353)

INCOME BEFORE INCOME TAX PROVISION	5,591		4,732		9,835		7,036

Income tax provision	1,097		1,416		2,201		2,062
NET INCOME AND COMPREHENSIVE INCOME	4,494		3,316		7,634		4,974
Less: net income (loss) attributable to noncontrolling interests	(70)		(91)		(44)		209
NET INCOME AND COMPREHENSIVE INCOME ATTRIBUTABLE TO HF FOODS GROUP INC.	$	4,564	$	3,407	$	7,678	$	4,765

EARNINGS PER COMMON SHARE - BASIC	$	0.08	$	0.07	$	0.14	$	0.09
EARNINGS PER COMMON SHARE - DILUTED	$	0.08	$	0.07	$	0.14	$	0.09

WEIGHTED AVERAGE SHARES - BASIC	53,706,392		51,913,411		53,706,392		51,913,411
WEIGHTED AVERAGE SHARES - DILUTED	53,900,883		51,913,411		53,927,957		51,913,411

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Contents~~

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN SHAREHOLDERS' EQUITY~~CASH FLOWS

(UNAUDITED)

Common Stock Treasury Stock Additional
Paid-in
Capital Retained
Earnings
(Accumulated
Deficit) Total Shareholders’
Equity
Attributable
to HF Foods
Group Inc. Non-controlling
Interests Total
Shareholders’
Equity
Number of
Shares Amount Number of
Shares Amount
Balance at January 1, 2021 51,913,411 $ 5,191 — $ — $ 587,579,093 $ (327,150,398) $ 260,433,886 $ 4,367,547 $ 264,801,433
Net income — — — — — 1,522,932 1,522,932 300,267 1,823,199
Distribution to shareholders — — — — — — — (73,000) (73,000)
Balance at March 31, 2021 51,913,411 5,191 — — 587,579,093 (325,627,466) 261,956,818 4,594,814 266,551,632
Net income (loss) — — — — — 3,596,596 3,596,596 (91,557) 3,505,039
Acquisition of non-controlling interest — — — — (3,855,887) — (3,855,887) (1,144,113) (5,000,000)
Distribution to shareholders — — — — — — — (77,550) (77,550)
Balance at June 30, 2021 51,913,411 5,191 — — 583,723,206 (322,030,870) 261,697,527 3,281,594 264,979,121
Net income — — — — — 7,851,767 7,851,767 357,345 8,209,112
Distribution to shareholders — — — — — — — (61,750) (61,750)
Stock-based compensation — — — — 205,433 — 205,433 — 205,433
Balance at September 30, 2021 51,913,411 $ 5,191 — $ — $ 583,928,639 $ (314,179,103) $ 269,754,727 $ 3,577,189 $ 273,331,916
Balance at January 1, 2020 53,050,211 $ 5,305 (905,115) $ (12,038,030) $ 599,617,009 $ 15,823,661 $ 603,407,945 $ 4,248,787 $ 607,656,732
Net income (loss) — — — — — (339,883,942) (339,883,942) 197,410 (339,686,532)
Distribution to shareholders — — — — — — — (125,000) (125,000)
Balance at March 31, 2020 53,050,211 5,305 (905,115) (12,038,030) 599,617,009 (324,060,281) 263,524,003 4,321,197 267,845,200
Net loss — — — — — (4,058,903) (4,058,903) (255,287) (4,314,190)
Balance at June 30, 2020 53,050,211 5,305 (905,115) (12,038,030) 599,617,009 (328,119,184) 259,465,100 4,065,910 263,531,010
Net income (loss) — — — — — (623,804) (623,804) 226,865 (396,939)
Balance at September 30, 2020 53,050,211 $ 5,305 (905,115) $ (12,038,030) $ 599,617,009 $ (328,742,988) $ 258,841,296 $ 4,292,775 $ 263,134,071


	Six Months Ended June 30,
(In thousands)	2022		2021
Cash flows from operating activities:
Net income	$	7,634	$	4,974
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	11,859		9,490
Gain from disposal of property and equipment	(1,351)		(49)
Provision for doubtful accounts	111		(23)
Allowance for inventories			67
Deferred tax benefit	(2,674)		(1,305)
Income from equity method investment	(270)		(49)
Change in fair value of interest rate swap contracts	(565)		(1,319)
Stock-based compensation	511		—
Amortization of debt issuance and other debt-related costs	144		—
Non-cash lease expense	1,579		393
Lease guarantee expense	5,889		—
Other operating expense	501		—
Changes in operating assets and liabilities (excluding effects of acquisitions):
Accounts receivable, net	(6,529)		(5,428)
Accounts receivable - related parties	(629)		(660)
Inventories	(13,662)		(5,594)
Advances to suppliers - related parties	—		197
Other current assets	(4,199)		794
Other long-term assets	(494)		(558)
Accounts payable	16,799		13,929
Accounts payable - related parties	159		60
Operating lease liabilities	(1,551)		(271)
Accrued expenses and other liabilities	396		(489)
Net cash provided by operating activities	13,658		14,159
Cash flows from investing activities:
Purchase of property and equipment	(4,028)		(664)
Proceeds from disposal of property and equipment	7,667		69
Payment made for acquisition of noncontrolling interest	—		(5,000)
Payment made for acquisition of Sealand	(34,849)		—
Payment made for acquisition of Great Wall Group	(17,445)		—
Net cash used in investing activities	(48,655)		(5,595)
Cash flows from financing activities:
Checks issued not presented for payment	2,348		179
Proceeds from line of credit	625,656		358,185
Repayment of line of credit	(620,783)		(357,418)
Proceeds from long-term debt	45,952		—
Repayment of long-term debt	(7,882)		(2,976)
Payment of debt financing costs	(579)		—
Repayment of promissory note payable - related party	(4,500)		(1,500)
Repayment of obligations under finance leases	(1,243)		(1,039)
Proceeds from noncontrolling interest shareholder	240		—
Cash distribution to shareholders	(186)		(151)
Net cash provided by (used in) financing activities	39,023		(4,720)
Net increase in cash	4,026		3,844
Cash at beginning of the period	14,792		9,581
Cash at end of the period	$	18,818	$	13,425

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Contents~~

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

For the Nine Months Ended September 30,
2021 2020
Cash flows from operating activities:
Net Income (Loss) $ 13,537,350 $ (344,397,661)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense 13,624,838 13,479,736
Goodwill impairment loss — 338,191,407
Gain from disposal of equipment (33,049) (24,681)
Allowance for doubtful accounts (374,431) 2,024,471
Deferred tax benefit (2,125,690) (3,172,293)
Income from equity method investment (66,721) (65,612)
Unrealized change in fair value of interest rate swap contracts (652,351) 1,284,276
Stock-based compensation 205,433 —
Changes in operating assets and liabilities:
Accounts receivable (8,872,079) 23,306,471
Accounts receivable - related parties 307,233 3,319,539
Inventories (18,704,438) 15,840,459
Advances to suppliers - related parties 196,803 447,287
Other current assets 1,973,931 (294,372)
Security deposit — 58,880
Other long-term assets (475,487) (3,512)
Accounts payable 13,441,780 (6,097,690)
Accounts payable - related parties 927,445 (1,858,101)
Operating lease liability (415,278) (291,659)
Accrued expenses and other liabilities (2,336,817) 2,564,201
Net cash provided by operating activities 10,158,472 44,311,146
Cash flows from investing activities:
Purchase of property and equipment (1,520,887) (410,288)
Proceeds from disposal of equipment 76,948 160,659
Payment made for acquisition of B&R Realty — (94,004,068)
Payment made for acquisition of non-controlling interest (5,000,000) —
Net cash used in investing activities (6,443,939) (94,253,697)
Cash flows from financing activities:
Proceeds from bank overdraft 4,583,064 —
Repayment of bank overdraft — (9,403,540)
Net proceed (repayment) from (of) line of credit 4,642,652 (16,158,014)
Proceeds from long-term debt — 75,600,006
Repayment of long-term debt (4,543,724) (5,121,353)
Repayment of promissory note payable - related party (2,000,000) —
Repayment of obligations under finance leases (221,901) (207,520)
Cash distribution to shareholders (212,300) (125,000)
Net cash provided by financing activities 2,247,791 44,584,579
Net increase (decrease) in cash 5,962,324 (5,357,972)
Cash at beginning of the period 9,580,853 14,538,286
Cash at end of the period $ 15,543,177 $ 9,180,314


	Six Months Ended June 30,
(In thousands)	2022		2021

Supplemental disclosure of cash flow data:
Cash paid for interest	$	1,883	$	1,478
Cash paid for income taxes	$	8,525	$	1,898
Supplemental disclosure of non-cash operating, investing and financing activities:
Right of use assets obtained in exchange for operating lease liabilities	$	3,913	$	2,108
Property acquired in exchange for finance leases	$	1,220	$	8,468
Property and equipment purchases from notes payable	$	—	$	257
Intangible asset acquired in exchange for noncontrolling interests	$	566	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table~~

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)


	Common Stock			Additional Paid-in Capital	Accumulated Deficit		Total Shareholders’ Equity Attributable to HF Foods Group Inc.		Noncontrolling Interests		Total Shareholders’ Equity
(In thousands, except for shares)	Number of Shares	Amount
Balance at January 1, 2021	51,913,411	$	5		$	587,579	$	(328,429)	$	259,155	$	4,367	$	263,522
Net income	—	—			—		1,358		1,358		300		1,658
Distribution to shareholders	—	—			—		—		—		(73)		(73)
Balance at March 31, 2021	51,913,411	5			587,579		(327,071)		260,513		4,594		265,107
Net income (loss)	—	—			—		3,407		3,407		(91)		3,316
Acquisition of noncontrolling interest	—	—			(3,856)		—		(3,856)		(1,144)		(5,000)
Distribution to shareholders	—	—			—		—		—		(77)		(77)
Balance at June 30, 2021	51,913,411	$	5		$	583,723	$	(323,664)	$	260,064	$	3,282	$	263,346








Balance at January 1, 2022	53,706,392	$	5		$	597,227	$	(306,284)	$	290,948	$	4,041	$	294,989
Net income	—	—			—		3,114		3,114		26		3,140
Capital contributions by shareholders	—	—			—		—		—		806		806
Distribution to shareholders	—	—			—		—		—		(89)		(89)
Stock-based compensation	—	—			290		—		290		—		290
Balance at March 31, 2022	53,706,392	5			597,517		(303,170)		294,352		4,784		299,136
Net income (loss)	—	—			—		4,564		4,564		(70)		4,494
Distribution to shareholders	—	—			—		—		—		(97)		(97)
Stock-based compensation	—	—			221		—		221		—		221
Balance at June 30, 2022	53,706,392	$	5		$	597,738	$	(298,606)	$	299,137	$	4,617	$	303,754

The accompanying notes are an integral part of ~~Contents~~these unaudited condensed consolidated financial statements.

HF FOODS GROUP INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS DESCRIPTION

Organization and General

HF Foods Group Inc. and subsidiaries (collectively “HF Group”, or the “Company”) is ~~a leading~~an Asian ~~food service~~foodservice distributor that markets and distributes fresh produce, seafood, frozen and dry food, and non-food products to primarily Asian restaurants and other ~~food service~~foodservice customers throughout the ~~Southeast, Pacific and Mountain West regions~~United States. The Company's business consists of one operating segment, which is also its one reportable segment: HF Group, which operates solely in the United States. The ~~Company is the result~~Company's customer base consists primarily of ~~a successful merger between two complementary market leaders, HF Group Holding Corporation ("HF Holding")~~Chinese and ~~B&R Global Holdings, Inc. ("B&R Global") on November 4, 2019.~~

The Company was originally incorporated in 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.

~~On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in the stockholders of HF Holding becoming the majority shareholders of Atlantic,~~Asian restaurants, and changed its name to HF Foods Group Inc. On November 4, 2019, the Company consummated a merger transaction, resulting in B&R Global becoming a wholly owned subsidiary of HF Group. On January 17, 2020, B&R Global acquired all the equity membership interests of the 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. See further transaction details below.

~~Formation of HF Holding~~

HF Holding was incorporated in the State of North Carolina on October 11, 2017 as a holding company to acquire and consolidate the various pre-merger operating entities under one roof. On January 1, 2018, HF Holding entered into a Share Exchange Agreement (the “Exchange Agreement”) with the controlling shareholders of the 11 entities listed below in exchange for all of HF Holding’s outstanding shares. Upon completion of the share exchanges, these entities became either wholly-owned or majority-owned subsidiaries of HF Holding.

•~~Han Feng, Inc. (“Han Feng”)~~

•~~Truse Trucking, Inc. (“TT”)~~

•~~Morning First Delivery, Inc. (“MFD”)~~

•~~R&N Holdings, LLC (“R&N Holdings”)~~

•~~R&N Lexington, L.L.C. (“R&N Lexington”)~~

•~~Kirnsway Manufacturing, Inc. (“Kirnsway”)~~

•~~ChineseTG, Inc. (“Chinesetg”)~~

•~~New Southern Food Distributors, Inc. (“NSF”)~~

•~~B&B Trucking Services, Inc. (“BB”)~~

•~~Kirnland Food Distribution, Inc. (“Kirnland”)~~

•~~HG Realty, LLC (“HG Realty”)~~

In accordance with Financial Accounting Standards Board’s (“FASB") Accounting Standards Codification (“ASC”) 805-50-25, the transaction consummated through the Exchange Agreement was accounted for as a transaction among entities under common control since the same shareholders controlled all 11 entities prior to the execution of the Agreement. Furthermore, ASC 805-50-45-5 indicates that the financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

In accordance with ASC 805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests should initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of the transfer. If the carrying amounts of the assets and liabilities transferred differ from the historical cost of the parent of the entities under common control, then the financial statements of the receiving entity should reflect the transferred assets and liabilities at the historical cost of the parent of the entities under common control. Accordingly, the Company recorded the assets and liabilities transferred from the above entities at their carrying amount.

~~Reverse Acquisition of HF Holding~~

~~Table of Contents~~

On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in HF Holding becoming the surviving entity (the “Atlantic Merger”) and a wholly owned subsidiary of Atlantic (the “Atlantic Acquisition”). The stockholders of HF Holding became the majority shareholders of Atlantic, and the Company changed its name to HF Foods Group Inc. (collectively, these transactions are referred to as the “Atlantic Transactions”).

At closing, Atlantic issued the HF Holding stockholders an aggregate of 19,969,831 shares of its common stock, equal to approximately 88.5% of the aggregate issued and outstanding shares of Atlantic’s common stock. The pre-Transaction stockholders of Atlantic owned the remaining 11.5% of the issued and outstanding shares of common stock of the combined entity.

Following the consummation of the Atlantic Transactions on August 22, 2018, there were 22,167,486 shares of common stock issued and outstanding, consisting of (i) 19,969,831 shares issued to HF Holding’s stockholders pursuant to the Atlantic Merger Agreement, (ii) 10,000 restricted shares issued to one of Atlantic’s shareholders in conjunction with the Atlantic Transactions, and (iii) 2,587,655 shares originally issued to the pre-Transactions stockholders of Atlantic, less 400,000 shares sold back to Atlantic by one of Atlantic’s pre-Transactions shareholders in conjunction with the Atlantic Transactions.

The Atlantic Acquisition was treated as a reverse acquisition under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For accounting purposes, HF Holding was considered to be acquiring Atlantic in this transaction. Therefore, the aggregate consideration paid in connection with the business combination was allocated to Atlantic’s tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of Atlantic were consolidated into the results of operations of HF Holding as of the completion of the Atlantic Transactions.

~~HF Holding Entities Organized or Acquired Post-Atlantic Merger~~

On July 10, 2019, the Company, through its subsidiary Han Feng, formed a new real estate holding company, R&N Charlotte, L.L.C. ("R&N Charlotte"). R&N Charlotte owns a 4.66 acre tract of land with appurtenant 115,570 square foot office/warehouse/industrial facility located in Charlotte, North Carolina.

On December 10, 2019, the Company, through its subsidiary Han Feng, established a new entity, HF Foods Industrial, L.L.C. ("HFFI"), as owner of 60% of member interests, to operate as a food processing company.

~~On October 10, 2020, the Company, through its subsidiary HF Group Holding, formed a wholly-owned new real estate lease holding company, 273 Fifth Avenue, L.L.C. ("273 Co").~~

~~On May 28, 2021, the Company, through its subsidiary HF Group Holding, purchased the 33.33% non-controlling interest of the stock in Kirnland from the previous minority shareholder.~~

~~The following table summarizes all the existing entities under HF Holding after the above-mentioned reorganization, together with the new entities formed or acquired after the Atlantic Transactions:~~

~~Table of Contents~~

~~Name~~

Date of Formation /
Incorporation

Place of Formation /
Incorporation

Percentage
of Legal
Ownership
by HF Group

~~Principal Activities~~

~~Parent:~~

~~HF Holding~~

~~October 11, 2017~~

~~North Carolina, USA~~

~~100%~~

~~Holding Company~~

~~Subsidiaries:~~

~~Han Feng~~

~~January 14, 1997~~

~~North Carolina, USA~~

~~100%~~

~~Foodservice distributor~~

~~Kirnland~~

~~April 11, 2006~~

~~Georgia, USA~~

~~100%~~

~~Foodservice distributor~~

~~NSF~~

~~December 17, 2008~~

~~Florida, USA~~

~~100%~~

~~Foodservice distributor~~

~~HFFI~~

~~December 10, 2019~~

~~North Carolina, USA~~

~~60%~~

~~Food processing company~~

~~Chinesetg~~

~~July 12, 2011~~

~~New York, USA~~

~~100%~~

~~Design and printing services provider~~

~~Kirnsway~~

~~May 24, 2006~~

~~North Carolina, USA~~

~~100%~~

~~Design and printing services provider~~

~~September 12, 2001~~

~~Florida, USA~~

~~100%~~

~~Logistic service provider~~

~~MFD~~

~~April 15, 1999~~

~~North Carolina, USA~~

~~100%~~

~~Logistic service provider~~

~~August 6, 2002~~

~~North Carolina, USA~~

~~100%~~

~~Logistic service provider~~

~~HG Realty~~

~~May 11, 2012~~

~~Georgia, USA~~

~~100%~~

~~Real estate holding company~~

~~R&N Charlotte~~

~~July 10, 2019~~

~~North Carolina, USA~~

~~100%~~

~~Real estate holding company~~

~~R&N Holdings~~

~~November 21, 2002~~

~~North Carolina, USA~~

~~100%~~

~~Real estate holding company~~

~~R&N Lexington~~

~~May 27, 2010~~

~~North Carolina, USA~~

~~100%~~

~~Real estate holding company~~

~~273 Co~~

~~October 10, 2020~~

~~Delaware, USA~~

~~100%~~

~~Real estate lease holding company~~

~~Merger with B&R Global~~

On November 4, 2019, HF Group consummated a merger transaction resulting in B&R Global becoming a wholly owned subsidiary of the Company (the "Business Combination"). At closing, the Company acquired 100% of the controlling interest of B&R Global, in exchange for the issuance of 30,700,000 shares of Common Stock of the Company to the shareholders of B&R Global. Pursuant to the B&R Merger Agreement, the aggregate fair value of the consideration paid by the Company in the Business Combination was $576,699,494, based on the closing share price of the Company’s common stock at the date of Closing.

B&R Global was formed in 2014 as a holding company to acquire and consolidate the various related operating entities (listed below) under one roof. Through its subsidiaries, B&R Global supplies foodservice items to approximately 5,000 restaurants across 11 Western states.

~~Table of Contents~~

~~The following table summarizes the entities under B&R Global in the Business Combination:~~

~~Name~~

Date of Formation /
Incorporation

Place of Formation /
Incorporation

Percentage
of Legal
Ownership
by B&R
Global

~~Principal Activities~~

~~Parent:~~

~~B&R Global~~

~~January 3, 2014~~

~~Delaware, USA~~

—

~~Holding Company~~

~~Subsidiaries:~~

~~B&L Trading, LLC (“BNL”)~~

~~July 18, 2013~~

~~Washington, USA~~

~~100%~~

~~Foodservice distributor~~

~~Capital Trading, LLC (“UT”)~~

~~March 10, 2003~~

~~Utah, USA~~

~~100%~~

~~Foodservice distributor~~

~~Great Wall Seafood LA, LLC (“GW”)~~

~~March 7, 2014~~

~~California, USA~~

~~100%~~

~~Foodservice distributor~~

~~Min Food Inc. (“MIN”)~~

~~May 29, 2014~~

~~California, USA~~

~~60.25%~~

~~Foodservice distributor~~

~~Monterey Food Service, LLC (“MS”)~~

~~September 14, 2017~~

~~California, USA~~

~~65%~~

~~Foodservice distributor~~

~~Mountain Food, LLC (“MF”)~~

~~May 2, 2006~~

~~Colorado, USA~~

~~100%~~

~~Foodservice distributor~~

~~Ocean West Food Services, LLC (“OW”)~~

~~December 22, 2011~~

~~California, USA~~

~~67.5%~~

~~Foodservice distributor~~

~~R & C Trading, L.L.C. (“RNC”)~~

~~November 26, 2007~~

~~Arizona, USA~~

~~100%~~

~~Foodservice distributor~~

~~Rongcheng Trading, LLC (“RC”)~~

~~January 31, 2006~~

~~California, USA~~

~~100%~~

~~Foodservice distributor~~

~~Win Woo Trading, LLC (‘WW”)~~

~~January 23, 2004~~

~~California, USA~~

~~100%~~

~~Foodservice distributor~~

~~Irwindale Poultry, LLC (“IP”)~~

~~December 27, 2017~~

~~California, USA~~

~~100%~~

~~Poultry processing company~~

~~Lin’s Farms, LLC (“LNF”)~~

~~July 2, 2014~~

~~Utah, USA~~

~~100%~~

~~Poultry processing company~~

~~Kami Trading Inc. (“KAMI”)~~

~~November 20, 2013~~

~~California, USA~~

~~100%~~

~~Import service provider~~

~~American Fortune Foods Inc. (“AF”)~~

~~February 19, 2014~~

~~California, USA~~

~~100%~~

~~Logistic and import service provider~~

~~B&R Group Logistics Holding LLC (“BRGL”)~~

~~July 17, 2014~~

~~Delaware, USA~~

~~100%~~

~~Logistic service provider~~

~~Best Choice Trucking, LLC (“BCT”)~~

~~January 1, 2011~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~Fuso Trucking Corp. (“FUSO”)~~

~~January 20, 2015~~

~~California, USA~~

VIE*

~~Logistic service provider~~

~~GM Food Supplies, Inc. (“GM”)~~

~~March 22, 2016~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~Golden Well Inc. (“GWT”)~~

~~November 8, 2011~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~Happy FM Group, Inc. (“HFM”)~~

~~April 9, 2014~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~Hayward Trucking, Inc. (“HRT”)~~

~~September 5, 2012~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~KYL Group, Inc. (“KYL”)~~

~~April 18, 2014~~

~~Nevada, USA~~

~~100%~~

~~Logistic service provider~~

~~Lin’s Distribution Inc., Inc. (“LIN”)~~

~~February 2, 2010~~

~~Utah, USA~~

~~100%~~

~~Logistic service provider~~

~~MF Food Services, Inc. (“MFS”)~~

~~December 21, 2017~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~New Berry Trading, LLC (“NBT”)~~

~~September 5, 2012~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~Royal Service, Inc. (“RS”)~~

~~December 29, 2014~~

~~Oregon, USA~~

~~100%~~

~~Logistic service provider~~

~~Royal Trucking Services, Inc. (“RTS”)~~

~~May 19, 2015~~

~~Washington, USA~~

~~100%~~

~~Logistic service provider~~

~~Yi Z Service LLC (“YZ”)~~

~~October 2, 2017~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

*On November 4, 2019 and as of September 30, 2021, B&R Global consolidated FUSO, which is considered as a variable interest entity (“VIE”) under U.S. GAAP, due to its pecuniary and contractual interest in this entity.

~~Acquisition of Real Estate Companies~~

On January 17, 2020, the Company completed the transactions contemplated by that certain Membership Interest Purchase Agreement dated the same date (the “Purchase Agreement”) by and among its subsidiary B&R Global, BRGR, and 9 subsidiary limited liability companies wholly owned by BRGR (the “BRGR Subsidiaries”) (the “Realty Acquisition”). Pursuant to the Purchase Agreement, B&R Global acquired all equity membership interests in the BRGR Subsidiaries, which own 10 warehouse facilities that were being leased by the Company for its operations in California, Arizona, Utah, Colorado, Washington, and Montana, in exchange for purchase consideration of $101,269,706. Before the acquisition of the BRGR Subsidiaries, the CEO of the Company, Xiao Mou Zhang, managed and owned 8.91% interest in BRGR. Consideration for the

~~Table of Contents~~

Realty Acquisition was funded by (i) $75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 10 for additional information), (ii) issuance by B&R Global of a $7.0 million Unsecured Subordinated Promissory Note (the “Note”) to BRGR, and (iii) payment of $18.7 million from funds drawn from the Company’s revolving credit facility.

~~The following table summarizes B&R Global’s additional wholly owned subsidiaries as a result of the Realty Acquisition:~~

~~Name~~

Date of Formation /
Incorporation

Place of Formation /
Incorporation

Percentage of Legal
Ownership by B&R Global

~~Principal Activities~~

~~A & Kie, LLC ("AK")~~

~~March 26, 2010~~

~~Arizona, USA~~

~~100%~~

~~Real estate holding company~~

~~B & R Realty, LLC ("BRR")~~

~~August 28, 2013~~

~~California, USA~~

~~100%~~

~~Real estate holding company~~

~~Big Sea Realty, LLC ("BSR")~~

~~April 3, 2013~~

~~Washington, USA~~

~~100%~~

~~Real estate holding company~~

~~Fortune Liberty, LLC ("FL")~~

~~November 22, 2006~~

~~Utah, USA~~

~~100%~~

~~Real estate holding company~~

~~Genstar Realty, LLC ("GSR")~~

~~February 27, 2012~~

~~California, USA~~

~~100%~~

~~Real estate holding company~~

~~Hardin St Properties, LLC ("HP")~~

~~December 5, 2012~~

~~Montana, USA~~

~~100%~~

~~Real estate holding company~~

~~Lenfa Food, LLC ("LF")~~

~~February 14, 2002~~

~~Colorado, USA~~

~~100%~~

~~Real estate holding company~~

~~Lucky Realty, LLC ("LR")~~

~~September 3, 2003~~

~~California, USA~~

~~100%~~

~~Real estate holding company~~

~~Murray Properties, LLC ("MP")~~

~~February 27, 2013~~

~~Utah, USA~~

~~100%~~

~~Real estate holding company~~

The combined entity, resulting from the merger of B&R Global and HF Group, has 13 distribution centers strategically located in 8 states across the Southeast, Pacific and Mountain West regions of the United States and serves over 10,000 restaurants across 22 states with a fleet of over 300 refrigerated vehicles, and a workforce of over 780 employees and subcontractors. The Company is also supported by 2 call centers in China which provide round-the-clockit provides sales and service support to ~~its~~ customers who mainly converse in Mandarin or Chinese dialects.

On December 30, 2021, the Company completed the acquisition of Great Wall Seafood Supply, Inc., Great Wall Restaurant Supplier, Inc., and First Mart Inc. (collectively the “Great Wall Group”), and substantially all of the operating assets of the Great Wall Group’s seafood and restaurant products sales, marketing, and distribution businesses (the “Great Wall Acquisition”). The acquisition was completed as part of the Company’s strategy to develop a national footprint through expansion into the Midwest, Southwest and Southern regions of the United States. The total acquisition price for all operating assets and inventory was approximately $68.2 million.

On April 29, 2022, the Company completed the acquisition of substantially all of the assets of Sealand Food, Inc. ("Sealand"). This included the acquisition of equipment, machinery and vehicles for cash consideration of $20.0 million, inventory for cash consideration of $14.4 million, and additional fixed assets for cash consideration of approximately $0.5 million (the "Sealand Acquisition"). The acquisition was completed as part of the Company’s strategy to develop a national footprint through continued expansion in the East Coast of the United States, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.

See Note 7 - Acquisitions for additional information on recent acquisitions.

Independent Investigation Update

In March 2020, an analyst report suggested certain improprieties in the Company’s operations. These allegations became the subject of 2 putative stockholder class actions filed on or after March 29, 2020 in the United States District Court for the Central District of California generally alleging 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 (the “Class Actions”). After the secondtwo putative stockholder class action ~~was filed, the Class Actions were consolidated.~~

lawsuits which have subsequently been dismissed. In response to the allegations in the analyst report, the Company's Board of Directors appointed a Special Investigation Committee of Independent Directors (the “Special Investigation Committee”) to conduct an independent investigation with the assistance of ~~counsel (the “Special Committee”).~~independent legal counsel. As a result of the investigation, the SIC determined certain factual findings. Management evaluated the factual findings, as presented by the SIC, and analyzed them to determine which had impact on the historical financial statements, including disclosures, of the Company.

In addition to the ~~SEC~~independent investigation, the Securities and Exchange Commission (“SEC”) initiated a formal, non-public investigation of the Company, and the SEC informally requested, and later issued a subpoena for, documents and other information. The subpoena relates to but is not necessarily limited to the matters identified in the ~~Class Actions.~~class action lawsuits. The Special Investigation Committee and the Company are cooperating with the SEC. The SEC ~~and the Special Committee investigations are~~investigation is still ongoing.

To date, the Special Committee has reached no final conclusions in conjunction with its investigation. The investigation is focused primarily on related party transactions that occurred in periods prior to December 31, 2020 with entities that are/were owned by certain former executives and officers (including family members), of the Company, as well as other matters.

It is possible that future findings of the independent investigation could result in a determination that acts occurred, which might impact the Company’s historical consolidated financial statements and/or associated disclosures. Such impacts could potentially include, but are not limited to, historical misstatement of assets, liabilities, equity and earnings, the evaluation and potential consolidation of variable interest entities into the Company’s consolidated financial statements, the recording of additional compensation expense and related payroll taxes associated with certain of the Company’s former executive officers. Even if these impacts occur, they may or may not have been material. As with any SEC investigation, there is also the possibility of potential fines and penalties. At this time, however, ~~the Special Committee~~there has not been any demand made by the SEC nor is it possible to estimate the amount of any ~~conclusions about what, if any, conduct occurred~~such fines and ~~the impact, if any, of that conduct on historical consolidated financial statements.~~

~~Table of Contents~~

~~Please refer to~~ penalties, should they occur. See Note ~~17 –~~15 - Commitments and Contingencies – for additional information.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with ~~U.S.~~ GAAP for interim financial information pursuant to the rules and regulations of the ~~Securities and Exchange Commission (the “SEC”)~~SEC and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been

included. These financial statements are condensed and should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended December 31, ~~2020~~2021 and ~~2019.~~2020. Operating results for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.

The accompanying consolidated financial statements include the accounts of HF Group and certain variable interest entities for which the Company is the primary beneficiary. All ~~inter-company~~intercompany balances and transactions have been eliminated ~~upon~~in consolidation. For consolidated entities where we own or are exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interest in its consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entity by the respective noncontrolling party.

~~U.S.~~ Variable Interest Entities

GAAP provides guidance on the identification of ~~VIE~~VIEs and financial reporting for entities over which control is achieved through means other than voting interests. The Company evaluates each of its interests in an entity to determine whether or not the investee is a VIE and, if so, whether the Company is the primary beneficiary of such VIE. In determining whether the Company is the primary beneficiary, the Company considers if the Company (1) has power to direct the activities that most significantly affect the economic performance of the VIE, and (2) receives the economic benefits of the VIE that could be significant to the VIE. If deemed the primary beneficiary, the Company consolidates the VIE.

As of September 30, 2021 and December 31, 2020, FUSO is considered to be a VIE. FUSO was established solely to provide exclusive services to the Company. The entity lacks sufficient equity to finance its activities without additional subordinated financial support from the Company, and the Company has the power to direct the VIE's activities. In addition, the Company receives the economic benefits from the entity and has concluded that the Company is a primary beneficiary.

The carrying amounts of the assets, liabilities, the results of operations and cash flows of the VIE included in the Company’s unaudited condensed consolidated balance sheets, statements of operations, and statements of cash flows are as follows:

September 30,
2021 December 31,
2020
Current assets $ 84,742 $ 47,822
Non-current assets 10,885 115,934
Total assets $ 95,627 $ 163,756
Current liabilities $ 369,356 $ 496,234
Non-current liabilities — 39,475
Total liabilities $ 369,356 $ 535,709

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Net revenue $ 681,539 $ 531,194 $ 1,882,544 $ 1,612,999
Net income (loss) $ (78,454) $ 16,157 $ 98,224 $ 115,602

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Net cash provided by (used in) operating activities $ 12,646 $ 32,697 $ 65,158 $ 366,899
Net cash provided by (used in) financing activities (26,547) (15,359) (16,692) (260,971)
Net increase (decrease) in cash and cash equivalents $ (13,901) $ 17,338 $ 48,466 $ 105,928

~~Non-controlling~~Noncontrolling Interests

~~Table of Contents~~

~~U.S.~~ GAAP requires that ~~non-controlling~~noncontrolling interests in subsidiaries and affiliates be reported in the equity section of ~~a company’s~~the Company’s condensed consolidated balance sheet. In addition, the amounts attributable to the net income ~~(loss)~~ of those subsidiaries are reported separately in the condensed consolidated statements of ~~operations.~~

On May 28, 2021, the Company, through its subsidiary HF Group Holding, purchased the 33.33% noncontrolling interest of the stock in Kirnland for $5,000,000, making Kirnland a wholly owned subsidiary. In accordance with ASC 810-10-45-23, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions. Therefore, no gain or loss shall be recognized. As a result of this transaction, noncontrolling interests were reduced by $1,144,113income and ~~the remaining difference of $3,855,887 was charged to additional paid-in capital.~~comprehensive income.

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, non-controlling interests~~2021, noncontrolling interest equity consisted of the following:

Name of Entity Percentage of
Non-controlling
Interest Ownership September 30,
2021 December 31,
2020
Kirnland —% $ — $ 1,384,780
HFFI 40.00% (977) —
MIN 39.75% 1,268,809 889,596
MS 35.00% 452,677 459,816
OW 32.50% 1,856,680 1,633,355
Total $ 3,577,189 $ 4,367,547


($ in thousands)	Ownership of Noncontrolling Interest	June 30, 2022		December 31, 2021
HF Foods Industrial, Inc. ("HFFI")	45.00%	$	691	$	462
Min Food, Inc.	39.75%	1,563		1,363
Monterey Food Service, LLC	35.00%	452		453
Ocean West Food Services, LLC	32.50%	1,820		1,763
Syncglobal Inc.(a)	43.00%	91		—
Total		$	4,617	$	4,041

_______________

(a)During the three months ended March 31, 2022, the Company entered into a joint venture with Syncglobal Inc. contributing $0.6 million and acquiring developed technology. During the three months ended June 30, 2022, the joint venture began to wind down operations, accordingly, the developed technology was fully impaired. See Note 8 - Goodwill and Intangibles for additional information.

Uses of Estimates

The preparation of consolidated financial statements in conformity with ~~U.S.~~ GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during each reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s ~~unaudited condensed~~ consolidated financial statements include, but are not limited to, allowance for doubtful accounts, inventory reserves, useful lives of property and equipment, lease assumptions, impairment of long-lived assets, impairment of long-term investments, lease guarantee liability, impairment of goodwill, the purchase price allocation and fair value of ~~non-controlling interests~~assets and liabilities acquired with respect to business combinations, realization of deferred tax assets, ~~stock-based compensation, and~~ uncertain income tax ~~positions.~~positions, the liability for self-insurance and stock-based compensation.

~~Cash~~Recent Accounting Pronouncements

~~The Company considers all highly liquid investments purchased with an original maturity~~In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13 (“ASU 2016-13”), Measurement of ~~three months or shorter~~Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires companies to ~~be cash equivalents. As of September 30, 2021~~measure credit losses utilizing a methodology that reflects expected credit losses and ~~December 31, 2020, the Company had no cash equivalents.~~

~~Accounts Receivable, net~~

Accounts receivable represent amounts due from customers in the ordinary course of business and are recorded at the invoiced amount and do not bear interest. Receivables are presented net of the allowance for doubtful accounts in the accompanying consolidated balance sheets. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based onrequires a ~~combination of factors. When the Company is aware~~consideration of a ~~customer’s inability~~broader range of reasonable and supportable information to meet its financial obligation, a specific allowance for doubtful accounts is recorded, reducing the receivable to the net amount the Company reasonably expects to collect. In addition, allowances are recorded for all other receivables based on historic collection trends, write-offs and the aging of receivables. The Company uses specific criteria to determine uncollectible receivables to be written off, including, e.g., bankruptcy filings, the referral of customer accounts to outside parties for collection, and the length that accounts remain past due. As of September 30, 2021 and December 31, 2020, allowances for doubtful accounts were $349,311 and $909,182, respectively.

~~Inventories~~

The Company’s inventories, consisting mainly of food and other food service-related products, are considered as finished goods. Inventory costs, including the purchase price of the product and freight charges to deliver it to the Company’s warehouses, are net of certain cash or non-cash consideration received from vendors. The Company adjusts its inventory balances for slow-moving, excess and obsolete inventories to their net realizable value based upon inventory category,inform credit loss estimates. ASU 2016-13 was further amended in

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~~inventory age, specifically identified items, and overall economic conditions. Inventories are stated at~~November 2019 in “Codification Improvements to Topic 326, Financial Instruments-Credit losses”. This guidance is effective for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years. For emerging growth companies, the ~~lower of cost or net realizable value using the first-in, first-out (FIFO) method.~~

~~Property and Equipment, net~~

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Following are the estimated useful lives of the Company’s property and equipment:

Estimated Useful Lives
(Years)
Automobiles 3 — 7
Buildings and improvements 7 — 39
Furniture and fixtures 4 — 10
Machinery and equipment 3 — 10

~~Repair and maintenance costs are charged~~effective date has been extended to expense as incurred, whereas the cost of renewals and betterment that extends the useful lives of property and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in the consolidated statements of operations in other income or expenses.

~~Business Combinations~~

fiscal years beginning after December 15, 2022. The Company ~~accounts~~will adopt this ASU within the annual reporting period ending as of December 31, 2022 with an effective date of January 1, 2022 because, as of December 31, 2022, the Company will no longer be an emerging growth company. The Company is currently assessing the impact of adopting this standard, but based upon its preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for ~~its business combinations using the purchase method of accounting in accordance~~Contract Assets and Contract Liabilities from Contracts with ~~ASC 805 (“ASC 805”),~~ ~~Business Combinations~~Customers. The ~~purchase method of accounting~~guidance requires ~~that the consideration transferred be allocated~~an acquirer to, the assets, including separately identifiable assets and liabilities the Company acquired, based on their estimated fair values. The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of ~~exchange~~acquisition, recognize and measure the acquired contract assets and contract liabilities acquired in the same manner that they were recognized and measured in the acquiree's financial statements before the acquisition. This guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. The amendments in this update should be applied prospectively to business combinations occurring on or after the effective date. The Company is in the process of assessing the impact of this ASU on its future consolidated financial statements, but does not expect it to have a material impact.

NOTE 3 - VARIABLE INTEREST ENTITIES

The Company has three VIEs for which the Company is not the primary beneficiary and therefore does not consolidate, and 14 VIEs for which the Company was the primary beneficiary and consolidates. The VIEs are summarized as follows noting which VIE's the Company no longer has transactions with in 2022:

•Unconsolidated VIEs (collectively "Unconsolidated VIEs"):

•Revolution Industry, LLC (“Revolution Industry”) – Supplier of goods (until March 2021)

•UGO USA, Inc. (“UGO”) – Supplier of online goods, customer, and lessee (until April 2021)

•AnHeart, Inc. ("AnHeart")

•Consolidated VIEs (collectively "Consolidated VIEs"):

•FUSO Trucking LLC ("FUSO")

•13 staffing agencies (collectively, the “Staffing Agencies”) – Suppliers of staffing services through 2021:

•Anfu, Inc.

•Anshun, Inc.

•Chen Enterprises (until December 2020)

•Georgia Kam (until December 2020)

•Inchoi, Inc.

•Malways, Inc.

•Rousafe

•S&P

•SNP

•Suntone

•THLI, Inc. (until December 2020)

•THLR, Inc. (until December 2020)

•TWRR, Inc. (until December 2020)

Consolidated VIEs

FUSO

FUSO was established solely to provide exclusive trucking services to the Company. The entity lacks sufficient equity to finance its activities without additional subordinated financial support from the Company, and the Company has the power to direct the VIEs’ activities. In addition, the Company receives the economic benefits from the entity and has concluded that the Company is the primary beneficiary. The carrying amounts of the assets, ~~given,~~ liabilities, ~~incurred, and equity instruments issued as well as~~ the ~~contingent considerations and all contractual contingencies as~~results of the acquisition date. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total of cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over, (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in earnings.

The Company estimates the fair value of assets acquired and liabilities assumed in a business combination. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, its estimates are inherently uncertain and subject to refinement. Significant estimates in valuing certain intangible assets include, but are not limited to future expected revenuesoperations and cash flows ~~useful lives, discount rates, and selection~~ of ~~comparable companies. Although~~

the Company believes the assumptions and estimates it has made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain. During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. On the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.

Transaction costs associated with business combinations are expensed as incurred, and are included in distribution, selling and administrative expenses in the Company’s consolidated statements of operations. The results of operations of the businesses that the Company acquired areVIE included in the Company’s consolidated ~~financial~~balance sheets, statements ~~from the date~~ of ~~acquisition.~~income and comprehensive income (loss) and statements of cash flows are immaterial.

~~Goodwill~~Staffing Agencies

~~Goodwill represents the excess~~The Staffing Agencies were set up by an employee of the ~~purchase price over~~Company, or their relatives, and provided temporary labor services exclusively to the ~~fair value~~Company at the direction of ~~net~~the Company. There were no other substantive business activities of the Staffing Agencies. There were immaterial assets ~~acquired in a business combination.~~held, immaterial liabilities owed by the Staffing Agencies and immaterial equity. The Company ~~tests goodwill~~has determined it was the primary beneficiary for ~~impairment at least annually, as of~~the Staffing Agencies through December 31, ~~or whenever events or changes in circumstances indicate that goodwill might be impaired.~~

~~The Company reviews the carrying value of goodwill whenever events or changes in circumstances indicate that such carrying values may not be recoverable~~2021 as it controlled how and ~~annually for goodwill and indefinite lived intangible assets as required by ASC Topic 350~~

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~~(“ASC 350”),~~ ~~Intangibles — Goodwill and Other~~. This guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, the Company measures 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.

~~Intangible Assets~~

Intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company determines the appropriate useful life of its intangible assets by measuring the expected cash flows of acquired assets. The estimated useful lives of intangible assets are as follows:


			Estimated Useful Lives (Years)
~~Tradenames~~			10
~~Customer relationships~~			20

~~Long-term Investments~~

~~The Company’s investments in unconsolidated entities consist of an equity investment and an investment without readily determinable fair value.~~

~~The Company follows ASC Topic 321 (“ASC 321”),~~ ~~Investments – Equity Securities~~, using the measurement alternative to measure investments in investees that do not have readily determinable fair value and over which the Company does not have significant influence at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company makes a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, the Company has to estimate the investment’s fair value in accordance with the principles of ASC Topic 820 (“ASC 820”), ~~Fair Value Measurements and Disclosures. If the fair value is less than the investment’s carrying value, the entity has to recognize an impairment loss in earnings equal to the difference between the carrying value and fair value.~~

Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC Topic 323 (“ASC 323”), ~~Investments-Equity Method and Joint Ventures~~. Under the equity method, the Company initially records its investment at cost and the difference between the cost and the fair value of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill, which is included in the equity method investment on the consolidated balance sheets. The equity method goodwill is not subsequently amortized and is not tested for impairment under ASC 350. The Company subsequently adjusts the carrying amount of the investment to recognize the Company’s proportionate share of each equity investee’s net income or loss into earnings after the date of investment. The Company evaluates the equity method investments for impairment under ASC 323. An impairment loss on the equity method investments is recognized in earnings when the ~~decline in value is determined to~~labor force would be ~~other-than-temporary.~~

utilized. The Company did not ~~record~~have any ~~impairment loss on its long-term investments as~~guarantees, commitments or other forms of ~~September 30, 2021 and December 31, 2020.~~

~~Impairment of Long-lived Assets Other Than Goodwill~~

The Company assesses its 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 relatedfinancing to the ~~historical or projected future operating results or a significant negative industry or economic trend. Recoverability~~Staffing Agencies. Beginning January 1, 2022, the Company no longer has involvement with any of ~~these assets is measured by comparison of their carrying amounts~~the Staffing Agencies.

Unconsolidated VIEs

Revolution Industry and UGO

Revolution Industry was established to ~~future undiscounted cash flows~~produce egg roll mix for the ~~assets are expected to generate. If property and equipment, and intangible assets are considered~~Company. UGO was originally designed to be ~~impaired,~~an online marketplace for various Asian goods. Revolution Industry and UGO were thinly capitalized and were not able to finance their activities without additional subordinated support.The former Co-CEO's (Mr. Ni) son, as sole equity holder of Revolution Industry, had unilateral control over the ~~impairment~~ongoing activities of Revolution Industry and significantly benefited from their operations. Therefore, the Company is not the primary beneficiary for Revolution Industry. The former Co-CEO (Mr. Ni) and his niece, as equity holders, had unilateral control over the ongoing activities of UGO and significantly benefited from its operations. Therefore, the Company is not the primary beneficiary for UGO.

Revolution Industry and UGO are also related parties and were generally the Company’s suppliers or customers and the Company did not have other involvement with these entities. Therefore, the Company’s exposure to ~~be recognized equals the amount by which the carrying value of the assets or asset group exceeds their fair value.~~loss due to its involvement with these entities was limited to amounts due from these entities. The Company did not ~~record~~have any ~~impairment loss on its long-lived assets~~guarantees, commitments, or other ~~than goodwill~~forms of financing with these entities. All transactions with Revolution Industry and UGO ceased in 2021, therefore, these entities are no longer considered VIEs as of ~~September~~June 30, ~~2021~~2022. Related party transactions, such as purchases of goods and ~~December 31, 2020.~~services, with Revolution Industry and UGO are disclosed in Note 13 - Related Party Transactions.

~~Revenue Recognition~~AnHeart

~~Table~~AnHeart, Inc. ("AnHeart") was previously a subsidiary of ~~Contents~~the Company designed to sell traditional Chinese medicine, sold to a third-party in February 2019. As discussed in Note 15 - Commitments and Contingencies, after the sale, the Company continued to provide a guarantee for all rent and related costs associated with two leases of AnHeart in Manhattan, New York. The Company reassessed its relationship with AnHeart and determined that AnHeart is a VIE as a result of the guarantee. However, the Company concluded it was not the primary beneficiary of AnHeart because it does not have the power to direct the activities of AnHeart that most significantly impact AnHeart's economic performance. Therefore, the Company is not the primary beneficiary for AnHeart. Please refer to Note 15 - Commitments and Contingencies for additional information regarding the Company's maximum exposure to loss to AnHeart.

NOTE 4 - REVENUE

The Company recognizes revenue from the sale of products when ~~title and risk~~control of ~~loss~~each product passes to the customer and the customer accepts the goods, which occurs at delivery. Sales taxes invoiced to customers and remitted to government authorities are excluded from net sales.

The Company follows ~~ASU~~ ASC Topic 606 ("ASC 606")~~2014-09,~~, Revenue from Contracts with Customers ~~(Topic 606)~~. The Company recognizes revenue that represents the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfer to a customer. The ~~majority of the~~ Company’s contracts contain performance obligations which are satisfied when customers have ~~one single performance obligation, as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct.~~physical possession of each product. The Company’s revenue streams are recognized at a specific point in time.

For the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, revenue recognized from performance obligations related to prior periods was ~~insignificant.~~immaterial. Revenue expected to be recognized in any future periods related to remaining performance obligations is ~~insignificant.~~immaterial.

The following table ~~summarizes~~presents the Company’s net revenue disaggregated ~~revenue~~by principal product categories:


	Three Months Ended June 30,								Six Months Ended June 30,
($ in thousands)	2022				2021				2022				2021
Asian Specialty	$	75,337	25	%	$	57,361	30	%	$	150,013	26	%	$	107,841	31	%
Commodity	15,427		5	%	11,284		6	%	31,352		5	%	23,417		7	%
Fresh Produce	31,076		10	%	23,532		12	%	60,955		11	%	45,125		13	%
Meat and Poultry	63,109		21	%	53,564		28	%	124,025		22	%	91,612		26	%
Packaging and Other	21,296		7	%	16,417		8	%	43,309		7	%	31,551		9	%
Seafood	93,397		32	%	31,388		16	%	168,203		29	%	53,380		14	%
Total	$	299,642	100	%	$	193,546	100	%	$	577,857	100	%	$	352,926	100	%

NOTE 5 - BALANCE SHEET COMPONENTS

Accounts receivable, net consisted of the following:


(In thousands)	June 30, 2022		December 31, 2021
Accounts receivable	$	43,478	$	37,121
Less: allowance for doubtful accounts	(778)		(840)
Accounts receivable, net	$	42,700	$	36,281

Movement of allowance for doubtful accounts is as follows:


	Six Months Ended June 30,
(In thousands)	2022		2021
Beginning balance	$	840	$	909
Increase (decrease) in provision for doubtful accounts	(54)		(23)
Write off	(8)		(162)
Ending balance	$	778	$	724

Long-term investments consisted of the following:


($ in thousands)	Ownership as of June 30, 2022	June 30, 2022		December 31, 2021
Asahi Food, Inc.	49%	$	932	$	662
Pt. Tamron Akuatik Produk Industri ("Tamron")	12%	1,800		1,800
Total		$	2,732	$	2,462

The investment in Tamron is accounted for using the measurement alternative under ASC Topic 321 (“ASC 321”), Investments – Equity Securities, which is measured at cost, less any impairment, plus or minus changes resulting from ~~customers by geographic locations:~~

For the Three Months Ended For the Nine Months Ended
September 30,
2021 September 30,
2020 September 30,
2021 September 30,
2020
Arizona $ 13,241,260 $ 8,418,352 $ 36,757,835 $ 25,344,389
California 80,777,266 43,159,185 205,560,026 145,316,702
Colorado 12,468,369 9,177,067 32,971,787 25,618,734
Florida 24,289,395 17,167,155 66,900,082 47,562,057
Georgia 18,148,570 12,524,287 49,390,449 34,699,175
North Carolina 37,161,307 28,688,103 100,378,085 79,672,578
Utah 16,167,635 13,717,413 43,087,364 39,010,162
Washington 13,288,247 7,067,380 33,424,485 23,058,577
Total $ 215,542,049 $ 139,918,942 $ 568,470,113 $ 420,282,374

~~Shipping and Handling Costs~~

~~Shipping and handling costs, which include costs related~~observable price changes in orderly transactions for identical or similar investments, if any. The investment in Asahi Food, Inc. is accounted for under the equity method due to the ~~selection~~fact that the Company has significant influence but does not exercise control over this investee. The Company determined there was no impairment as of ~~products~~June 30, 2022 and ~~their delivery to customers, are included in distribution, selling~~December 31, 2021 for these investments.

Property and ~~administrative expenses. Shipping~~equipment, net consisted of the following:


(In thousands)	June 30, 2022		December 31, 2021
Automobiles	$	34,787	$	31,577
Buildings	70,805		68,998
Building improvements	11,592		19,004
Furniture and fixtures	409		211
Land	49,920		51,412
Machinery and equipment	16,574		14,114
Total property and equipment at cost	184,087		185,316
Less: accumulated depreciation	(42,081)		(39,408)
Property and equipment, net	$	142,006	$	145,908

Depreciation expense was $2.2 million and ~~handling costs were $7,103,131 and $5,167,163 for the nine months ended September 30, 2021 and 2020, and $2,703,921 and $1,640,914~~$2.0 million for the three months ended ~~September~~June 30, 2022 and 2021, respectively. Depreciation expense was $4.4 million and ~~2020, respectively.~~

~~Income Taxes~~

~~The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities~~$4.0 million for the ~~expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets~~six months ended June 30, 2022 and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.2021, respectively.

~~The Company records uncertain tax positions in accordance with ASC 740 (“ASC 740”),~~ ~~Income Taxes~~, on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition

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threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company does not believe that there were any uncertain tax positions at September 30, 2021 and December 31, 2020.

~~The Company adopted ASU 2019-12 (“ASU 2019-12”),~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~, on January 1, 2021. ASU 2019-12 is intended to simplify various aspects related to managerial accounting for income taxes. The adoption had no material impact on the Company's consolidated financial statements.

~~Leases~~

~~The Company accounts for leases following ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~("Topic 842").~~

~~As a result of the Realty Acquisition (see Note~~NOTE 6 for additional information), 9 leases previously included in the operating lease asset and liabilities balance were eliminated during consolidation. As of September 30, 2021, the balances for operating lease assets were $2,551,286 and liabilities were $2,697,704. As of December 31, 2020, the balances for operating lease assets were $931,630 and liabilities were $931,630 (see Note 11 for additional information).

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of finance lease liabilities, and finance lease liabilities, non-current on the consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

~~Earnings Per Share~~

~~The Company computes earnings per share (“EPS”) in accordance with ASC Topic 260 (“ASC 260”),~~ ~~Earnings per Share~~. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, warrants and stock based compensation) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There were 6,687 potential common shares that were excluded from the calculation of diluted EPS for the three month period ended September 30, 2021 because their effect would have been anti-dilutive. There are no anti-dilutive potential common shares for the nine month periods ended September 30, 2021 and 2020, and the three month period ended September 30, 2020.

~~Fair Value of Financial Instruments~~- FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company follows the provisions of ~~FASB~~ ASC Topic 820 ("ASC 820"), Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

•Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

•Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

•Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions about what assumptions market participants would use in pricing the asset or liability based on the best available information.

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Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized at the end of the reporting period in which the transfer occurs. There were no transfers between fair value levels in any of the periods presented herein.

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash, accounts receivable, ~~advances to suppliers,~~ other current assets, accounts payable, ~~bank overdraft, current portion of long-term debt, current portion of obligations under finance~~checks issued not presented for payment, and ~~operating leases,~~ accrued expenses and other liabilities ~~and obligations under interest rate swap contracts~~ approximate their fair value based on the short-term maturity of these instruments.

The carrying value of ~~long-term~~the variable rate debt approximates its fair value because of the variability of interest ~~costs~~rates associated with these ~~instruments~~instruments. For the Company's fixed rate debt, the fair values were estimated using discounted cash flow analyses, based on the current incremental borrowing rates for similar types of borrowing arrangements.

As of June 30, 2022, the carrying value of the fixed rate debt was $5.0 million and the ~~consistency in market conditions since~~fair value was $3.7 million. As of December 31, 2021, the carrying value of the fixed rate debt, which included the Company's promissory note payable to related party, was $15.0 million and the fair value was $12.2 million. The variable and fixed rate debt are both classified as Level 2.

Of the $5.0 million of fixed rate debt as of June 30, 2022, $2.4 million is attributable to real estate term loans ~~were entered into.~~with East West Bank, $2.3 million is attributable to vehicle and equipment term loans with Bank of America, and $0.3 million is attributable to vehicle loans with other financial institutions.

Of the $15.0 million of fixed rate debt as of December 31, 2021, $4.5 million is related to the Company’s promissory note payable to related party, $2.5 million is attributable to real estate term loans with East West Bank, $2.7 million is attributable to vehicle and equipment term loans with Bank of America, $4.5 million is attributable to loans with First Horizon Bank, and $0.8 million is attributable to vehicle loans with other financial institutions.

Please refer to Note 10 - Debt and Note 13 - Related Party Transactions for additional information regarding the Company's debt.

Please refer to Note 9 - Derivative Financial ~~Instrument~~

Instruments~~In accordance with~~ for additional information regarding the ~~guidance in ASC Topic 815 ("ASC 815"),~~ ~~Derivatives and Hedging,~~ d~~erivative~~fair value of the Company's derivative financial instruments which are classified as Level 2.

NOTE 7 - ACQUISITIONS

Sealand Acquisition

On April 29, 2022, the Company completed the acquisition of substantially all of the operating assets of Sealand including equipment, machinery and vehicles. The acquisition was completed to expand the Company's territory along the East Coast, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.

The price for the purchased assets was $20.0 million paid in cash at closing. In addition to the closing cash payment, the Company separately acquired all of the Sellers' saleable product inventory for approximately $14.4 million and additional fixed assets for approximately $0.5 million. The Company is in the process of finalizing its purchase accounting, which relates to the valuation of intangible assets, which may impact the valuation of goodwill.

The Company accounted for this transaction under ASC 805, Business Combinations, by applying the acquisition method of accounting and established a new basis of accounting on the date of acquisition. The assets acquired by the Company were measured at their estimated fair values as of the date of acquisition. Goodwill is calculated as the excess of the purchase price over the net assets recognized and represent synergies and benefits expected as ~~assets or liabilities on~~a result from combining operations with an emerging national presence. The transaction costs for the acquisition totaled approximately $0.6 million for the six months ended June 30, 2022 and were reflected in distribution, selling and administrative expenses in the unaudited condensed consolidated ~~balance sheets at fair value.~~ statement of income and comprehensive income.

The ~~Company~~information included herein has not designated its interest rate swap ("IRS") contracts as hedges for accounting treatment. Pursuant to U.S. GAAP, income or loss from fair value changes for derivatives that are not designated as hedges by management are reflected as income or lossbeen prepared based on the statement of operations. Net amounts received or paid under the interest rate swap contracts are recognized as an increase or decrease to interest expense when such amounts are incurred. The Company is exposed to credit loss in the event of nonperformance by the counterparty.

~~Concentrations and Credit Risk~~

~~Credit risk~~

Accounts receivable are typically unsecured and derived from revenue earned from customers, and thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.

~~Concentration risk~~

~~There were no receivables from any one customer representing more than 10%~~allocation of the ~~Company’s consolidated gross accounts receivable at September 30, 2021 and December 31, 2020.~~

For the nine months ended September 30, 2021 and 2020, no supplier accounted for more than 10% of the total cost of revenue. As of September 30, 2021, there were two suppliers that accounted for a combined 33% of total outstanding advance payments. As of December 31, 2020, two suppliers accounted for a combined 40% of total outstanding advance payments, and one supplier accounted for 96% of advance payments to related parties, respectively.

~~Immaterial Revision to Prior Period Financial Statements~~

During the three months ended September 30, 2021, the Company identified errors in its accounting for the January 21, 2021 lease described in Note 10 as the 273 Lease Agreement. In its original accounting, the Company concluded that the lease was an operating lease and used an incorrect discount rate to calculate the Right of Use Asset and Obligation under operating lease balances. The Company subsequently changed the discount rate on the lease and classified the lease as a finance lease as the present value of the future cash flows associated with the lease exceeded substantially allpurchase price using estimates of the fair value of ~~the property.~~

The Company adjusted the balances associated with the lease from Operating Lease Right-of-Use Assets to Property and Equipment and from Obligations Under Operating Leases to Obligations Under Finance Leases. The revision to the March 31, 2021 and June 30, 2021 condensed consolidated balance sheets, condensed consolidated statements of operations and condensed consolidated statement of cash flows were as follows:

•~~The Operating lease right of use asset was reduced by $13,675,884 from $15,993,197 to $2,317,313 as of March 31, 2021 and reduced by $13,582,834 from $16,326,011 to $2,743,177 as of June 30, 2021.~~

•~~Property and equipment, net was increased by $7,770,225 from $136,043,983 to $143,814,208 as of March 31, 2021 and increased by $7,698,938 from $134,755,748 to $142,454,686 as of June 30, 2021.~~

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•~~The impact to total assets was a reduction of $5,905,659 from $500,800,583 to $494,894,924 as of March 31, 2021 and a reduction of $5,883,896 from $507,220,995 to $501,337,099 as of June 30, 2021.~~

•~~The impact to the current portion of obligations under finance lease and current portion of obligations under operating lease are insignificant as of March 31, 2021 and June 30, 2021.~~

•Obligations under finance lease, non-current was an increase of $7,834,773 from $703,648 to $8,538,421 as of March 31, 2021 and an increase of $7,860,634 from $630,774 to $8,491,408 as of June 30, 2021.

•Obligations under operating lease, non-current was a reduction of $13,764,121 from $15,459,667 to $1,695,546 as of March 31, 2021 and a reduction of $13,745,066 from $15,930,735 to $2,185,669 as of June 30, 2021.

•The impact to total liabilities was a reduction of $5,937,684 from $234,248,951 to $228,311,267 as of March 31, 2021 and a reduction of $5,915,347 from $242,241,874 to $236,326,527 as of June 30, 2021.

•~~The impact to Net cash provided by operating activities and Net cash provided by financing activities is insignificant as of March 31, 2021 and June 30, 2021.~~

Revisions were also made to the lease footnote in the condensed consolidated financial statements. Operating lease costs for the three months ended March 31, 2021, three months ended June 30, 2021 and six months ended June 30, 2021 were revised to $410,561, $340,551, and $751,112, respectively. The revised weighted average remaining lease term, in months, for operating leases was 48 months and 50 months as of March 31, 2021 and June 30, 2021 respectively. The revised weighted average discount rate for operating leases as of March 31, 2021 and June 30, 2021 was 2.80% and 3.15%, respectively. Finance lease costs for the three months ended March 31, 2021, three months ended June 30, 2021 and six months ended June 30, 2021 were revised to $234,849, $288,599, and $523,448, respectively. Gross Property and equipment under finance lease as of March 31, 2021 and June 30, 2021 was revised to $10,611,480 with accumulated depreciation being revised to $1,966,019 and $2,118,289 as of March 31, 2021 and June 30, 2021, respectively. The weighted average remaining lease term, in months, for finance leases was revised to 295 as of March 31, 2021 and June 30, 2021. The weighted average discount rate for finance leases was revised to 6.18% as of March 31, 2021 and June 30, 2021. Lastly, the revised maturities are as follows:

Operating Leases
Twelve months ending As reported March 31, 2021 As revised March 31, 2021 As reported June 30, 2021 As revised June 30, 2021
2022 $ 999,730 $ 717,230 $ 1,011,964 $ 706,964
2023 985,718 629,468 1,139,353 776,853
2024 856,936 475,686 964,309 576,809
2025 816,708 410,458 987,997 575,497
2026 723,859 292,609 791,576 354,076
Thereafter 17,466,321 — 17,396,355 42,534
Total Lease Payments 21,849,272 2,525,451 22,291,554 3,032,733
Less Imputed Interest (5,752,558) (201,194) (5,750,563) (267,723)
Total $ 16,096,714 $ 2,324,257 $ 16,540,991 $ 2,765,010

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Finance Leases
Twelve months ending As reported March 31, 2021 As revised March 31, 2021 As reported June 30, 2021 As revised June 30, 2021
2022 $ 424,308 $ 805,558 $ 336,501 $ 724,001
2023 320,868 739,618 322,569 747,569
2024 288,572 732,322 274,426 724,426
2025 165,248 625,373 96,496 559,996
2026 — 473,929 — 477,405
Thereafter — 16,307,267 — 16,187,916
Total Lease Payments 1,198,996 19,684,067 1,029,992 19,421,313
Less Imputed Interest (218,012) (10,868,310) (126,570) (10,657,257)
Total $ 980,984 $ 8,815,757 $ 903,422 $ 8,764,056

In addition, the Company also identified an error in the classification of the Goodwill impairment loss recorded during the nine months ended September 30, 2020 of $338,191,407 and adjusted it from the section Other Income (Expenses) to Total Operating Expenses in the condensed consolidated statements of operations.

The Company has assessed the materiality of these errors considering both the qualitative and quantitative factors and determined that as of and for the year ended December 31, 2020, the three-month period ended March 31, 2021, and the six-month period ended June 30, 2021, the adjustments were not material. The Company has decided to correct the prior period presentation to provide comparability to the 2020 financial statements. Corresponding footnotes have been adjusted accordingly. The adjustments had no impacted on the consolidated statements of income and shareholders’ equity for the periods discussed.

~~Recent Accounting Pronouncements~~

~~In June 2016, the FASB issued ASU 2016-13 (“ASU 2016-13”),~~ ~~Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments”~~. ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 was further amended in November 2019 in “Codification Improvements to Topic 326, Financial Instruments-Credit losses”. This guidance is effective for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years. For emerging growth companies, the effective date has been extended to fiscal years beginning after December 31, 2022. The Company will adopt this ASU within the annual reporting period of December 31, 2023. The Company is currently assessing the impact of adopting this standard, but based upon its preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

~~NOTE 3 - ACCOUNTS RECEIVABLE, NET~~

~~Accounts receivable, net consisted of the following:~~

As of September 30,
2021 As of December 31,
2020
Accounts receivable $ 34,453,143 $ 25,766,504
Less: allowance for doubtful accounts (349,311) (909,182)
Accounts receivable, net $ 34,103,832 $ 24,857,322

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~~Movement of allowance for doubtful accounts is as follows:~~

For the Nine Months Ended
September 30,
2021 September 30,
2020
Beginning balance $ 909,182 $ 623,970
Increase (decrease) in provision for doubtful accounts (374,433) 2,024,471
Less: write off/ (recovery) (185,438) (1,274,520)
Ending balance $ 349,311 $ 1,373,921

~~NOTE 4 - LONG-TERM INVESTMENTS~~

~~Long-term investments consisted of the following:~~

Ownership as of September 30,
2021 As of September 30, 2021 As of December 31, 2020
Asahi Food, Inc. 49% $ 643,885 $ 577,164
Pt. Tamron Akuatik Produk Industri ("Tamron") 12% 1,800,000 1,800,000
Total $ 2,443,885 $ 2,377,164

The investment in Tamron is accounted for using the measurement alternative under ASC 321, which is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments, if any. The investment in Asahi Food, Inc. is accounted for under the equity method due to the fact that the Company has significant influence but does not exercise control over this investee. The Company determined there was no impairment as of September 30, 2021 and December 31, 2020 for these investments.

~~NOTE 5 - PROPERTY AND EQUIPMENT, NET~~

~~Property and equipment, net consisted of the following:~~

As of September 30,
2021 As of December 31,
2020
Automobiles $ 22,976,513 $ 24,544,094
Building 77,437,589 71,285,127
Building improvements 11,426,172 9,807,234
Furniture and fixtures 195,285 223,996
Land 52,208,061 52,125,900
Machinery and equipment 14,710,723 13,498,211
Subtotal 178,954,343 171,484,562
Less: accumulated depreciation (37,214,226) (34,615,477)
Property and equipment, net $ 141,740,117 $ 136,869,085

~~The Company acquired $102,331,567 of property and equipment resulting from an acquisition of assets from B&R Realty Group on January 17, 2020. See Note 6 for additional information.~~

Depreciation expense was $4,489,389 and $4,870,523 for the nine months ended September 30, 2021 and 2020, respectively, and $1,476,852 and $1,605,661 for the three months ended September 30, 2021 and 2020, respectively.

~~NOTE 6 - ACQUISITION OF B&R REALTY SUBSIDIARIES~~

On January 17, 2020, B&R Global acquired 100% of the equity membership interests of the then subsidiaries of BRGR, which own warehouse facilities that were being leased to B&R Global for its operations in California, Arizona, Utah, Colorado,

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Washington, and Montana. Before the acquisition of BRGR Subsidiaries, the CEO of the Company, Xiao Mou Zhang, managed and owned an 8.91% interest in BRGR. The total purchase price for the acquisition was $101,269,706, based on independent appraisals of the fair market value of the properties.

The Company notes that substantially all of the fair value of the gross assets acquired is concentrated in a group of similar assets (land and buildings all used for warehousing and distribution purposes). As such, the acquisition of the BRGR Subsidiaries would be deemed an asset acquisition under ASC 805-10-55, and the total purchase price is allocated on a relative fair value basis to the net assets acquired.

~~The following table presents the estimated fair value of the~~ assets acquired and liabilities assumed atwhich were determined using a combination of quoted market prices, discounted cash flows, and other estimates made by management. The purchase price allocation is subject to further adjustment until all pertinent information regarding the ~~date~~assets and liabilities acquired are fully evaluated by the Company, not to exceed one year as permitted under ASC 805.

Preliminary Purchase Price Allocation

The Company has performed an allocation of ~~acquisition:~~the total consideration paid to acquire the assets and liabilities of Sealand is as set forth below:


~~Cash~~(In thousands)	Amount
Inventory	$	~~265,639~~13,846
~~Automobile~~Property plant, and equipment	~~33,690~~1,424
~~Prepaids~~Right-of-use assets	~~39,193~~127
~~Land~~Intangible assets	~~48,734,042~~
~~Buildings~~	~~53,563,835~~14,717
Total assets acquired	~~102,636,399~~30,114

~~Accounts payable and accrued expenses~~Obligations under operating leases	~~1,366,693~~127
Total liabilities assumed	~~1,366,693~~127
Net assets ~~acquired~~	29,987
Goodwill	4,861
Total consideration	$	~~101,269,706~~34,848

The Company recorded acquired intangible assets of $14.7 million, which were measured at fair value using Level 3 inputs. These intangible assets include tradenames and trademarks of $4.4 million, customer relationships of $8.9 million and non-compete agreements of $1.4 million. The fair value of customer relationships was determined by applying the income approach utilizing the excess earnings methodology and Level 3 inputs including a discount rate.The fair value of tradenames and trademarks was determined by applying the income approach utilizing the relief from royalty methodology and Level 3 inputs including a royalty rate of 1% and a discount rate.The fair value of non-competition agreements was determined by applying the income approach and Level 3 inputs including a discount rate. Discount rates used in determining fair values for customer relationships, tradenames and trademarks, and non-competition agreements ranged from 17.5% to 18.0%. The useful lives of the tradenames and trademarks are ten years, customer relationships are ten years and non-compete agreements are three years, with a weighted average amortization period of approximately nine years. The associated goodwill is deductible for tax purposes.

Great Wall Acquisition

On December 30, 2021, the Company executed an Asset Purchase Agreement with 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”) to purchase substantially all of the operating assets of the Great Wall Group’s seafood and restaurant products sales, marketing, and distribution businesses (the “Great Wall Acquisition”). The acquisition was completed as part of the Company’s strategy to develop a national footprint through expansion into the Midwest, Southwest and Southern regions of the United States.

The final aggregate price for the purchased assets was $43.7 million with $30.8 million paid in cash at closing and the issuance of 1,792,981 shares of common stock of the Company (based on a 60-day VWAP of $7.36), with a fair value of $12.9 million based on the share price of $8.11 per share at closing and an 11.5% discount due to a lock-up restriction. In addition to the closing cash payment, the Company separately acquired all of the Sellers’ saleable product inventory of approximately $24.3 million (fair value of $24.7 million) of which approximately $6.8 million was paid during the year ended December 31, 2021 and $17.4 million was recorded in accounts payable on the consolidated balance sheets as of December 31, 2021. The Company also acquired additional vehicles for approximately $0.2 million. As such, the total acquisition price for all operating assets and inventory was approximately $68.2 million. During the three months ended March 31, 2022, the Company paid $17.4 million to acquire the remaining saleable product inventory.

The Company accounted for this transaction under ASC 805, Business Combinations, by applying the acquisition method of accounting and established a new basis of accounting on the date of acquisition. The assets acquired by the Company were measured at their estimated fair values as of the date of acquisition. Goodwill is calculated as the excess of the purchase price over the net assets recognized and represent synergies and benefits expected as a result from combining operations with an emerging national presence. The transaction costs for the acquisition were reflected in distribution, selling and administrative expenses in the condensed consolidated statements of income and comprehensive income (loss) and totaled $0.4 million for the six months ended June 30, 2022.

The information included herein has been prepared based on the allocation of the purchase price using estimates of the fair value of assets acquired and liabilities assumed which were determined using a combination of quoted market prices, discounted cash flows, and other estimates made by management.

Purchase Price Allocation

The total consideration paid to acquire the assets and liabilities of the Great Wall Group is as set forth below:


(In thousands)	Amount
Inventory	$	24,728
Property plant, and equipment	1,537
Intangible assets	30,145
Total assets acquired	56,410
Goodwill	11,745
Total consideration	$	68,155

The Company recorded acquired intangible assets of $30.1 million, which were measured at fair value using Level 3 inputs. These intangible assets include tradenames and trademarks of $10.5 million, customer relationships of $17.2 million and non-compete agreements of $2.4 million. The fair value of customer relationships was determined by applying the income approach utilizing the excess earnings methodology using Level 3 inputs including a discount rate.The fair value of tradenames and trademarks was determined by applying the income approach utilizing the relief from royalty methodology and Level 3 inputs including a royalty rate of 1% and a discount rate.The fair value of non-competition agreements was determined by applying the income approach using Level 3 inputs including a discount rate. Discount rates used in determining fair values for customer relationships, tradenames and trademarks, and non-competition agreements ranged from 11.5% to 14.0%. The useful lives of the tradenames and trademarks are ten years, customer relationships are ten years and non-compete agreements are three years, with a weighted average amortization period of approximately nine years. The associated goodwill is deductible for tax purposes.

Unaudited Supplemental Pro Forma Financial Information

The following table presents the Company’s unaudited pro forma results for the three and six months ended June 30, 2022, as if both the Great Wall Acquisition and Sealand Acquisition had been consummated on January 1, 2021. The unaudited pro forma financial information presented includes the effects of adjustments related to the amortization of acquired intangible assets and excludes synergies and other non-recurring transaction costs directly associated with the acquisition such as legal and other professional service fees. Statutory rates were used to calculate income taxes. Accordingly, the unaudited pro forma information does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations.


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Pro forma net revenue	$	307,587	$	262,832	$	609,685	$	481,724
Pro forma net income	$	3,513	$	5,042	$	7,210	$	7,162
Pro forma net income attributable to HF Group	$	3,628	$	5,133	$	7,253	$	6,952

NOTE 78 - GOODWILL AND ACQUIRED INTANGIBLE ASSETS

Goodwill

The changes in ~~HF Group’s~~the carrying amount of goodwill are presented below:


(In thousands)	~~Total~~Six Months Ended June 30, 2022
Balance at December 31, ~~2020~~2021	$	~~68,511,941~~80,257
~~Impairment loss~~Acquisition of Sealand Food, Inc.	—4,861
Balance at ~~September~~June 30, ~~2021~~2022	$	~~68,511,941~~85,118

The Company booked approximately $406.7 million of goodwill on December 31, 2019, resulting from the completion of the Business Combination with B&R Global, which represents the excess of the purchase price over the fair value of net assets acquired. HF Group acquired 100% of the controlling interest of B&R Global, in exchange for 30,700,000 consideration shares of HF Group Common Stock, valued at $576,699,494 based upon the closing share price of the Company’s common stock at the date of Closing on November 4, 2019. The Company's policy is to test goodwill for impairment at least annually, as of December 31, or whenever events or changes in circumstances indicate that goodwill might be impaired. Potential impairment indicators include (but are not limited to) macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit, or sustained decrease in share price.

Towards the end of first quarter of fiscal year 2020, the Company experienced a significant decline in business volume due to mandatory stay-at-home orders issued by governmental authorities in response to the escalation of the COVID-19 pandemic. The Company determined that the B&R Global reporting unit was very sensitive to these declines and that it was more likely than not that an impairment may exist. The Company, therefore, performed an analysis of the fair value of the B&R Global reporting unit as of March 31, 2020 using a discounted cash flow method for goodwill impairment testing purposes. Based upon the analysis, the Company concluded that the carrying value of its B&R Global reporting unit exceeded its fair value by approximately $338.2 million. As a result, the company recorded the amount as impairment loss during the first quarter of fiscal year 2020.

The Company estimated the fair values of the B&R Global reporting unit using the income approach, discounting projected future cash flows based upon management’s expectations of the current and future operating environment. The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital

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("WACC"), future revenue, profitability, perpetual growth rates and fair values of assets and liabilities. The fair value conclusions as of March 31, 2020 for the reporting unit are highly sensitive to changes in the WACC, which consider observable data about guidelines on publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization. The Company also observed that the WACC applied on March 31, 2020 increased significantly from the original WACC value as of the acquisition date, mainly driven by the increased risk and volatility observed in the market. Volatility had primarily been due to concerns about demand for food distribution services, as restaurant activity in much of the country had been reduced to takeout and delivery offerings. Continued uncertainty about the removal or perpetuation of these restrictions and levels of consumer spending cause ongoing volatility.

In addition, the fair value of the goodwill is sensitive to the changes in the assumptions used in the projected cash flows, which include forecasted revenues and perpetual growth rates, among others, all of which require significant judgment by management. The Company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future conditions, industry and global economic and geo-political factors, and the timing and success of the Company's implementation of current strategic initiatives.

~~The Company performed a qualitative goodwill impairment assessment and concluded no further impairment is required as of September 30, 2021.~~

Acquired Intangible Assets

In connection with the Business Acquisition of B&R Global, HF Group acquired $188,503,000 of intangible assets, representing tradenames and customer relationships, which have an estimated amortization period of approximately 10 years and 20 years, respectively. The components of the intangible assets are ~~as follows:~~presented below:


		As of September 30, 2021						As of December 31, 2020							June 30, 2022						December 31, 2021
		Gross Carrying Amount		Accumulated Amortization		Net Carrying amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
(In thousands)														(In thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Non-competition agreement														Non-competition agreement	$	3,893	$	(484)	$	3,409	$	2,407	$	—	$	2,407
Tradenames	Tradenames	$	29,303,000	$	(5,616,408)	$	23,686,592	$	29,303,000	$	(3,418,683)	$	25,884,317	Tradenames	44,256		(8,462)		35,794		39,833		(6,349)		33,484
Customer relationships	Customer relationships	159,200,000		(15,256,667)		143,943,333		159,200,000		(9,286,667)		149,913,333		Customer relationships	185,265		(22,234)		163,031		176,408		(17,247)		159,161
Developed technology														Developed technology	440		(440)		—		—		—		—
Total	Total	$	188,503,000	$	(20,873,075)	$	167,629,925	$	188,503,000	$	(12,705,350)	$	175,797,650	Total	$	233,854	$	(31,620)	$	202,234	$	218,648	$	(23,596)	$	195,052

~~The Company performed a qualitative long-lived asset impairment assessment and concluded no further impairment is required as of September 30, 2021.~~

~~HF Group’s amortization~~Amortization expense for intangible assets was ~~$2,722,575~~$4.0 million and ~~$8,167,725~~$2.7 million for the three months ended June 30, 2022 and ~~nine month periods ended September~~June 30, 2021, ~~and September 30, 2020,~~ respectively. ~~Estimated future amortization~~Amortization expense for intangible assets ~~is presented below:~~

Twelve months ending September 30, Amount
2022 $ 10,890,300
2023 10,890,300
2024 10,890,300
2025 10,890,300
2026 10,890,300
Thereafter 113,178,425
Total $ 167,629,925
was $7.6 million and $5.4 million for the six months ended June 30, 2022 and June 30, 2021, respectively. During the three months ended June 30, 2022, the Company impaired its acquired developed technology and recognized impairment expense of $0.4 million in distribution, selling and administrative expenses in the unaudited condensed consolidated statements of income and comprehensive income.

NOTE 89 - DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes interest rate swaps ("IRS") contracts for the sole purpose of mitigating interest rate fluctuation risk associated towith floating rate debt instruments (as defined in ~~Note 9 Line of Credit, and~~ Note 10 ~~Long-Term Debt)~~- Debt). The Company does not use any other derivative financial instruments for trading or speculative purposes.

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On August 20, 2019, HF Group entered into 2two IRS contracts with East West Bank (the "EWB IRS") for initial notional amounts of ~~$1.05~~$1.1 million and ~~$2.63~~$2.6 million, respectively. The EWB IRS contracts were entered into in conjunction with 2two mortgage term loans of corresponding ~~amount~~amounts that were priced at USD 1-month LIBOR (London Interbank Offering Rate) plus 2.25% per annum for the entire duration of the term loans. The EWB IRS contracts fixed the 2two term loans at ~~4.40%~~4.23% per annum until maturity in September 2029.

On December 19, 2019, HF Group entered into an IRS contract with Bank of America (the "BOA IRS") for an initial notional amount of ~~$2.74~~$2.7 million in conjunction with a newly contracted mortgage term loan of corresponding amount. The term loan was contracted at USD 1-month LIBOR plus 2.15% per annum, but was fixed at ~~5.80%~~4.25% per annum resulting from the corresponding BOA IRS contract. On December 19, 2021, the Company entered into the Second Amendment to Loan Agreement, which pegged the mortgage term loan to SOFR (Secured Overnight Financing Rate) + 2.5%. The BOA IRS was modified accordingly to fix the SOFR based loan to approximately 4.50%. The term loan and corresponding BOA IRS contract ~~matures~~mature in December 2029.

On June 24, 2020, HF Group entered into a forward starting IRS contract with JPJ.P. Morgan Chase Bank (the "JPM IRS") for a fixed ~~$80~~$80.0 million notional amount, effective from June 30, 2021 and expiring on June 30, 2025, as a means to partially hedge its existing floating rate loans exposure. On March 3, 2021, the Company unwound the JPM IRS. The contract was unwound with a view that 1-month LIBOR will continue to remain low in the foreseeable future despite the spike at the long end of the yield curve. The Company recorded a gain of approximately ~~$718,600~~$0.7 million in the ~~first quarter of~~three months ended March 31, 2021.

The Company evaluated the above mentioned interest rate swap contracts currently in place and did not designate those as cash flow hedges. Hence, the fair value change on the aforementioned interest rate swap contracts are accounted for and recognized as a change in fair value of interest rate swap contracts in the unaudited condensed consolidated statements of ~~operations.~~

income and comprehensive income (loss).

As of ~~September~~June 30, ~~2021 and~~2022, the Company determined that the fair value of the IRS contracts in an asset position was $0.3 million, which is included in other current assets in the unaudited condensed consolidated balance sheets. As of December 31, ~~2020,~~2021, the Company ~~has~~ determined that the fair value of the interest rate swap ~~obligations~~contracts in a liability position was ~~$341,165~~$0.3 million, which is included in accrued expenses and ~~$993,516, respectively.~~other liabilities in the unaudited condensed consolidated balance sheets. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in its assessment of fair value. The ~~interest rate swaps~~IRS are classified as Level ~~3 liabilities and~~2 in the fair value ~~was obtained from the respective counterparties.~~

hierarchy.

NOTE 910 - ~~LINE OF CREDIT~~DEBT

On November 4, 2019, the Company entered into a credit agreement with J.P. Morgan Chase Bank (the “JPM Credit Agreement”). The JPM Credit Agreement ~~provides~~provided for a ~~$100~~$100.0 million asset-secured revolving credit facility maturing on November 4, 2022, with an option to renew at the bank’s discretion. The revolving credit facility carries a floating interest rate that is pegged to 1-Month LIBOR + 1.375% per annum, and was collateralized by all assets of the Company and was also guaranteed by BRGR and the BRGR Subsidiaries, which BRGR Subsidiaries were subsequently acquired by the Company on January 17, 2020 (See Note 6 for additional information). The JPM Credit Agreement was later superseded by a Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") as described below.

On January 17, 2020, the Company ~~its wholly-owned subsidiary, B&R Global,~~ and certain of ~~the~~its wholly-owned subsidiaries and affiliates of the Company as borrowers, ~~(collectively with the Company, the “Borrowers”),~~ and certain material subsidiaries of the Company as guarantors, entered into the Second Amended Credit Agreement ("Second Amended Credit Agreement"). On December 31, 2021, the Company entered into the Consent, Waiver, Joinder and Amendment No. 3 to the Second Amended Credit Agreement with ~~JPMorgan,~~JP Morgan, as Administrative Agent, and certain lender parties thereto including Comerica Bank. The Second Amended Credit Agreement, ~~provides~~provided for (i) a ~~$100~~$100.0 million asset-secured revolving credit facility maturing on November 4, 2022 (the “Revolving Facility”), and (ii) a mortgage-secured term loan of $75.6 million ~~("Term~~(the "Term Loan"), and (iii) amendment to the referenced interest rate from 1-month LIBOR to 1-month Secured Overnight Financing Rate (“SOFR”) plus a credit adjustment of 0.1% (difference between LIBOR and SOFR plus 1.375% per annum).

The existing revolving credit facility balance ~~of $41.2 million~~ under the ~~First~~Second Amended Credit Agreement, was rolled over to the Revolving Facility on ~~January 17, 2020.~~December 30, 2021. On the same day, ~~B&R Global~~the Company utilized ~~the $75.6 million Term Loan and~~an additional ~~$18.7~~$33.3 million drawdown from the Revolving Facility to fund ~~in part~~ the ~~acquisition of the BRGR Subsidiaries which owned the 10 warehouse facilities which B&R Global had been leasing for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.~~Great Wall Acquisition. The Second Amended Credit Agreement, ~~contained~~as amended, contains certain financial covenants, including, but not limited to, a fixed charge coverage ratio and effective tangible net worth.

On March 31, 2022, the Company amended the JPM Credit Agreement extending the Revolver Facility for five years with a maturity date of November 4, 2027. The amendment provides 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 in the Term Loan from $69.0 million to $115.0 million with a 1-month SOFR plus a credit adjustment of ~~September~~0.1% plus 1.875% per annum, (the "2022 Credit Agreement"). In connection with the amendment, the Company incurred $0.6 million in financing fees, of which $0.5 million will be amortized over the life of the respective facilities. Additionally, $0.1 million of the unamortized financing fees related to the Revolving Facility has been deferred and will be amortized over the life of the Revolving Facility.

As of June 30, ~~2021,~~2022, the Company was in compliance with its covenants. Subsequent to June 30, 2022, the ~~covenants under~~Company's lenders consented to the ~~Second Amended Credit Agreement.~~delivery of the Company's 2021 audited financial statements on or before January 31, 2023. The outstanding principal balance on the line of credit as of ~~September~~June 30, ~~2021~~2022 was ~~$23.0~~$60.0 million.

~~Table of Contents~~

~~NOTE 10 - LONG-TERM DEBT~~Long-Term Debt

Long-term debt at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 is as follows:

Bank name Maturity Interest rate as of September 30,
2021 As of September 30,
2021 As of December 31,
2020
Bank of America – (a) October 2021 - December 2029 3.73% — 5.80% $ 5,374,589 $ 5,905,472
BMO Harris Bank N.A. – (b) April 2022 - January 2024 5.96% — 5.99% 153,991 280,164
East West Bank – (c) August 2027 - September 2029 4.25% — 4.40% 6,656,129 6,802,271
First Horizon Bank – (d) October 2027 3.85% 4,622,762 4,773,378
J.P. Morgan Chase – (e) February 2023 - January 2030 1.96% — 2.09% 71,759,021 74,687,806
Peoples United Bank – (b) December 2022 - January 2023 7.44% — 7.53% 473,967 725,282
Other finance institutions – (b) July 2022 - March 2024 3.90% — 6.14% 345,238 475,689
Total debt 89,385,697 93,650,062
Less: current portion (5,677,453) (5,641,259)
Long-term debt $ 83,708,244 $ 88,008,803


					(In thousands)
Bank Name	Maturity	Interest Rate as of June 30, 2022			June 30, 2022		December 31, 2021
Bank of America (a)	October 2022 - December 2029	3.73%	—	5.80%	$	4,700	$	5,134
East West Bank (b)	August 2027 - September 2029	4.25%	—	4.40%	5,906		5,994
First Horizon Bank (c)	Paid off in May 2022	—			—		4,571
J.P. Morgan Chase (d)	February 2023 - January 2030	3.02%	—	3.06%	114,605		70,866
Other finance institutions (e)	July 2022 - March 2024	3.90%	—	6.14%	261		838
Total debt, principal amount					125,472		87,403
Debt issuance costs					(323)		(35)
Total debt, carrying value					125,149		87,368
Less: current portion					(6,638)		(5,557)
Long-term debt					$	118,511	$	81,811

_______________

(a)Loan balance consists of real estate term loan, equipment term loans, and vehicle term loans, collateralized by one real property and specific equipment and vehicles. The real estate term is pegged to TERM SOFR + 2.5%.

(b)Real estate term loans with East West Bank are collateralized by four real properties. Balloon payments of $1.8 million and $2.9 million are due at maturity in 2027 and 2029, respectively.

(c)Secured by real property. During the three months ended June 30, 2022, the Company sold the real property for approximately $7.2 million to Enson Seafood (a related party), recognized a gain of $1.5 million, which is included in other income in the unaudited condensed consolidated statements of income and comprehensive income, and used a portion of the proceeds to pay the $4.5 million loan outstanding with First Horizon Bank.

(d)Real estate term loan with a principal balance of $113.9 million as of June 30, 2022 and $69.9 million as of December 31, 2021 is secured by assets held by the Company and has a maturity date of January 2030. Equipment term loan with a principal balance of $0.7 million as of June 30, 2022 and $1.0 million as of December 31, 2021 is secured by specific vehicles and equipment as defined in loan agreements. Equipment term loans mature in February 2023 and December 2023.

(e)Secured by vehicles.

The terms of the various loan agreements related to long-term bank borrowings require the Company to comply with certain financial ~~covenants.~~covenants, including, but not limited to, a fixed charge coverage ratio and effective tangible net worth. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company was in ~~compliance.~~

~~The loans outstanding were guaranteed by~~compliance with its covenants. Subsequent to June 30, 2022, the ~~following properties, entities or individuals, or otherwise secured as shown:~~

~~(a)~~Loan balance consists of real estate term loan, equipment term loans, and vehicle term loans. Collateral is provided by one real property owned by RNCH, specific equipment and vehicles owned by HFFI, RNCH, and BB.

~~(b)Secured by vehicles.~~

~~(c)Real estate term loans with East West Bank are collateralized by 4 real properties owned by R&N Holdings, R&N Lexington, and NSF. The loan~~Company's lenders consented to ~~R&N Holdings is guaranteed by 4 subsidiaries~~the delivery of the Company, Han Feng, TT, MFD, and R&N Lexington. The loan to R&N Lexington is guaranteed by 4 subsidiaries of the Company, Han Feng, TT, MFD, and R&N Holdings. The NSF loans are guaranteed by the Company. The R&N Holdings and R&N Lexington loans are also guaranteed by one shareholder and spouse. Balloon payments of 2,208,797 and 2,948,495 are due at maturity in 2027 and 2029, respectively.

~~(d)Guaranteed by Han Feng and the Company. Also secured by a real property owned by HG Realty. Balloon payment for this debt is $3,116,687 at maturity.~~

~~(e)Real estate term loan with a principal balance of $70,515,521 as of September 30,~~Company's 2021 is secured by assets held by nine subsidiaries of the Company, AK, BRR, BSR, FL, GSR, HP, LF, LR and MP. Equipment term loan with a principal balance of $1,243,500 as of September 30, 2021 is secured by specific vehicles and equipment as defined in loan agreements.

~~The future maturities of long-term debt as of September 30, 2021 are as follows:~~

Twelve months ending September 30, Amount
2022 $ 5,677,453
2023 4,810,956
2024 4,087,265
2025 4,040,985
2026 4,077,755
Thereafter 66,691,283
Total $ 89,385,697
audited financial statements on or before January 31, 2023..

NOTE 11 - ~~LEASES~~

~~Table of Contents~~

EARNINGS PER SHARE

The Company ~~leases office space, warehouses~~computes earnings per share (“EPS”) in accordance with ASC Topic 260 (“ASC 260”), Earnings per Share. ASC 260 requires companies with complex capital structures to present basic and ~~vacant land~~diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for ~~building development under non-cancelable operating leases, with terms ranging from~~ ~~one~~the period. Diluted EPS is similar to thirty years, as well as operating and finance leases for vehicles and delivery trucks, forklifts and computer equipment, with various expiration dates through 2050. The Company determines whether an arrangement is or includes an embedded lease at contract inception.

~~Operating lease assets and lease liabilities are recognized at commencement date and initially measured based on~~basic EPS, but presents the ~~present value of lease payments over the defined lease term. Lease expense is recognized~~dilutive effect on a ~~straight-line~~per share basis ~~over~~of potential common shares (e.g., convertible securities, options, warrants and restricted stock) as if they had been converted at the ~~lease term. For finance leases, the Company also recognizes finance lease assets and finance lease liabilities at inception, with lease expense recognized as interest expense and amortization~~beginning of the ~~lease payment.~~

~~Operating Leases~~

~~The components~~periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of ~~lease expense~~diluted EPS. There were ~~as follows:~~

For the Three Months Ended For the Nine Months Ended
September 30,
2021 September 30,
2020 September 30,
2021 September 30,
2020
Operating lease cost $ 648,979 $ 301,734 $ 1,120,526 $ 1,058,611
Weighted Average Remaining Lease Term (Months)
Operating leases 48 32 48 32
Weighted Average Discount Rate
Operating leases 3.11 % 4.05 % 3.11 % 4.05 %

~~Finance Leases~~

~~The components of lease expense were as follows:~~

For the Three Months Ended For the Nine Months Ended
September 30,
2021 September 30,
2020 September 30,
2021 September 30,
2020
Finance leases cost
Amortization of right-of-use assets $ 80,984 $ 139,687 $ 242,952 $ 419,060
Interest on lease liabilities 16,687 21,647 54,030 72,767
Total finance leases cost $ 97,671 $ 161,334 $ 296,982 $ 491,827

~~Supplemental cash flow information~~3,471 and 3,668 potential common shares related to ~~finance leases was as follows:~~

For the Three Months Ended For the Nine Months Ended
September 30,
2021 September 30,
2020 September 30,
2021 September 30,
2020
Operating cash flows from finance leases $ 16,687 $ 21,647 $ 54,030 $ 72,767

~~Supplemental balance sheet information related to leases was as follows:~~total shareholder return performance-based restricted stock units that were excluded from the calculation of diluted EPS for the three and six

2417

~~Table of Contents~~

September 30,
2021 December 31,
2020
Finance Leases
Property and equipment, at cost $ 10,421,383 $ 2,793,731
Accumulated depreciation (2,030,594) (1,831,318)
Property and equipment, net $ 8,390,789 $ 962,413
Weighted Average Remaining Lease Term (Months)
Finance leases 294 43
Weighted Average Discount Rate
Finance leases 6.17 % 7.56 %

~~Maturities of lease liabilities~~months ended June 30, 2022, respectively, because their effect would have been anti-dilutive. There were ~~as follows:~~

Twelve months ending September 30, Operating
Leases Finance
Leases
2022 $ 798,451 $ 728,921
2023 737,858 750,665
2024 556,952 706,431
2025 575,350 507,354
2026 415,778 480,986
Thereafter — 16,064,984
Total Lease Payments 3,084,389 19,239,341
Less Imputed Interest (386,685) (10,520,562)
Total $ 2,697,704 $ 8,718,779

On July 2, 2018, AnHeart Inc. ("AnHeart"), a former wholly-owned subsidiary of HF Holding, entered into 2 separate leases for 2 properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively. The leases were on a triple net basis, meaning AnHeart is required to pay all costs associated with the properties, including taxes, insurance, utilities, maintenance and repairs. HF Holding provided a corporate guaranty for all rent and related costs of the leases, including costs associated with the planned construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue. The Company entered into the leases with the planned purpose of expanding its product lines to include Chinese herb supplements, and to use the sites to develop into a hub for such products. The Company has since determined to cease this business expansion in early 2019.

~~On February 23, 2019, HF Holding executed an agreement to divest all of its ownership interest in AnHeart to Ms. Jianping An, a resident of New York,~~no anti-dilutive potential common shares for the sum of $20,000. The transfer of ownership was completed on May 2, 2019. However, the divestment does not release HF Holding’s guaranty of AnHeart’s obligations or liabilities under the original lease agreements. Under the terms of the sale of AnHeart stock to Ms. An,three and in consideration of the Company’s ongoing guaranty of AnHeart’s performance of the lease obligations, AnHeart granted to the Company a security interest in all AnHeart assets, together with a covenant that the Company will be assigned the leases, to be exercised if AnHeart defaults on the original lease agreements. Further, Ms. An has tendered an unconditional guaranty of all AnHeart liabilities arising from the leases in favor of the Company, executed by Minsheng Pharmaceutical Group Company, Ltd., a Chinese manufacturer and distributor of herbal medicines.

~~On February 10,~~six months ended June 30, 2021 273 Co, a newly established Delaware limited liability company and wholly owned subsidiary of the Company, entered into an Assignment and Assumption of Lease Agreement (“Assignment”), dated effective as of January 21, 2021, with AnHeart and Premier 273 Fifth, LLC ("Landlord"), pursuant to which it assumed the lease of the premises at 273 Fifth Avenue, New York, New York signed on July 2, 2018 (the “273 Lease Agreement”). At the same time, the closing documents were delivered to effectuate the amendment of the 273 Lease Agreement pursuant to an Amendment to Lease (the “Lease Amendment”). The Assignment and the 273 Lease Amendment were negotiated in light of guarantee obligations of the Company’s wholly owned subsidiary, HF Holding as guarantor under the Lease Agreement. 273 Co has agreed to observe all the covenants and conditions of the Lease Agreement, as amended, including the payment of all rents due. Under the terms of the Lease Agreement and the Assignment, 273 Co has undertaken to construct, at its own expense, a building on the premises, at a minimum cost of $2,500,000. The 273 Lease Agreement and the Lease Amendment provide for a term of 30 years, with an option to renew for 10 additional years, at an annual rent starting at $325,000 and escalating annually throughout the term, with

~~Table of Contents~~

the annual rent in the final year of the initial term of $1,047,974. The 273 Lease Amendment granted certain rent abatement to the premises for 2020 and 2021, including a 20% reduction of annual rent in 2021 subject to meeting certain conditions. The Lease Amendment permits subletting of the premises.

The ~~lease agreement related to 275 Fifth Avenue in~~following table sets forth the ~~name~~computation of ~~AnHeart~~basic and guaranteed by HF Holding, has a lease term of 15 years with the option to renew for 5 years on the 16th year and the 21st year at 3% annual rent increment. Annual rent started at $462,000 and escalating throughout the term, with annual rent in the final year of the initial term of $760,878. Annual property tax was estimated to be about $81,530. A total of $81,000 rent abatement related to Covid-19 was granted from April 2020 to December 2020.diluted EPS:

~~NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION~~

~~Supplemental cash flow disclosures and noncash investing and financing activities are as follows:~~

For the Nine Months Ended
September 30,
2021 September 30,
2020
Supplemental disclosure of cash flow data
Cash paid for interest $ 2,947,834 $ 3,220,447
Cash paid for income taxes $ 5,680,155 $ 517,573
Supplemental disclosure of non-cash investing and financing activities
Right of use assets obtained in exchange for operating lease liabilities $ 2,161,442 $ —
Property acquired via a finance lease $ 7,627,652 $ —
Property and equipment purchases from notes payable $ 257,450 $ 2,528,554
Issuance of promissory note for the acquisition of B&R Realty Subsidiaries $ — $ 7,000,000


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Numerator:
Net income attributable to HF Foods Group Inc.	$	4,564	$	3,407	$	7,678	$	4,765

Denominator:
Weighted-average common shares outstanding	53,706,392		51,913,411		53,706,392		51,913,411
Effect of dilutive securities	194,491		—		221,565		—
Weighted-average dilutive shares outstanding	53,900,883		51,913,411		53,927,957		51,913,411

Earnings per common share:
Basic	$	0.08	$	0.07	$	0.14	$	0.09
Diluted	$	0.08	$	0.07	$	0.14	$	0.09

NOTE 1312 - INCOME TAXES

~~Corporate Income Taxes (“CIT”)~~

~~On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law.~~ The ~~Act lowered~~determination of the Company’s ~~U.S. statutory federal~~overall effective income tax rate ~~from 35% to 21%~~requires the use of estimates. The effective ~~January 1, 2018, while also imposing a deemed repatriation~~income tax rate reflects the income earned and taxed in U.S. federal and various state jurisdictions based on ~~deferred foreign income. The Act also created a new minimum~~enacted tax ~~on certain future foreign earnings. The Company does not expect the repatriation~~law, permanent differences between book and tax ~~and new minimum~~items, tax ~~on certain future foreign earnings to have any impact on~~credits and the Company’s ~~operations since it currently has no foreign income and does not expect to generate any foreign~~change in relative income in ~~the future.~~

~~Table of Contents~~

~~(i)The provision for income taxes of the Company for the three~~each jurisdiction. Changes in tax laws and ~~nine months ended September 30, 2021 and 2020 consists of the following~~:

For the Three Months Ended For the Nine Months Ended
September 30,
2021 September 30,
2020 September 30,
2021 September 30,
2020
Current income taxes
Federal $ 2,721,816 $ 465,519 $ 5,571,759 $ 865,736
State 735,920 128,825 1,175,680 254,131
Current income taxes 3,457,736 594,344 6,747,439 1,119,867
Deferred income taxes (benefit)
Federal (662,283) (411,044) (1,925,015) (2,329,726)
State (158,009) (264,210) (200,675) (842,567)
Deferred income taxes (benefit) (820,292) (675,254) (2,125,690) (3,172,293)
Total provision (benefit) for income taxes $ 2,637,444 $ (80,910) $ 4,621,749 $ (2,052,426)

~~(ii)Temporary differences and carryforwards of the Company that created significant~~rates may affect recorded deferred tax assets and liabilities ~~are as follows:~~

As of September 30,
2021 As of December 31,
2020
Deferred tax assets
     Allowance for doubtful accounts $ 296,081 $ 443,151
     Inventories 680,411 481,016
     Federal net operating loss 128 101,828
     State net operating loss 5,203 257,490
     Fair value change in interest rate swap contracts 81,628 244,622
     Leases 104,503 —
     Accrued expenses 265,407 268,813
Total deferred tax assets 1,433,361 1,796,920
Deferred tax liabilities
     Property and equipment (2,314,639) (2,660,874)
     Intangibles assets (43,318,258) (45,461,272)
Total deferred tax liabilities (45,632,897) (48,122,146)
Net deferred tax liabilities $ (44,199,536) $ (46,325,226)

~~(iii)Reconciliations of~~and the ~~statutory income tax rate to the~~Company’s effective income tax rate ~~are~~in the future. The Company has no operations outside the U.S., as ~~follows:~~such, no foreign income tax was recorded.

For the Nine Months Ended
September 30,
2021 September 30,
2020
Federal statutory tax rate 21.0 % 21.0 %
State statutory tax rate 4.2 % 0.1 %
Impact of goodwill impairment loss - permanent difference — % (20.5) %
U.S. permanent difference 0.1 % — %
Others 0.1 % — %
Effective tax rate 25.5 % 0.6 %
For the three and six months ended June 30, 2022, the Company's effective income tax rate of 19.6% and 22.4%, respectively, differed from the federal statutory tax rate primarily as a result of state income taxes. For the three and six months ended June 30, 2021, the Company's effective income tax rate of 29.9% and 29.3% differed from the federal statutory tax rate primarily as a result of state income taxes.

~~Table of Contents~~

NOTE 1413 - RELATED PARTY TRANSACTIONS

The Company makes regular purchases from and sales to various related parties. Related party affiliations were attributed to transactions conducted between the Company and those business entities partially or wholly owned by the Company, the ~~Company~~Company's officers and/or ~~major shareholders.~~shareholders who owned no less than 10% shareholdings of the Company.

Certain related party transactions described in this note are among the issues that are being scrutinized as part of an ongoing internal investigation, and disclosures concerning particular transactions are subject to the outcome of, and conclusions that may ultimately be reached in, this ongoing investigation. Mr. Zhou Min Ni ("Mr. Ni") ~~and Mr. Xiao Mou Zhang ("Mr. Zhang") were~~, the Company's former Co-Chief Executive ~~Officers as of December 31, 2020. Mr. Ni~~Officer, resigned from all of his official posts ~~on February 23, 2021. Upon resignation, Mr. Ni directly owned 10.7% of outstanding shares of common stock of the Company. Mr. Zhang became the sole Chief Executive Officer~~ on February 23, 2021. Mr. Ni and his immediate family members are treated as related parties for purposes of this report because Mr. Ni is a principal holder ~~of more than 10%~~ of the Company's securities.

The Company has recently evaluated Mr. Zhang's ownership interest and his relationship with certain entities that were previously classified as related parties in prior financial statements. The Company noted that 4 entities with ownership ranging from 5.0% to 10%, mainly restaurants, were deemed not to be related parties. The Company noted that neither Mr. Zhang nor his family members manage or participate in daily operations of those entities, and exercise no influence over them. Hence, the Company concluded that those entities do not fall under the definition of related party and were excluded from the classification accordingly.

The Company also determined that its 12% ownership in Tamron (Note 4), accounted for using alternative measurement under ASC 321, did not meet the definition of related party due to the fact that the Company does not participate in Tamron's daily operations and holds no influence over it.

Further, the Company evaluated Mr. Ni's ownership interest and his relationship with certain entities that were previously classified as related parties in prior financial statements. The Company was informed that 2 entities that were previously owned by Mr. Ni, North Carolina Good Taste Noodle, Inc.(37.67%) and Hanfeng (Fujian) Information Technology Co., Ltd. (100%), were no longer related parties in nature. The Company was informed that (a) Mr. Ni had disposed of all his equity interests in North Carolina Good Taste Noodle, Inc. on January 1, 2020, and Hanfeng (Fujian) Information Technology Co., Ltd. on September 29, 2020, and (b) neither Mr. Ni nor his family members manage or participate in daily operations of those entities and exercise no influence over them after the disposal. Hence, the Company concluded that those entities no longer fall under the definition of("NC Noodle") is a related party ~~and were excluded from the classification accordingly. However,~~due to Mr. Jian Ming Ni's, a former Chief Financial Officer of the Company, has determined it is appropriate to disclose transactions with these entities until the conclusion of the independent investigation. Total purchases made by the Company from North Carolina Good Taste Noodle, Inc. during the three months ended September 30, 2021continued ownership interest in NC Noodle.

Revolution Industry and 2020, were $1.3 million and $1.0 million, respectively, and total purchases were $3.9 million and $2.7 million for the nine months ended September 30, 2021 and 2020, respectively. Accounts payable at September 30, 2021 and December 31, 2020 to North Carolina Good Taste Noodle, Inc. were $0.4 million and $0.6 million, respectively.UGO, are also considered Unconsolidated VIEs as discussed further in Note 3 – Variable Interest Entities.

The related party transactions as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 and for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 are identified as follows:

Related Party Sales and Purchases Transactions

The Company makes regular sales to and purchases from various related parties.

a.Purchase - related parties

Below is a summary of purchases of goods and services from related parties recorded for the three and six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively:

~~Table of Contents~~


			Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)		Nature	2022		2021		2022		2021
(a)	Best Food Services, LLC	Trade	$	3,546	$	2,497	$	6,491	$	3,487
(b)	Eastern Fresh NJ LLC	Trade	—		1,474		1,093		2,969
(c)	Enson Group, Inc. (formerly "Enson Group, LLC")	Trade	—		76		—		128
(d)	First Choice Seafood, Inc.	Trade	26		77		109		160
(e)	Fujian RongFeng Plastic Co., Ltd.	Trade	—		790		398		1,590
(f)	North Carolina Good Taste Noodle, Inc.	Trade	1,769		1,268		3,427		2,593
(g)	Ocean Pacific Seafood Group Inc.	Trade	141		208		277		339
(h)	Revolution Industry, LLC	Trade	—		—		—		259
(i)	UGO USA Inc.	Trade	—		—		—		242
	Other	Trade	53		70		85		154
	Total		$	5,535	$	6,460	$	11,880	$	11,921

Name of Related Party Three Months Ended
September 30, 2021 Three Months Ended
September 30, 2020
(a) Allstate Trading Company, Inc. $ — $ 23,897
(b) Best Food Services, LLC 2,737,885 1,231,399
(c) Eastern Fresh NJ, LLC 1,456,623 1,185,398
(d) Fujian RongFeng Plastic Co., Ltd 807,665 753,997
(e) Hanfeng (Fujian) Information Technology Co., Ltd. — 556,238
(f) Ocean Pacific Seafood Group, Inc. 113,886 150,035
(g) Revolution Industry, LLC — 655,789
(h) UGO USA, Inc. — 208,333
Others 161,408 107,359
Total $ 5,277,467 $ 4,872,445

_______________

(a)~~Mr. Ni owns 40% equity interest in this entity.~~

~~(b)~~Mr. Zhang previously owned ~~a 10.38%~~an equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to three Irrevocable Trusts for the benefit of Mr. Zhang's children effective November 1, 2020.

(b)Mr. Ni owns an equity interest in this entity.

(c)Mr. Ni owns ~~a 30%~~an equity interest in this entity.

(d)Mr. Ni owns ~~a 40%~~an equity interest in this entity indirectly through its parent company.

(e)Mr. Ni ~~previously owned 100% equity interest in this entity. Mr Ni disposed of his equity interest on September 29, 2020. Purchases for the three months ended September 30, 2021 were $0.4 million.~~

~~(f)Mr. Ni~~ owns ~~a 26% equity interest in this entity.~~

~~(g)Raymond Ni, one of Mr. Ni’s family members, owns 100% equity interest in this entity. On February 25, 2021, Han Feng executed~~ an asset purchase agreement to acquire the machinery and equipment of Revolution Industry, LLC ("RIL"). Han Feng has acquired substantially all of the operating assets used or held for use in such business operation for the amount of $250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of RIL. Advances due from RIL at the time of the transaction were an offset to the purchase price paid to RIL. Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with RIL.

~~(h)Mr. Ni owns a 30% equity interest in this entity.~~

~~Below is a summary of purchases from related parties for the nine months ended September 30, 2021 and 2020, respectively:~~

Name of Related Party Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
(a) Allstate Trading Company, Inc. $ — $ 308,865
(b) Best Food Services, LLC 6,225,024 4,204,084
(c) Eastern Fresh NJ, LLC 4,425,286 3,240,575
(d) Enson Group, Inc. (formerly "Enson Group, LLC") 127,577 58,515
(e) First Choice Seafood, Inc. 265,934 355,261
(f) Fujian RongFeng Plastic Co., Ltd 2,397,794 2,598,952
(g) Hanfeng (Fujian) Information Technology Co., Ltd. — 1,581,450
(h) N&F Logistics, Inc. 2,646 368,529
(i) Ocean Pacific Seafood Group, Inc. 452,312 383,211
(j) Revolution Industry, LLC 189,701 1,701,490
(k) UGO USA, Inc. 212,384 429,073
(l) Union Foods, LLC — 1,246,720
Others 216,192 122,073
Total $ 14,514,850 $ 16,598,798

~~Table of Contents~~

~~(a)Mr. Ni owns a 40% equity interest in this entity.~~

~~(b)~~Mr. Zhang previously owned a 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to three Irrevocable Trusts for the benefit of Mr. Zhang's children effective November 1, 2020.

~~(c)Mr. Ni owns a 30% equity interest in this entity.~~

~~(d)Mr. Ni owns a 25% equity interest in this entity.~~

~~(e)Mr. Ni owns a 25%~~ equity interest in this entity indirectly through its parent company.

(f)Mr. Jian Ming Ni, former Chief Financial Officer owns ~~a 40% equity interest in this entity indirectly through its parent company.~~

~~(g)Mr. Ni previously owned a 100% equity interest in this entity. Mr Ni disposed of his equity interest on September 29, 2020. Purchases for the nine months ended September 30, 2021 were $1.1 million.~~

~~(h)Mr. Ni owns a 25%~~an equity interest in this entity.

~~(i)~~(g)Mr. Ni owns ~~a 26%~~an equity interest in this entity.

~~(j)~~(h)Raymond Ni, one of Mr. Ni’s family members, owns ~~100%~~an equity interest in this entity. On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment of Revolution Industry, LLC ("RIL"). Han Feng has acquired substantially all of the operating assets used or held for use in such business operation for the amount of $250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of RIL. Advances due from RIL at the time of transaction were an offset to the purchase price paid to RIL. Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with RIL.

~~(k)~~(i)Mr. Ni owns ~~a 30%~~an equity interest in this entity.

~~(l)Tina Ni, one of Mr. Ni’s family members, owns a 30% equity interest in this entity. Anthony Zhang, one of Mr. Xiao Mou Zhang's family member, owns a 10% of equity interest in this entity.~~

b. Sales - related parties

Below is a summary of sales to related parties recorded for the three and six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively:


Name of Related Party				Three Months Ended September 30, 2021		Three Months Ended September 30, 2020
(a)		ABC Food Trading, LLC	(i)	$	714,819	$	371,162
										Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)								(In thousands)		2022		2021		2022		2021
~~(b)~~(a)	~~(b)~~(a)	Asahi Food, Inc.		185,437		144,479		~~(b)~~(a)	ABC Food Trading, LLC	$	1,070	$	506	$	2,262	$	1,220
~~(c)~~(b)	~~(c)~~(b)	Best Food Services, LLC		308,516		77,357		~~(c)~~(b)	Asahi Food, Inc.	188		223		369		341
~~(d)~~(c)	~~(d)~~(c)	Eagle Food Service, LLC		744,592		1,067,890		~~(d)~~(c)	Best Food Services, LLC	223		327		868		401
~~(e)~~(d)	~~(e)~~(d)	Eastern Fresh NJ, LLC		55,398		134,549		~~(e)~~(d)	Eagle Food Service, LLC	—		1,067		—		2,076
~~(f)~~(e)	~~(f)~~(e)	Enson Group, Inc. (formerly "Enson Group, LLC")		—		29,608		~~(f)~~(e)	Eastern Fresh NJ LLC	—		76		—		99
~~(g)~~(f)	~~(g)~~(f)	Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”)		17,676		9,097		~~(g)~~(f)	Enson Group, Inc. (formerly "Enson Group, LLC")	—		27		—		53
~~(h)~~(g)	~~(h)~~(g)	First Choice Seafood, Inc.		7,222		—		~~(h)~~(g)	Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”)	—		554		—		555
~~(i)~~(h)	~~(i)~~(h)	Heng Feng Food Services, Inc.		22,723		113,546		~~(i)~~(h)	First Choice Seafood Inc	9		8		18		82
~~(j)~~(i)	~~(j)~~(i)	N&F Logistics, Inc.		163,890		293,100		~~(j)~~(i)	Fortune One Foods, Inc.	14		—		14		—
(i)								(i)	Heng Feng Food Services, Inc.	—		65		—		105
(j)								(j)	N&F Logistics, Inc.	—		160		36		367
		Others		143,068		46,589			Other	—		73		—		177
Total				$	2,363,341	$	2,287,377
									Total	$	1,504	$	3,086	$	3,567	$	5,476

_______________

(a)Mr. Zhang previously owned an equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to three Irrevocable Trusts for the benefit of Mr. Zhang's children effective November 1, 2020.

(b)The Company, through its subsidiary MF, owns an equity interest in this entity.

(c)Mr. Zhang previously owned an equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to three Irrevocable Trusts for the benefit of Mr. Zhang's children effective November 1, 2020.

(d)Tina Ni, one of Mr. Ni’s family members, owns an equity interest in this entity indirectly through its parent company.

(e)Mr. Ni owns an equity interest in this entity.

(f)Mr. Ni owns an equity interest in this entity.

(g)Mr. Ni owns an equity interest in this entity.

(h)Mr. Ni owns an equity interest in this entity indirectly through its parent company.

(i)Mr. Ni owns an equity interest in this entity.

(j)Mr. Ni owns an equity interest in this entity.

c. Lease agreements - related parties

The Company leases various facilities to related parties.

The Company leased a ~~10.38%~~facility to UGO USA Inc. under an operating lease agreement which was mutually terminated by both parties effective April 1, 2021. No rental income was recorded for the three and six months ended June 30, 2022 and for the three months ended June 30, 2021. Rental income was $7,000 for the six months ended June 30, 2021 and is included in other income in the unaudited condensed consolidated statements of income and comprehensive income.

The Company leased a facility to iUnited Services, LLC ("iUnited"), which has been determined to be a related party due to the equity ownership interest in iUnited of Mr. Jian Ming Ni, the Company's former Chief Financial Officer. The lease agreement was terminated in connection with the sale of the facility on November 3, 2021. The building and related land was sold to iUnited for $1.5 million and a gain of $0.8 million. Rental income for the three and six months ended June 30, 2021 was $15,000 and $30,000, respectively, which is included in other income in the consolidated statements of income and comprehensive income.

The Company leased a production area to Revolution Industry, LLC under a month-to-month lease agreement. This lease agreement was terminated as a result of the asset purchase agreement executed on February 25, 2021. No rental income was recorded for the three and six months ended June 30, 2022 and the three months ended June 30, 2021. Rental income was $6,000 for the six months ended June 30, 2021 and is included in other income in the unaudited condensed consolidated statements of income and comprehensive income.

The Company leased a warehouse to Enson Seafood GA Inc. (formerly “GA-GW Seafood, Inc.”) under an operating lease agreement expiring on September 21, 2027. During the three months ended June 30, 2022, the Company sold the warehouse to Enson Seafood GA Inc. (see Note 10 - Debt for additional information). Rental income for three months ended June 30, 2022 and 2021 was $120,000 and $120,000, respectively, and is included in other income in the unaudited condensed consolidated statements of income and comprehensive income. Rental income for the six months ended June 30, 2022 and 2021 was $200,000 and $240,000, respectively, and is included in other income in the unaudited condensed consolidated statements of income and comprehensive income.

In 2020, the Company renewed a warehouse lease from Yoan Chang Trading Inc. ("Yoan") under an operating lease agreement expiring on December 31, 2020. In February 2021, the Company executed a new 5-year operating lease agreement with Yoan effective January 1, 2021 and expiring on December 31, 2025. Rent incurred was $72,000 and $77,000 for the three months ended June 30, 2022 and 2021, respectively, and is included in distribution, selling and administrative expenses in the unaudited condensed consolidated statements of income and comprehensive income. Rent incurred to the related party was $144,000 and $155,000 for the six months ended June 30, 2022 and 2021, respectively, and is included in distribution, selling and administrative expenses in the unaudited condensed consolidated statements of income and comprehensive income.

Related Party Balances

a.Accounts receivable - related parties, net

Below is a summary of accounts receivable with related parties recorded as of June 30, 2022 and December 31, 2021, respectively:


(In thousands)		June 30, 2022		December 31, 2021
(a)	ABC Food Trading, LLC	$	492	$	76
(b)	Asahi Food, Inc.	205		72
(c)	Best Food Services, LLC	126		1
	Other	55		100
	Total	$	878	$	249

_______________

(a)Mr. Zhang previously owned an equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr. Zhang's children effective November 1, 2020.

(b)The Company, through its subsidiary MF, owns ~~a 49%~~an equity interest in this entity.

(c)Mr. Zhang previously owned ~~a 10.38%~~an equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr. Zhang's children effective November 1, 2020.

~~(d)Tina Ni, one~~All accounts receivable from these related parties are current and considered fully collectible. No allowance is deemed necessary as of ~~Mr. Ni’s family members, owns a 26.5% equity interest in this entity indirectly through its parent company.~~June 30, 2022 and December 31, 2021.

~~(e)Mr. Ni owns a 30% equity interest in this entity.~~b. Accounts payable - related parties, net

~~(f)Mr. Ni owns a 25% equity interest in this entity.~~

~~Table of Contents~~

~~(g)Mr. Ni owns a 50% equity interest in this entity.~~

~~(h)Mr. Ni owns a 25% equity interest in this entity indirectly through its parent company.~~

~~(i)Mr. Ni owns a 45% equity interest in this entity.~~

~~(j)Mr. Ni owns a 25% equity interest in this entity.~~

All the accounts payable to related parties are payable upon demand without interest. Below is a summary of ~~sales to~~accounts payable with related parties recorded ~~for the nine months ended September~~as of June 30, ~~2021~~2022 and ~~2020,~~December 31, 2021, respectively:

Name of Related Party Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
(a) ABC Food Trading, LLC $ 1,935,031 $ 1,419,460
(b) Asahi Food, Inc. 526,570 365,669
(c) Best Food Services, LLC 709,308 258,046
(d) Eagle Food Service, LLC 2,820,613 3,504,915
(e) Eastern Fresh NJ, LLC 154,736 1,583,842
(f) Enson Group, Inc. (formerly "Enson Group, LLC") 53,113 302,360
(g) Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”) 572,625 49,313
(h) First Choice Seafood, Inc. 89,366 1,378,208
(i) Heng Feng Food Services, Inc. 127,577 640,732
(j) N&F Logistics, Inc. 531,023 846,342
Others 319,547 486,991
Total $ 7,839,509 $ 10,835,878


(In thousands)		June 30, 2022		December 31, 2021
(a)	Best Food Services, LLC	$	1,483	$	699
(b)	Eastern Fresh NJ, LLC	18		581
(c)	North Carolina Good Taste Noodle, Inc.	556		595
	Other	44		66
	Total	$	2,101	$	1,941

_______________

(a)Mr. Zhang previously owned ~~a 10.38%~~an equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr. Zhang's children effective November 1, 2020.

(b)~~The Company, through its subsidiary MF,~~Mr. Ni owns ~~a 49%~~an equity interest in this entity.

(c)Mr. Zhang previously owned a 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr. Zhang's children effective November 1, 2020.

~~(d)Tina~~Jian Ming Ni, ~~one of Mr. Ni’s family members,~~former Chief Financial Officer owns ~~a 26.5% equity interest in this entity indirectly through its parent company.~~

~~(e)Mr. Ni owns a 30%~~an equity interest in this entity.

~~(f)Mr. Ni owns a 25% equity interest in this entity.~~

~~(g)Mr. Ni owns a 50% equity interest in this entity.~~

~~(h)Mr. Ni owns a 25% equity interest in this entity indirectly through its parent company.~~

~~(i)Mr. Ni owns a 45% equity interest in this entity.~~

~~(j)Mr. Ni owns a 25% equity interest in this entity.~~

~~c. Lease agreements - related parties~~

~~The Company leases various facilities to related parties.~~

R&N Holdings leased a facility to UGO USA Inc. under an operating lease agreement which was mutually terminated by both parties effective April 1, 2021. Rental income for the three months ended September 30, 2021 and 2020 was nil and $10,500, respectively, and the ~~nine~~ ~~months ended September 30, 2021 and 2020 was $7,000 and $31,500, respectively.~~

HG Realty leases a warehouse to Enson Seafood GA Inc. (formerly “GA-GW Seafood, Inc.”) under an operating lease agreement expiring on September 21, 2027. Rental income for the three months ended September 30, 2021 and 2020 was $120,000 and $120,000, respectively, and the ~~nine~~ ~~months ended September 30, 2021 and 2020 was $360,000 and $360,000, respectively.~~

B&R Global leased warehouses from related parties owned by the majority shareholder of B&R Global prior to the Realty Acquisition on January 17, 2020. Before the acquisition of the BRGR Subsidiaries, the CEO of the Company, Xiao Mou Zhang,

3121

~~Table of Contents~~

~~managed and owned 8.91% interest in BRGR. Rent incurred to the related parties from January 1, 2020 to January 16, 2020 was $187,750.~~

In 2020, Kirnland renewed a warehouse lease from Yoan Chang Trading Inc. ("Yoan") under an operating lease agreement expiring on December 31, 2020. In February 2021, Kirnland executed a new 5-year operating lease agreement with Yoan effective January 1, 2021 and expiring on December 31, 2025. Rent incurred to the related party was $77,428 and $40,000 for the three months ended September 30, 2021 and 2020, respectively, and $232,284 and $100,000 for the ~~nine~~ ~~months ended September 30, 2021 and 2020, respectively.~~

~~Related Party Balances~~

a.~~Accounts receivable - related parties, net~~

~~Below is a summary of accounts receivable with related parties recorded as of September 30, 2021 and December 31, 2020, respectively:~~

Name of Related Party As of September 30,
2021 As of December 31,
2020
(a) ABC Food Trading, LLC $ 326,093 $ 18,816
(b) Asahi Food, Inc. 130,946 68,766
(c) Best Food Services, LLC — 1,250
(d) Eagle Food Service, LLC 250,054 697,538
(e) Eastern Fresh NJ, LLC 58,500 —
(f) Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”) 82,816 325,596
(g) Fortune One Foods, Inc. 48,352 36,250
(h) N&F Logistics, Inc. 56,891 113,247
Others 578 —
Total $ 954,230 $ 1,261,463

~~(a)~~Mr. Zhang previously owned a 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr. Zhang's children effectiveNovember 1, 2020.

~~(b)The Company, through its subsidiary MF, owns a 49% equity interest in this entity.~~

~~(c)~~Mr. Zhang previously owned a 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr. Zhang's children effective November 1, 2020.

~~(d)Tina Ni, one of Mr. Ni’s family members, owns a 26.5% equity interest in this entity indirectly through its parent company.~~

~~(e)Mr. Ni owns a 30% equity interest in this entity.~~

~~(f)Mr. Ni owns a 50% equity interest in this entity.~~

~~(g)Mr. Ni owns a 17.5% equity interest in this entity indirectly through its parent company.~~

~~(h)Mr. Ni owns a 25% equity interest in this entity.~~

~~All accounts receivable from these related parties are current and considered fully collectible. No allowance is deemed necessary as of September 30, 2021 and December 31, 2020.~~

~~b. Accounts payable - related parties, net~~

All the accounts payable to related parties are payable upon demand without interest. Below is a summary of accounts payable with related parties recorded as of September 30, 2021 and December 31, 2020, respectively:

~~Table of Contents~~

Name of Related Party As of September 30,
2021 As of December 31,
2020
(a) Best Food Services, LLC $ 737,432 $ 588,920
(b) Eastern Fresh NJ, LLC 523,734 427,795
(c) Enson Group, Inc. (formerly "Enson Group, LLC") — 25,368
(d) Fujian RongFeng Plastic Co., Ltd 1,183,655 69,429
(e) Hanfeng Information Technology (Jinhua), Inc. — 107,258
(f) Heng Feng Food Services, Inc. — 116,436
(g) UGO USA, Inc. — 211,003
Others 55,051 26,218
Total $ 2,499,872 $ 1,572,427

~~(a)~~Mr. Zhang previously owned a 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. Thod equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr. Zhang's children effective November 1, 2020.

~~(b)Mr. Ni owns a 30% equity interest in this entity.~~

~~(c)Mr. Ni owns a 25% equity interest in this entity.~~

~~(d)Mr. Ni owns a 40% equity interest in this entity indirectly through its parent company.~~

~~(e)Mr. Ni owns a 37% equity interest in this entity.~~

~~(f)Mr. Ni owns a 45% equity interest in this entity.~~

~~(g)Mr. Ni owns a 30% equity interest in this entity.~~

c. Advances to suppliers - related parties, net

The Company periodically provides purchase advances to various vendors, including the related party suppliers.

~~Below is a summary of~~ There were no advances to related party suppliers recorded as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, respectively:~~

~~Name of Related Party~~

As of September 30,
2021

As of December 31,
2020

~~(a)~~

~~Ocean Pacific Seafood Group, Inc.~~

—

~~7,101~~

~~(b)~~

~~Revolution Industry, LLC~~

—

~~189,702~~

~~Total~~

—

~~196,803~~

~~(a)Mr. Ni owns a 26% equity interest in this entity.~~

~~(b)~~Raymond Ni, one of Mr. Ni’s family members, owns 100% equity interest in this entity. On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment of Revolution Industry, LLC ("RIL"). Han Feng has acquired substantially all of the operating assets used or held for use in such business operation for the amount of $250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of RIL. Advances due from Revolution at the time of transaction were an offset to the purchase price paid to RIL. Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with RIL.2021.

d.Promissory note payable - related party

~~B&R Global~~The Company issued a $7.0 million Unsecured Subordinated Promissory Note to BRGR (a related party via ownership by certain shareholders of the Company, and a former VIE through 2020) in January 2020 as part of the payment for the acquisition of ~~the BRGR Subsidiaries (Refer to Note 6).~~BRGR. The note ~~matures~~was to mature in January 2030 and ~~carries~~carried a fixed interest rate of 6% per annum. There iswas no requirement to make principal repayments until maturity. ~~There is no prepayment penalty should~~During the three months ended June 30, 2022, the Company ~~elect to prepay~~paid the ~~principal prior to maturity, subject to meeting certain repayment provisions as defined in~~remaining $4.5 million of the ~~JPM Credit Agreement. At September 30, 2021, the outstanding balance was $5.0 million~~Unsecured Subordinated Promissory Note. Interest payments paid were $62,000 and ~~accrued interest payable was nil. Principal and interest payments made were $500,000 and $84,333~~$97,000 for the three months ended ~~September~~June 30, 2022 and 2021, respectively. Interest payments paid were $129,000 and ~~$2,000,000 and $281,825~~$197,000 for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, respectively.

~~Table of Contents~~

NOTE 1514 - STOCK-BASED COMPENSATION

~~The~~In July 2021, the Company ~~has a stock-based employee compensation plan, known as~~began issuing awards under the HF Foods Group Inc. 2018 Omnibus Equity Incentive Plan (the “2018 Incentive Plan”)~~. The 2018 Incentive Plan caters for~~, which reserves up to 3,000,000 shares of the Company's common stock ~~reserved~~ for issuance of awards to employees, non-employee directors and consultants. The Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, other stock awards, and performance awards that may be settled in stock, or other property. The Company began issuing awards under the Plan in July of 2021.

As of ~~September~~June 30, ~~2021,~~2022, the Company had ~~350,439~~353,439 time-based vesting restricted stock units (“RSUs”) outstanding, ~~143,277~~119,396 performance-based restricted stock units (“PSUs”) outstanding, and ~~2,506,284~~2,496,963 shares remaining available for future awards under the 2018 Incentive Plan.

~~RSUs granted to employees vest over time based on continued service (vesting over a period between~~ ~~one~~ to three years in equal installments). PSUs granted to employees vest based on (i) the attainment of certain financial metrics, as defined by the Company's compensation committee (“Financial PSUs”) and (ii) total shareholder return of the Company’s common stock (“TSR PSUs”). Both types of PSUs vest over 3 equal installments beginning from April 1, 2022 to April 1, 2024 based on the performance metrics established for each year and also require continued service for vesting.

~~A summary of RSU and PSU activity for the three-month period ended September 30, 2021 is as follows:~~

Shares Weighted Average Grant Date Fair Value
Unvested RSUs at June 30, 2021 — $ —
Granted 352,761 5.17
Forfeited 2,322 5.17
Vested — —
Unvested RSUs at September 30, 2021 350,439 $ 5.17

Shares Weighted Average Grant Date Fair Value
Unvested PSUs at June 30, 2021 — $ —
Granted 143,277 3.82
Forfeited — —
Vested — —
Unvested PSUs at September 30, 2021 143,277 $ 3.82

The Company accounts for stock-based compensation in accordance with ASC 718 Compensation - Stock Compensation (“ASC 718”). ASC 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans and stock incentive shares. The fair value of the RSUs and Financial PSUs are measured using the closing price of the Company’s common stock on NASDAQ Global Capital Market on the date preceding grant date. The fair value of the TSR PSUs are determined using the Monte-Carlo simulation model.

~~The assumptions used to estimate the fair value of the TSR PSUs granted during~~For the three and six months ended ~~September~~June 30, ~~2021 and valued under the Monte Carlo simulation model were as follows:~~

~~Table of Contents~~

PSUs awarded July 8, 2021 PSUs awarded September 8, 2021
Risk-free interest rate 0.32% - 0.34%
Expected dividend yield —%
Expected term (years) 2.56 - 2.73
Expected volatility (1) 64.26% - 65.74%

(1) Expected volatility is based on a 50/50 blending of (i) the average historical volatility of a select group of industry peers with a look-back period equal to the expected term, and (ii) the historical volatility of the Company with a look-back period of 1.17 years, the time from the valuation date to the date six months after the completion of the merger with B&R Global, using daily stock prices. The expected volatility of peer companies was 62.42% – 63.45%. The expected volatility of our common stock was 66.10% – 68.03%.

We amortize the fair value of RSUs on a straight-line basis over the requisite service period for each award. For the PSUs, the Company recognizes stock-based compensation expenses on a straight-line basis for each vesting tranche over the longer of the derived, explicit, or implicit service period for the vesting tranche. As of interim and annual reporting periods, the Financial PSUs2022, stock-based compensation expense ~~is adjusted based on expected achievement of performance targets, while TSR PSUs stock-based compensation expense is not adjusted. The Company recognizes forfeitures as they occur.~~

~~Stock-based compensation is~~was $0.2 million and $0.5 million, respectively, and was included in distribution, selling and administrative expenses in ~~our Condensed Consolidated Statements~~the Company's unaudited condensed consolidated statements of ~~Operations. The components of~~income and comprehensive income. No stock-based compensation expense was recognized for ~~the three-month periods~~three and six months ended ~~September~~June 30, ~~2021 and 2020 were as follows:~~

Three Months Ended
September 30, 2021

Three Months Ended
September 30, 2020

~~Stock-based compensation (RSUs) expense~~

~~Ocean Pacific Seafood Group, Inc.~~

~~159,078~~

—

~~Stock-based compensation (PSUs) expense~~

~~Revolution Industry, LLC~~

~~46,355~~

—

~~Total stock-based compensation expense~~

~~205,433~~

—

~~Tax Benefit of stock-based compensation expense~~

~~50,282~~

—

2021.

As of ~~September~~June 30, ~~2021,~~2022, there was ~~$2,045,560~~$1.4 million of total unrecognized compensation cost related to all non-vested outstanding RSUs and PSUs outstanding under the ~~Plan. Of the total unrecognized compensation cost, $1,544,447 is related to RSUs~~2018 Incentive Plan, with ~~time-based vesting provisions and $501,113 is related to PSUs with performance and market-based vesting provisions.~~

~~NOTE 16 - SEGMENT REPORTING~~

~~ASC 280,~~ ~~Segment Reporting~~ ~~establishes standards for reporting information about operating segments on~~ a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s operating decision makers for making operational decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the operating decision makers, review operation results by the revenueweighted average remaining service period of ~~different customers.~~

On February 23, 2021, former co-CEO Zhou Min Ni resigned and Xiao Mou Zhang assumed the role of sole CEO. As a result, the Company reassessed its performance evaluation process and determined 2 relevant reporting segments - sales to independent restaurants and wholesale. Frequency, volume and profit margins are uniquely different between the 2 reporting segments. Segment reporting for the three and nine months ended September 30, 2020 were recast below.

~~Table of Contents~~

~~All the Company's revenue was generated from its business operation in the U.S.~~

~~The following table presents net sales by segment for the three and nine month periods ended September 30, 2021 and 2020, respectively:~~

For the Three Months Ended For the Nine Months Ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Net revenue
Sales to independent restaurants $ 207,559,475 $ 134,167,324 $ 548,116,720 $ 400,060,302
Wholesale 7,982,574 5,751,618 20,353,393 20,222,072
Total $ 215,542,049 $ 139,918,942 $ 568,470,113 $ 420,282,374

For the Three Months Ended September 30, 2021
Sales to Independent Restaurants Wholesale Total
Revenue $ 207,559,475 $ 7,982,574 $ 215,542,049
Cost of revenue $ 166,638,813 $ 6,991,268 $ 173,630,081
Gross profit $ 40,920,662 $ 991,306 $ 41,911,968
Depreciation and amortization $ 4,879,618 $ 187,666 $ 5,067,284
Cash capital expenditures $ 825,473 $ 31,747 $ 857,220

For the Three Months Ended September 30, 2020
Sales to Independent Restaurants Wholesale Total
Revenue $ 134,167,324 $ 5,751,618 $ 139,918,942
Cost of revenue $ 109,339,945 $ 5,416,139 $ 114,756,084
Gross profit $ 24,827,379 $ 335,479 $ 25,162,858
Depreciation and amortization $ 4,285,909 $ 183,733 $ 4,469,642
Cash capital expenditures $ 192,089 $ 8,235 $ 200,324
1.97 years.

For the Nine Months Ended September 30, 2021
Sales to Independent Restaurants Wholesale Total
Revenue $ 548,116,720 $ 20,353,393 $ 568,470,113
Cost of revenue $ 442,864,604 $ 19,129,646 $ 461,994,250
Gross profit $ 105,252,116 $ 1,223,747 $ 106,475,863
Depreciation and amortization $ 13,137,213 $ 487,625 $ 13,624,838
Cash capital expenditures $ 1,465,877 $ 55,010 $ 1,520,887

~~Table of Contents~~

For the Nine Months Ended September 30, 2020
Sales to Independent Restaurants Wholesale Total
Revenue $ 400,060,302 $ 20,222,072 $ 420,282,374
Cost of revenue $ 326,484,372 $ 19,047,315 $ 345,531,687
Gross profit $ 73,575,930 $ 1,174,757 $ 74,750,687
Depreciation and amortization $ 12,831,153 $ 648,583 $ 13,479,736
Cash capital expenditures $ 391,216 $ 19,072 $ 410,288

~~The following table presents total assets by reportable segment as of September 30, 2021 and December 31, 2020, respectively:~~

As of September 30,
2021 As of December 31,
2020
Total assets:
Sales to independent restaurants $ 496,082,096 $ 456,721,529
Wholesale 18,421,175 27,506,076
Total Assets $ 514,503,271 $ 484,227,605

~~All of the Company’s long-lived assets are located in the US.~~

NOTE 1715 - ~~COMMITMENT~~COMMITMENTS AND CONTINGENCIES

From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. ~~With respect~~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 ~~outstanding legal matters, we believe that~~business. There also exists the ~~amount or estimable range~~possibility of ~~reasonably possible loss will not, either individually or in the aggregate, have~~ a material adverse effect on our ~~business, consolidated~~ financial ~~position, results~~statements for the period in which the effect of ~~operations,~~an unfavorable outcome becomes probable and reasonably estimable.

On May 20, 2022, the Board of Directors of HF Group received a letter from a purported stockholder, James Bishop (the “Bishop Demand”). 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 ~~cash flows. However,~~former officers and directors. Many of the outcome of litigation is inherently uncertain. Therefore, if one or more of these ordinary-course legal matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period, could be materially adversely affected.

~~As previously disclosed and also highlighted in Note 1, in March 2020, a short-seller report suggested certain improprieties~~allegations contained in the ~~Company’s operations. These allegations became~~Bishop Demand were the subject of ~~2 putative stockholder class actions~~a shareholder derivative action that Bishop filed ~~on or~~in August 2020 (the “Bishop Derivative Action”). On November 24, 2021, after ~~March 29, 2020 in~~ the United States District Court for the Central District of California generally alleging 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 (the “Class Actions”). After the second putative stockholderdismissed with prejudice a related securities class action, captioned Mendoza v. HF Foods Group Inc. et al., the Bishop Derivative Action was filed, the Class Actions were consolidated. On January 19, 2021, the Company and the director and officer defendants filed a Motion to Dismiss the consolidated Class Actions. On August 25, 2021, the Court granted the Motion to Dismiss with leave to amend the complaint. The Plaintiff elected not to amend his complaint, and the Court entered Judgment in favor of the Company and the director and officer defendants on September 20, 2021. The Court’s decision was not appealed, and the Class Actions are now closed.

The Company was likewise named a nominal defendant and certain of the Company's current and former directors and officers were named as defendants in a shareholder derivative lawsuit filed on June 15, 2020, in the United States District Court for the Central District of California. The complaint makes similar allegations as the Class Actions and alleges violations of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. A second virtually identical shareholder derivative lawsuit was filed on August 21, 2020 in the United States District Court for the District of Delaware. On November 19, 2020, the District Court for the District of Delaware transferred the second-filed derivative lawsuit to the District Court for the Central District of California. The derivative lawsuits were stayed pending the deadline to file a notice of appeal in the Class Actions. The Company intends to vigorously defend the derivative lawsuits. See Note 18-Subsequent Eventsvoluntarily dismissed without prejudice.

3722

~~Table of Contents~~

~~In response~~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 ~~March 2020 short-seller report,~~Bishop Demand in order to determine whether the ~~Company's Board~~Company should assert any claims against the current or former officers and directors.

On August 19, 2022, James Bishop filed a verified stockholder derivative complaint in the Court of ~~Directors appointed~~Chancery of the State of Delaware (the “Delaware Action”), which asserts similar allegations to those set forth in the Bishop Demand. 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.

The Special Litigation Committee is in the process of ~~Independent Directors to conduct an internal independent investigation with~~analyzing and evaluating the ~~assistance~~claims alleged in the Bishop Demand and Delaware Action, and has not determined whether any claims should be asserted or the probability of ~~counsel (the “Special Committee”).~~recovery for such claims.

In addition, the SEC initiated a formal, non-public investigation of the Company, and the SEC informally requested, and later issued a subpoena for, documents and other information. The subpoena relates to but is not necessarily limited to the matters identified in the ~~Class Actions.~~two putative class actions which were subsequently dismissed. The Special Investigation Committee and the Company are cooperating with the SEC. ~~The~~While the SEC ~~and~~investigation is ongoing, the Special Committee investigations are ongoing. There have been no changes to the status of these proceedings as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Refer to Independent Investigation ~~Update in Note 1.~~

~~While the Special~~ Committee has ~~reached no final conclusions in conjunction with its~~made certain factual findings based on evidence adduced during the investigation ~~it has~~and made ~~a number of~~ 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. See the Company's 2021 Annual Report for additional information on the findings of the Special Investigation Committee.

As with any SEC investigation, there is also the possibility of potential fines and penalties. At this time, however, there has not been any demand made by the SEC nor is it possible to estimate the amount of any such fines and penalties should they occur.

AnHeart Lease Guarantee

As discussed in Note 3 - Variable Interest Entities, the Company provided a guarantee for two separate leases for two properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively.

On February 10, 2021, the Company entered into an Assignment and Assumption of Lease Agreement (“Assignment”), dated effective as of January 21, 2021, with AnHeart and Premier 273 Fifth, LLC, pursuant to which it assumed the lease of the premises at 273 Fifth Avenue (the “273 Lease Agreement”). At the same time, the closing documents were delivered to effectuate the amendment of the 273 Lease Agreement pursuant to an Amendment to Lease (the “Lease Amendment”). The Assignment and the Lease Amendment were negotiated in light of the Company’s guarantee obligations as guarantor under the 273 Lease Agreement. The Company agreed to observe all the covenants and conditions of the Lease Agreement, as amended, including the payment of all rents due. Under the terms of the 273 Lease Agreement and the Assignment, the Company has undertaken to construct, at its own expense, a building on the premises at a minimum cost of $2.5 million. The Lease Amendment permits subletting of the premises, and the Company intends to sublease the newly constructed premises to defray the rental expense undertaken pursuant to its guaranty obligations.

On January 17, 2022, the Company received notice that AnHeart had defaulted on its obligations as tenant under the lease for 275 Fifth Avenue. On February 7, 2022, the Company undertook its guaranty obligations by assuming responsibility for payment of monthly rent and other tenant obligations, including past due rent as well as property tax obligations beginning with the January 2022 rent due. On February 25, 2022, the Company instituted a legal action to pursue legal remedies against AnHeart and Minsheng. In March 2022, the Company agreed to stay litigation against AnHeart in exchange for AnHeart's payment of certain back rent from January to April 2022 and its continued partial payment of monthly rent. While the case remains pending in New York, the Company is not actively litigating the claim.

In accordance with ASC 460, Guarantees, the Company has determined that its maximum exposure resulting from the 275 Fifth Avenue lease guarantee includes future minimum lease payments plus potential additional payments to satisfy maintenance, property tax and insurance requirements under the leases with a remaining term of approximately 11 years. The Company elected a policy to apply the discounted cash flow method to loss contingencies with more than 18 months of payments. During the three months ended March 31, 2022, the Company recorded a lease guarantee liability of $5.9 million. The Company determined the discounted value of the lease guarantee liability was $5.9 million as of March 31, 2022 using a discount rate of 4.55% and is classified as Level 2 in the fair value hierarchy. The current portion of the lease guarantee liability of $0.3 million is recorded in Accrued expenses and other liabilities on the condensed consolidated balance sheet. The

Company's monthly rental payments, which commenced during the three months ended March 31, 2022, range from approximately $42,000 per month to $63,000 per month, with the final payment due in 2034.

The ~~Company has also instituted structural changes including the retirement~~estimated future minimum lease payments as of the former Co-Chief Executive Officer and Chairman of the Board. The Company now has an independent Chairman of the Board. In addition, the Company hired an in-house General Counsel and Chief Compliance Officer who joined the Company on September 8, 2021 and who reports to the Chief Executive Officer and the Chairman of the Board.June 30, 2022 are presented below:



(In thousands)	Amount
Year Ending December 31,
2022 (remaining six months)	$	254
2023	543
2024	582
2025	604
2026	621
Thereafter	5,116
Total	7,720
Less: Imputed interest	(1,838)
Total	$	5,882

NOTE 16 - SUBSEQUENT EVENTS

~~NOTE 18~~See Note 10 - Debt - ~~SUBSEQUENT EVENTS~~

~~The Company evaluated subsequent events through November 15, 2021, which is~~regarding the ~~date~~Company's waiver received related to the ~~financial statements were available to be issued.~~

~~On November 5, 2021, the first~~timing of the 2 derivative shareholder lawsuits described in Note 17, above, was dismissed voluntarily by the plaintiff. On November 12, 2021, the stay of the proceedings in the second shareholder derivative case was lifted by the District Court and the case will move forward with the filing of ~~defendants' response to the complaint. The Company intends to vigorously defend the shareholder derivative lawsuit.~~

its consolidated financial statements.

3824

~~Table~~

ITEM 2. Management's Discussion and Analysis of ~~Contents~~

Financial Condition and Results of Operations.

CAUTIONARY NOTE ABOUT ~~FORWARD LOOKING~~FORWARD-LOOKING STATEMENTS

~~This~~All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements under this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for ~~HF Foods Group Inc. (“HF Foods,” “HF Group,” the “Company,” “we,” “us,” or “our”) contains~~future operations, are forward-looking statements. ~~Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases~~When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “possible,” “potential,” “predict,” “project,” “will” and similar expressions, as they relate to us or ~~similar words or phrases, or the negatives of those words or phrases, may~~our management, identify forward-looking ~~statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. We derive many of our~~statements. Such forward-looking statements ~~from our operating budgets and forecasts, which~~ are based on ~~many~~the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed ~~assumptions. While we believe that~~in our ~~assumptions~~filings with the Securities and Exchange Commission (“SEC”). All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are ~~reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.~~qualified in their entirety by this paragraph. All forward-looking statements are subject to risks and uncertainties that ~~may~~could cause actual results and events to differ materially from those ~~that we expected.~~included in forward-looking statements. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, include without limitation:

•The effects of the COVID-19 pandemic or other pandemics;

•Low margins in the foodservice distribution industry and periods of significant or prolonged inflation;

•Qualified labor shortages;

•Unfavorable macroeconomic conditions in the United States;

•Competition in the ~~food service~~foodservice distribution industry particularly the entry of new competitors into the Chinese/Asian restaurant supply market niche;

•Increases in fuel costs;

•~~Increases in commodity prices;~~

•Disruption of relationships with vendors and increases in product prices;

•~~U.S.~~Dependency on the timely delivery of products from vendors, particularly the prolonged diminution of global supply chains;

•Our business has been affected and may in the future be affected by the COVID-19 pandemic and the steps taken by the Chinese government ~~tariffs on products imported into~~to address the ~~United States, particularly from China;~~pandemic;

•Disruption of relationships with or loss of customers;

•Changes in consumer eating and dining out habits;

•~~Disruption~~Related party transactions and possible conflicts of ~~relationships with~~interests;

•Related parties and variable interest entities consolidation;

•Failure to protect our intellectual property rights;

•Our ability to renew or ~~loss~~replace our current warehouse leases on favorable terms, or terminations prior to expiration of ~~customers;~~stated terms;

•Failure to retain our senior management and other key personnel, particularly ~~Xiao Mou Zhang~~our CEO, COO, CFO and ~~Kong Hian Lee;~~CCO/General Counsel;

•Our ability to attract, train and retain employees;

•Changes in and enforcement of immigration laws;

•Failure to comply with various federal, state and local rules and regulations regarding food safety, sanitation, transportation, minimum wage, overtime and other health and safety laws;

•Product recalls, voluntary recalls or withdrawals if any of the products we distribute are alleged to have caused illness, been mislabeled, misbranded or adulterated or to otherwise have violated applicable government regulations;

•~~Failure~~Costs to ~~protect our intellectual property rights;~~comply with environmental laws and regulations;

•Litigation;

•Increases in commodity prices;

•U.S. government tariffs on products imported into the United States, particularly from China;

•Severe weather, natural disasters and adverse climate change;

•Unfavorable geopolitical conditions;

•Any cyber security incident, other technology disruption or delay in implementing our information technology systems;

•~~The development~~Current indebtedness affecting our liquidity and ability of ~~an active trading market for our common stock;~~future financing;

•Failure to acquire other distributors or wholesalers and enlarge our customer base could negatively impact our results of operations and financial condition;

•Scarcity of and competition for acquisition opportunities;

•Our ability to obtain acquisition financing;

•The impact of non-cash charges relating to the amortization of intangible assets related to material acquisitions;

•Our ability to identify acquisition candidates;

•Increases in debt in order to successfully implement our acquisition strategy;

•~~The effects of the COVID-19 or other pandemic;~~

•Difficulties in integrating operations, personnel, and assets of acquired businesses that may disrupt our business, dilute stockholder value, and adversely affect our operating results;

•Our ability to regain compliance with Securities Exchange Act of 1934 reporting requirements; and

•~~Other factors discussed in “Item 1A. Risk Factors” in~~The development of an active trading market for our ~~Annual Report on Form 10-K for the fiscal year ended December 31, 2020.~~common stock.

All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the Securities and Exchange Commission (the "SEC") and public communications. We caution you that the important factors referenced above may not contain all of the ~~factors~~risks, uncertainties (some of which are beyond our control) or other assumptions that are important to you. ~~In addition, we cannot assure you~~Factors that ~~we will realize~~might cause or contribute to such differences include, but are not limited to, those contained in Item 1A. Risk Factors in our Annual Report on Form 10-K for the ~~results~~year ended December 31, 2021, filed with the SEC. We assume no obligation to revise or ~~developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The~~publicly release any revision to any forward-looking statements ~~included~~contained in this Quarterly Report on Form 10-Q, ~~are made only as of the date hereof. Except as otherwise~~unless required by ~~law, we undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise.~~

~~Table of Contents~~

~~ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of HF Foods Group Inc.~~

This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from the forward-looking statements as a result of these risks and uncertainties. See “~~Cautionary Note About Forward-Looking Statements”~~ ~~for additional cautionary information.~~law.

Company Background and Overview

~~The Company markets~~We market and ~~distributes~~distribute Asian specialty food products, seafood, fresh produce, frozen and dry food, and non-food products primarily to ~~primarily~~ Asian restaurants and other ~~food service~~foodservice customers throughout the ~~Southeast, Pacific~~United States. HF Group was formed through a merger between two complementary industry participants, HF Foods Group Inc. and ~~Mountain West regions~~B&R Global.

On December 30, 2021, HF Group acquired the Great Wall Group, a seafood supplier, resulting in the addition of three distribution centers, located in Illinois and Texas (the “Great Wall Acquisition”).

On April 29, 2022, HF Group acquired substantially all of the ~~United States.~~

~~Financial Overview~~

~~Our net revenue for~~assets of Sealand Food, Inc. (the "Sealand Acquisition"), one of the ~~nine months ended September 30, 2021 was $568.5 million, an increase of $148.2 million, or 35.3%,~~largest frozen seafood suppliers servicing the Asian/Chinese restaurant market along the eastern seaboard, from ~~$420.3 million for the nine months ended September 30, 2020. Net income attributable~~Massachusetts to stockholders for the nine months ended September 30, 2021 was $13.0 million, a sharp turnaround compared to net loss of $344.6 million attributable to stockholders for the nine months ended September 30, 2020. The net loss in the prior comparative period was mainly due to a significant goodwill impairment of $338.2 million taken in first quarter of 2020 (see Note 7 to our financial statements for additional information)Florida, as well as ~~sharp declines in sales prompted by the severe impact~~Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.

See Note 7 - Acquisitions for additional information regarding recent acquisitions.

Capitalizing on our institutional understanding of the ~~COVID-19 pandemic. Adjusted EBITDA for~~Chinese culture, our over 1,000 employees and subcontractors and our support from two outsourced call centers in China, we serve over 15,000 Asian restaurants in 46 states with 18 distribution centers strategically located throughout the ~~nine months ended September 30, 2021 was $38.2 million, an increase~~nation, providing round-the-clock sales and service support to customers who mainly converse in Mandarin or other Chinese dialects. We are dedicated to serving the vast array of $24.5 million, or 177.9%, from $13.7 million for the nine months ended September 30, 2020. For additional information on Adjusted EBITDA, see the section entitled “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS— Adjusted EBITDA” below.

~~COVID-19 Impact~~

~~The impact~~Asian and Chinese restaurants in need of ~~COVID-19 pandemic had an inimical effect on our business, financial condition~~high-quality and ~~operational results in 2020. All states across the country had issued some form of stay-at-home orders, shutdowns, voluntary containment measures, and social distancing~~. ~~The operations of our restaurant customers were severely disrupted too, due to the “cliff-like” decline in consumer demand for~~specialized food away from home. 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 sales beginning from the last two weeks of March 2020 through September 2020, negatively impacting our overall financial results in 2020, albeit quarter-on-quarter recovery in sales since third quarter of 2020.

The devastating impact of COVID-19 seen in 2020 has generally subsided, especially since the widespread vaccination effort by most local governments which began in March 2021. The Company's net sales recovered to about 94% of pre-COVID business volume (based on proforma net revenue for the same period in 2019) in the second quarter of 2021 and had surpassed the pre-COVID level to approximately 105% as of the quarter ended September 30, 2021. Based on current sales volumes and adjusted cost structures, the company continues to generate positive operating cash flows on a weekly basis and does not have immediate liquidity concerns, especially if sales volume continues to remain stable or improve further. We remain optimistic on the long-term prospects for our business although we continue to face intermittent government restrictions on our restaurant customers' business operations.ingredients at competitive prices.

As ~~the~~a market leader in servicing the Asian/Chinese restaurant sector, ~~we believe~~ we are well-positioned for long-term success. The fragmented nature of the Asian/Chinese ~~food service~~foodservice industry and the current environment ~~create~~creates opportunities for a company ~~like HF Group, which~~that has the necessary expertise and a ~~deep~~comprehensive cultural understanding of ~~our~~this unique customer base. 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 in these unprecedented conditions.

Financial Overview


	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
($ in thousands)	2022		2021		Amount		%		2022		2021		Amount		%
Net revenue	$	299,642	$	193,546	$	106,096	54.8	%	$	577,857	$	352,926	$	224,931	63.7	%
Net income attributable to HF Foods Group Inc.	$	4,564	$	3,407	$	1,157	34.0	%	$	7,678	$	4,765	$	2,913	61.1	%
Adjusted EBITDA	$	13,923	$	10,532	$	3,391	32.2	%	$	31,836	$	17,037	$	14,799	86.9	%

For additional information on our non-GAAP financial measures, EBITDA and Adjusted EBITDA, see the section entitled “EBITDA and Adjusted EBITDA” below.

COVID-19 Impact

The devastating impact of the COVID-19 pandemic seen in 2020 has generally subsided. Our net revenue for the fiscal year ended December 31, 2021 recovered to 96% of pre-COVID-19 pandemic levels. Based on current sales volumes and adjusted cost structures, we continue to generate positive operating cash flows on a weekly basis and do not have immediate liquidity concerns. We remain optimistic with regards to the long-term prospects for our business although the extent to which the COVID-19 pandemic will impact our financial condition or results of operations is uncertain and will depend on future developments including new information that may emerge on the severity or transmissibility of the disease, new variants, government responses, trends in infection rates, development and distribution of effective medical treatments and vaccines, and future consumer spending behavior, among other factors.

How to Assess HF Group’s Performance

In assessing our performance, ~~the Company considers~~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. The key measures that ~~the Company uses~~we use to evaluate the performance of our business are set forth below:

~~Table of Contents~~

Net Revenue

Net revenue is equal to gross sales minus sales returns, sales incentives that ~~the Company offers~~we offer to our customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. Our net ~~sales are~~revenue is driven by changes in number of customers and average customer order amount, product inflation that is reflected in the pricing of our products and mix of products sold.

Gross Profit

Gross profit is equal to net ~~sales~~revenue minus cost of revenue. Cost of revenue primarily includes inventory costs (net of supplier consideration), inbound freight, ~~custom~~customs clearance fees and other miscellaneous expenses. Cost of revenue generally changes as ~~the Company incurs~~we incur higher or lower costs from suppliers and as the customer and product mix ~~changes, and as impact of inflation affects overall business.~~changes.

Distribution, Selling and Administrative Expenses ~~(DSA 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.

EBITDA and Adjusted EBITDA

~~The Company~~Discussion of our results includes certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, that we believe provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial performance with other companies in the same industry, many of which present similar non-GAAP financial measures to investors. We present EBITDA and Adjusted EBITDA in order to provide supplemental information that we consider relevant for the readers of our consolidated financial statements included elsewhere in this report, and such information is not meant to replace or supersede GAAP measures.

Management uses EBITDA to measure operating performance, defined as net income before interest expense, income taxes, and depreciation and amortization. In addition, management uses Adjusted EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization, further adjusted to exclude certain unusual, non-cash, ~~non recurring income~~ or non-recurring expenses. Management believes that Adjusted EBITDA is less susceptible to variances in actual performance resulting from non-recurring expenses, ~~extraordinary charges,~~ and other non-cash charges and is more reflective of other factors that affect our operating performance. Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial performance with other companies in the same industry, many of which present similar non-GAAP financial measures to investors. The Company presents EBITDA and Adjusted EBITDA in order to provide supplemental information that the Company considers relevant for the readers of our consolidated financial statements included elsewhere in this report, and such information is not meant to replace or supersede U.S. GAAP measures.

The definition of EBITDA and Adjusted EBITDA may not be the same as similarly titled measures used by other companies in the industry. EBITDA and Adjusted EBITDA are not defined under ~~U.S.~~ GAAP and isare subject to important limitations as analytical tools and ~~you~~ should not ~~consider them~~be considered in isolation or as substitutes for analysis of HF Group’s results as reported under ~~U.S.~~ GAAP. For example, Adjusted EBITDA:

•excludes certain tax payments that may represent a reduction in cash available to the Company;

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

•does not reflect changes in, or cash requirements for, our working capital needs; and

•does not reflect the significant interest expense, or the cash requirements, necessary to service our debt.

For additional information on EBITDA and Adjusted EBITDA, see the ~~section~~table entitled ~~“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — EBITDA~~“EBITDA and Adjusted EBITDA” below.

Results of Operations for the Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~

~~Table of Contents~~

2021

The following table sets forth a summary of our consolidated results of operations for the three ~~month periods~~months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.


		For the Three Months Ended September 30,				Changes					Three Months Ended June 30,				Change
		2021		2020		Amount		%
($ in thousands)										($ in thousands)	2022		2021		Amount		%
Net revenue	Net revenue	$	215,542,049	$	139,918,942	$	75,623,107	54.0	%	Net revenue	$	299,642	$	193,546	$	106,096	54.8	%
Cost of revenue	Cost of revenue	173,630,081		114,756,084		58,873,997		51.3	%	Cost of revenue	247,072		158,412		88,660		56.0	%
Gross profit	Gross profit	41,911,968		25,162,858		16,749,110		66.6	%	Gross profit	52,570		35,134		17,436		49.6	%
Distribution, selling and administrative expenses	Distribution, selling and administrative expenses	30,972,019		25,050,419		5,921,600		23.6	%	Distribution, selling and administrative expenses	45,843		29,790		16,053		53.9	%
Income from operations	Income from operations	10,939,949		112,439		10,827,510		9,629.7	%	Income from operations	6,727		5,344		1,383		25.9	%
Interest income		—		133		(133)		100.0	%
Interest expenses		(703,845)		(840,851)		137,006		16.3	%
Interest expense										Interest expense	1,549		928		621		66.9	%
Other income, net	Other income, net	558,138		270,452		287,686		106.4	%	Other income, net	(163)		(428)		265		(61.9)	%
Change in fair value of interest rate swap contracts	Change in fair value of interest rate swap contracts	52,314		(20,022)		72,336		361.3	%	Change in fair value of interest rate swap contracts	(208)		112		(320)		NM
Income (loss) before income tax provision		10,846,556		(477,849)		11,324,405		2,369.9	%
Provision (benefit) for income taxes		2,637,444		(80,910)		2,718,354		3,359.7	%
Net income (loss)		8,209,112		(396,939)		8,606,051		2,168.1	%
Less: net income attributable to non-controlling interests		357,345		226,865		130,480		57.5	%
Net income (loss) attributable to HF Foods Group Inc.		$	7,851,767	$	(623,804)	$	8,475,571	1,358.7	%
Lease guarantee expense										Lease guarantee expense	(42)		—		(42)		NM
Income before income tax provision										Income before income tax provision	5,591		4,732		859		18.2	%
Income tax provision										Income tax provision	1,097		1,416		(319)		(22.5)	%
Net income										Net income	4,494		3,316		1,178		35.5	%
Less: net loss attributable to noncontrolling interests										Less: net loss attributable to noncontrolling interests	(70)		(91)		21		(23.1)	%
Net income attributable to HF Foods Group Inc.										Net income attributable to HF Foods Group Inc.	$	4,564	$	3,407	$	1,157	34.0	%

~~Net Revenue~~____________________

The bulk of net revenue was derived from sales to independent restaurants being the integral part of our business operations, and marginally supplemented by non-core wholesale operations to other smaller distributors. The revenue split has remained somewhat consistent, regardless of the impact of COVID-19.NM - Not meaningful

The following table sets forth the ~~breakdown~~components of our consolidated results of operations expressed as a percentage of net ~~revenue:~~revenue for the periods indicated:

For the Three Months Ended September 30,
2021 2020 Changes
Amount % Amount % Amount %
Net revenue
Sales to independent restaurants $ 207,559,475 96.3 % $ 134,167,324 95.9 % $ 73,392,151 54.7 %
Wholesale 7,982,574 3.7 % 5,751,618 4.1 % 2,230,956 38.8 %
Total $ 215,542,049 100.0 % $ 139,918,942 100.0 % $ 75,623,107 54.0 %


	Three Months Ended June 30,
	2022		2021
Net revenue	100.0	%	100.0	%
Cost of revenue	82.5	%	81.8	%
Gross profit	17.5	%	18.2	%
Distribution, selling and administrative expenses	15.3	%	15.4	%
Income from operations	2.2	%	2.8	%
Interest expense	0.5	%	0.5	%
Other income, net	(0.1)	%	(0.2)	%
Change in fair value of interest rate swap contracts	(0.1)	%	0.1	%

Income before income tax provision	1.9	%	2.4	%
Income tax provision	0.4	%	0.7	%
Net income	1.5	%	1.7	%
Less: net income (loss) attributable to noncontrolling interests	—	%	—	%
Net income attributable to HF Foods Group Inc.	1.5	%	1.7	%

~~Sales to independent restaurants~~

Net Revenue

Net revenue for the three months ended ~~September~~June 30, ~~2021~~2022 increased by ~~approximately 55%~~$106.1 million or 54.8% compared to the same period ~~last year. This was~~in 2021, primarily due to the easing of ~~COVID related~~COVID-19-related restrictions in ~~2021~~2022 that resulted in ~~the return of~~ more dine-in business for our customers and ~~a return to normalcy~~an increase in overall foot traffic to ~~restaurants. Wholesale operations~~restaurants, as ~~a supplemental business registered a~~well as the additional revenue generated due to recent acquisitions and overall product cost inflation. Recent acquisitions, which shifted our product mix to higher Seafood sales compared to the same period in 2021, contributed $65.8 million and organic growth ~~of about 39%~~contributed the remaining $40.3 million.

Gross Profit

Gross profit for the three months ended ~~September~~June 30, ~~2021 as compared to same period last year. As a result, overall net revenue for the quarter ended September 30, 2021 improved~~2022 increased by ~~about $75.6~~$17.4 million or ~~54% from the comparative period ended September 30, 2020.~~

~~Gross Profit~~

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

~~Table of Contents~~

Three Months Ended September 30, Changes
2021 2020 Amount %
Sales to independent restaurants
Net revenue $ 207,559,475 $ 134,167,324 $ 73,392,151 54.7 %
Cost of revenue 166,638,813 109,339,945 57,298,868 52.4 %
Gross profit $ 40,920,662 $ 24,827,379 $ 16,093,283 64.8 %
Gross Margin 19.7 % 18.5 % 1.2 % 6.5 %
Wholesale
Net revenue $ 7,982,574 $ 5,751,618 $ 2,230,956 38.8 %
Cost of revenue 6,991,268 5,416,139 1,575,129 29.1 %
Gross profit (loss) $ 991,306 $ 335,479 $ 655,827 195.5 %
Gross Margin 12.4 % 5.8 % 6.6 % 113.8 %
Total sales
Net revenue $ 215,542,049 $ 139,918,942 $ 75,623,107 54.0 %
Cost of revenue 173,630,081 114,756,084 58,873,997 51.3 %
Gross profit $ 41,911,968 $ 25,162,858 $ 16,749,110 66.6 %
Gross Margin 19.4 % 18.0 % 1.4 % 7.8 %

~~Gross profit for the quarter increased by about $16.8 million, or 66.6%~~49.6%, compared to the same period ~~last year, out-pacing net~~in 2021 mainly due to strong revenue growth and recent acquisitions, which contributed $9.0 million of ~~54.0%.~~gross profit for the three months ended June 30, 2022. Overall gross margin ~~improved~~decreased from ~~18.0%~~18.2% in the ~~quarter~~three months ended ~~September~~June 30, ~~2020~~2021 to 19.4% for the quarter ended September 30, 2021. The 1.4% incremental margin represented an improvement of about 7.8%, comparatively, and was mainly attributable to better management in procurement and sales operations during an inflationary environment experienced across the industry. The continuing inflationary impact on newer sourced product cost was also reflected17.5% in the ~~increase in cost of revenue. Gross margin for wholesale customers also increased sharply by 113.8%, further adding~~three months ended June 30, 2022, primarily due to the ~~overall increase~~expected lower gross margin from recent acquisitions due to the lower margin on our increased Seafood sales and higher than expected fluctuation in key commodity pricing, partially offset by increased gross ~~margin.~~margin due to organic growth.

Distribution, Selling and Administrative Expenses ~~(DSA Expenses)~~

~~DSA Expenses~~Distribution, selling and administrative expenses for the three months ended ~~September~~June 30, ~~2021~~2022 increased by ~~$5.9~~$16.1 million, or ~~23.6%~~53.9%, ~~significantly below net revenue growth of 54.0% due~~ to ~~better cost control measures and improved operational efficiency.~~$45.8 million compared to $29.8 million for the three months ended June 30, 2021. Of the ~~DSA Expenses~~distribution, selling and administrative expenses increase, ~~69.2% ($4.1 million) came~~$6.3 million primarily resulted from payroll and related labor costs, inclusive of the additional costs due to recent acquisitions, as more workers were, ~~(and are) needed~~and will continue to ~~deal with~~be, required to handle the increasing sales demand, $4.0 million was delivery related cost primarily driven by increasing fuel prices and ~~17.7% ($1.0 million) was~~revenue growth, and an increase of $4.2 million in ~~freight/fuel/diesel~~professional fees primarily driven by legal costs, ~~which collectively made up the bulk (86.9%)~~acquisition-related costs and increased compliance costs as a result of the ~~increase. The additional increase ($0.8 million)~~SEC and SIC investigations and an SEC comment letter inquiry. Distribution, selling and administrative expenses as a percentage of net revenue was 15.4% for the ~~result of other expenses, in line with increasing sales volume.~~three months ended June 30, 2021 and 15.3% for the three months ended June 30, 2022 primarily due to strong revenue growth and fixed cost leverage offset by the costs disclosed above.

Interest Expense

Interest ~~expenses were $0.7~~expense for the three months ended June 30, 2022 increased by $0.6 million, or 66.9%, compared to the same period in 2021 mainly due to higher utilization of the line of credit coupled with a higher interest rate and, to a lesser extent, the increase of $46.0 million to our mortgage-secured term loan. Our average daily line of credit balance increased by $26.7 million, or 246.0%, to $37.5 million for the three months ended ~~September~~June 30, ~~2021, a decrease~~2022 from $10.9 million for three months ended June 30, 2021. The average daily interest rate on our line of ~~$0.1~~credit balance increased to 2.16% for the three months ended June 30, 2022 from 1.48% for three months ended June 30, 2021.

Income Tax Provision

Our provision for income taxes decreased by $0.3 million, or ~~about 16.3%~~22.5%, ~~compared with $0.8~~from $1.4 million for the three months ended ~~September~~June 30, ~~2020, due~~2021 to ~~an overall reduction in Revolving Facility utilization and ongoing principal repayments of Long-Term Debt and Promissory Notes.~~

~~Income Tax Provision (Benefit)~~

~~Provision for income taxes increased by $2.7 million, or 3,359.7%, from a tax benefit of $0.1~~$1.1 million for the three months ended ~~September~~June 30, ~~2020~~2022 primarily due to ~~a tax provision~~the reversal of ~~$2.6~~our FIN 48 liability of $0.4 million.

Net Income Attributable to HF Foods Group Inc.

Net income attributable to HF Foods Group Inc. was $4.6 million for the three months ended ~~September~~June 30, ~~2021, as a result of the increase in income before income tax provision, as~~2022, compared ~~with a significant loss in the same period of 2020.~~

~~Net Income (Loss) Attributable~~ to ~~Our Stockholders~~

~~As a result of all analysis above, net income attributable to our stockholders was $7.9~~$3.4 million for the three months ended ~~September~~June 30, ~~2021, and net loss~~2021. The increase of $1.2 million, or 35.5%, is primarily attributable to ~~our stockholders was $0.6 million~~increased consumer demand for dine-in/take-out meals as COVID-19 restrictions eased in 2022, thereby prompting restaurants to replenish products more frequently, partially offset by the ~~three months ended September 30, 2020.~~increased costs disclosed above.

4329

~~Table of Contents~~

EBITDA and Adjusted EBITDA

The following table sets forth of the calculation of EBITDA and Adjusted EBITDA, and reconciliation to net income, ~~(loss),~~ the closest ~~U.S.~~ GAAP measure:

Three Months Ended September 30, Changes
2021 2020 Amount %
Net income (loss) $ 8,209,112 $ (396,939) $ 8,606,051 2,168.1 %
Interest expense 703,845 840,851 (137,006) 16.3 %
Income tax provision (benefit) 2,637,444 (80,910) 2,718,354 3,359.7 %
Depreciation & Amortization 4,249,496 4,474,892 (225,396) 5.0 %
EBITDA 15,799,897 4,837,894 10,962,003 226.6 %
Unrealized change in fair value of interest rate swap contracts (52,314) 20,022 (72,336) 361.3 %
COVID-19 bad debt reserve (recovery) — (750,945) 750,945 100.0 %
Non-recurring expenses* 1,628,098 1,866,415 (238,317) 12.8 %
Adjusted EBITDA $ 17,375,681 $ 5,973,386 $ 11,402,295 190.9 %
Percentage of revenue 8.1 % 4.3 % 3.8 % 88.8 %


	Three Months Ended June 30,						Change
($ in thousands)	2022			2021			Amount		%
Net income	$	4,494		$	3,316		$	1,178	35.5	%
Interest expense	1,549			928			621		66.9	%
Income tax provision	1,097			1,416			(319)		(22.5)	%
Depreciation and amortization	6,080			4,760			1,320		27.7	%
EBITDA	13,220			10,420			2,800		26.9	%
Lease guarantee expense	(42)			—			(42)		NM
Change in fair value of interest rate swap contracts	(208)			112			(320)		(285.7)	%
Stock-based compensation expense	221			—			221		NM
Acquisition and integration costs	310			—			310		NM
Impairment loss	422			—			422		NM
Adjusted EBITDA	$	13,923		$	10,532		$	3,391	32.2	%
Adjusted EBITDA margin	4.6		%	5.4		%

____________________

* For the three months ended September 30, 2021, non-recurring expenses consisted of $1.6 million for legal fees related to the defense of class action lawsuits and SEC investigation stemming from the lawsuits (see Note 17 to our financial statements for additional information.)NM - Not meaningful

Adjusted EBITDA was ~~$17.4~~$13.9 million for the three months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~$11.4~~$3.4 million, or ~~190.9%~~32.2%, compared to ~~$6.0~~$10.5 million for the three months ended ~~September~~June 30, ~~2020, resulting primarily from the $8.6~~2021. The $3.4 million increase in ~~net income.~~

~~There~~Adjusted EBITDA was ~~no COVID-19 bad debt reserve or~~primarily attributable to our strong business recovery ~~in the three months ended September 30, 2021.~~to pre-COVID-19 pandemic levels. Adjusted EBITDA margin decreased by 80 basis points primarily due to a decrease of 70 basis points on gross profit margin.

Results of Operations for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

The following table sets forth a summary of our consolidated results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.


	Six Months Ended June 30,				Change
($ in thousands)	2022		2021		Amount		%
Net revenue	$	577,857	$	352,926	$	224,931	63.7	%
Cost of revenue	474,560		288,364		186,196		64.6	%
Gross profit	103,297		64,562		38,735		60.0	%
Distribution, selling and administrative expenses	86,251		57,879		28,372		49.0	%
Income from operations	17,046		6,683		10,363		155.1	%

Interest expense	2,827		1,830		997		54.5	%
Other income, net	(939)		(864)		(75)		8.7	%
Change in fair value of interest rate swap contracts	(566)		(1,319)		753		(57.1)	%
Lease guarantee expense	5,889		—		5,889		NM
Income before income tax provision	9,835		7,036		2,799		39.8	%
Income tax provision	2,201		2,062		139		6.7	%
Net income	7,634		4,974		2,660		53.5	%
Less: net income (loss) attributable to noncontrolling interests	(44)		209		(253)		NM
Net income attributable to HF Foods Group Inc.	$	7,678	$	4,765	$	2,913	61.1	%

____________________

NM - Not meaningful

~~Table of Contents~~

For the Nine Months Ended September 30, Changes
2021 2020 Amount %
Net revenue $ 568,470,113 $ 420,282,374 $ 148,187,739 35.3 %
Cost of revenue 461,994,250 345,531,687 116,462,563 33.7 %
Gross profit 106,475,863 74,750,687 31,725,176 42.4 %
Distribution, selling and administrative expenses 89,003,273 79,549,580 9,453,693 11.9 %
Goodwill impairment loss — 338,191,407 (338,191,407) 100.0 %
Income (loss) from operations 17,472,590 (342,990,300) 360,462,890 105.1 %
Interest income — 396 (396) 100.0 %
Interest expenses (2,155,328) (3,116,739) 961,411 30.8 %
Other income, net 1,470,887 940,832 530,055 56.3 %
Change in fair value of interest rate swap contracts 1,370,950 (1,284,276) 2,655,226 206.7 %
Income (loss) before income tax provision 18,159,099 (346,450,087) 364,609,186 105.2 %
Provision (benefit) for income taxes 4,621,749 (2,052,426) 6,674,175 325.2 %
Net income (loss) 13,537,350 (344,397,661) 357,935,011 103.9 %
Less: net income (loss) attributable to non-controlling interests 566,055 168,988 397,067 235.0 %
Net income (loss) attributable to HF Foods Group Inc. $ 12,971,295 $ (344,566,649) $ 357,537,944 103.8 %

~~Net Revenue~~

The following table sets forth the ~~breakdown~~components of our consolidated results of operations expressed as a percentage of net ~~revenue:~~

For the Nine Months Ended September 30,
2021 2020 Changes
Amount % Amount % Amount %
Net revenue
Sales to independent restaurants $ 548,116,720 96.4 % $ 400,060,302 95.2 % $ 148,056,418 37.0 %
Wholesale 20,353,393 3.6 % 20,222,072 4.8 % 131,321 0.6 %
Total $ 568,470,113 100.0 % $ 420,282,374 100.0 % $ 148,187,739 35.3 %

~~Sales to independent restaurants~~revenue for the ~~nine~~periods indicated:


	Six Months Ended June 30,
	2022				2021
Net revenue	100.0	%			100.0	%
Cost of revenue	82.1	%			81.7	%
Gross profit	17.9	%	—	%	18.3	%
Distribution, selling and administrative expenses	14.9	%			16.4	%
Income from operations	3.0	%			1.9	%
Interest expense	0.5	%			0.5	%
Other income, net	(0.2)	%			(0.2)	%
Change in fair value of interest rate swap contracts	(0.1)	%			(0.4)	%
Lease guarantee expense	1.0	%			—	%
Income before income tax provision	1.8	%			2.0	%
Income tax provision	0.4	%			0.6	%
Net income	1.4	%			1.4	%
Less: net income attributable to noncontrolling interests	—	%			0.1	%
Net income attributable to HF Foods Group Inc.	1.4	%			1.3	%

Net Revenue

Net revenue for the six months ended ~~September~~June 30, ~~2021~~2022 increased by ~~approximately 37.0%~~$224.9 million, or 63.7% compared to the same period ~~last year. This was~~in 2021, primarily due to the easing of ~~COVID related~~COVID-19-related restrictions in ~~2021~~2022 that resulted in ~~the return of~~ more dine-in business for our customers and ~~a return to normalcy~~an increase in overall foot traffic to ~~restaurants. Wholesale operations~~restaurants, as ~~a supplemental business, on~~well as the ~~other hand, remained constant for the nine months ended September 30, 2021 as~~additional revenue generated due to recent acquisitions and overall product cost inflation. Organic growth contributed $111.2 million and recent acquisitions, which shifted our product mix to higher Seafood sales compared to the same period ~~last year. As a result, overall net revenue for~~in 2021, contributed the ~~nine months ended September 30, 2021 improved by about $148.2 million, or 35.3%, from the comparative period ended September 30, 2020.~~remaining $113.7 million.

Gross Profit

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

~~Table of Contents~~

Nine Months Ended September 30,
2021 2020 Amount %
Sales to independent restaurants
Net revenue $ 548,116,720 $ 400,060,302 $ 148,056,418 37.0 %
Cost of revenue 442,864,604 326,484,372 116,380,232 35.6 %
Gross profit $ 105,252,116 $ 73,575,930 $ 31,676,186 43.1 %
Gross Margin 19.2 % 18.4 % 0.8 % 4.3 %
Wholesale
Net revenue $ 20,353,393 $ 20,222,072 $ 131,321 0.6 %
Cost of revenue 19,129,646 19,047,315 82,331 0.4 %
Gross profit $ 1,223,747 $ 1,174,757 $ 48,990 4.2 %
Gross Margin 6.0 % 5.8 % 0.2 % 3.4 %
Total sales
Net revenue $ 568,470,113 $ 420,282,374 $ 148,187,739 35.3 %
Cost of revenue 461,994,250 345,531,687 116,462,563 33.7 %
Gross profit $ 106,475,863 $ 74,750,687 $ 31,725,176 42.4 %
Gross Margin 18.7 % 17.8 % 0.9 % 5.1 %

Gross profit for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 increased by ~~about $31.7~~$38.7 million or ~~42.4%~~60.0%, compared to the same period ~~last year, out-pacing net~~in 2021 mainly due to strong revenue growth and recent acquisitions, which contributed $14.7 million of ~~35.3%.~~gross profit for the six months ended June 30, 2022. Overall gross margin ~~improved~~decreased from ~~17.8%~~18.3% in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 to ~~18.7%~~17.9% in the ~~nine~~six months ended ~~September~~June 30, ~~2021. The 0.9% incremental~~2022, primarily due to lower gross margin represented an improvement of about 5.1% comparatively, and was mainly attributable to better management in procurement and sales operations during an inflationary environment experienced across the industry. The continuing inflationary impact on newer sourced product cost was also reflected in the increase in cost of revenue. Gross margin for wholesale customers remained constant comparedfrom recent acquisitions due to the ~~same period last year.~~lower margin on our increased Seafood sales, incremental lower margin sales from newly acquired customers, higher than expected fluctuation in key commodity pricing, partially offset by increased gross margin due to organic growth.

Distribution, Selling and Administrative Expenses ~~(DSA Expenses)~~

~~DSA Expenses~~Distribution, selling and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 increased by ~~$9.5~~$28.4 million, or ~~11.9%~~49.0%, ~~significantly below net revenue growth of 35.3% due~~ to ~~better cost control measures and improved operational efficiency.~~$86.3 million compared to $57.9 million for the six months ended June 30, 2021. Of the ~~DSA Expenses~~distribution, selling and administrative expenses increase, ~~43.2.% ($4.1 million) came~~$16.2 million primarily resulted from payroll and related labor costs, inclusive of the additional costs due to recent acquisitions, as more workers were, ~~(and are) needed~~and will continue to ~~deal with~~be, required to handle the increasing sales demand, ~~and 36.8% ($3.5 million)~~$5.1 million was in ~~non-recurring~~delivery related cost primarily driven by increasing fuel prices and revenue growth, and an increase of $2.6 million in professional fees primarily driven by legal ~~expenses connected to the ongoing internal~~costs, acquisition-related costs and ~~SEC investigation. The additional 20.0% ($1.9 million) was the result of other expenses, in line with the increasing sales volume.~~

~~Goodwill Impairment Loss~~

Goodwill impairment loss for the nine months ended September 30, 2021 decreased by $338.2 million or 100% due to the Company recording an impairment in the first quarter of 2020. There was no impairment indicators identified for the nine months ended September 30, 2021.

~~Interest Expense~~

Interest expenses decreased $1.0 million, or about 30.8%, due to lower utilization of the line of credit and a decrease in actual interest due to the floating rate nature of some of our credit facilities. The Company's floating rate debt decreased $6.3 million (5.8%) from $107.2 million as of September 30, 2020 to $100.9 million as of September 30, 2021. Average floating interest rates for the nine month period ended September 30 also decreased by approximately 0.65% from 2020 to 2021, hence further contributing to lower interest expense in this period.

~~Income Tax Provision (Benefit)~~

~~Table of Contents~~

~~Provision for income taxes~~ increased ~~by $6.7 million, or 325.2%, from a tax benefit of $2.1 million for the nine months ended September 30, 2020 to a tax provision of $4.6 million for the nine months ended September 30, 2021,~~compliance costs as a result of the SEC and SIC investigations and an SEC comment letter inquiry. Distribution, selling and administrative expenses as a percentage of net revenue decreased from 16.4% for the six months ended June 30, 2021 to 14.9% for the six months ended June 30, 2022 primarily due to strong revenue growth and fixed cost leverage partially offset by the costs disclosed above.

Interest Expense

Interest expense for the six months ended June 30, 2022 increased by $1.0 million, or 54.5%, compared to the same period in 2021 mainly due to higher utilization of our line of credit coupled with a higher interest rate and, to a lesser extent, the increase inof $46.0 million to our mortgage-secured term loan. Our average daily line of credit balance increased by $38.0 million, or 295.0%, to $50.9 million for the six months ended June 30, 2022 from $12.9 million for six months ended June 30, 2021. The average daily interest rate on our line of credit increased to 1.87% for the six months ended June 30, 2022 from 1.49% for six months ended June 30, 2021.

Income Tax Provision

Our provision for income taxes slightly increased by $0.1 million, or 6.7%, from $2.1 million for the six months ended June 30, 2021 to $2.2 million for the six months ended June 30, 2022 primarily due to increasing income before ~~income~~ tax, ~~provision.~~resulting from business expansion and our improved profitability.

Net Income ~~(Loss)~~ Attributable to ~~Our Stockholders~~HF Foods Group Inc.

~~As a result of all analysis above, net~~Net income attributable to ~~our stockholders~~HF Foods Group Inc. was ~~$13.0~~$7.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021, versus a net loss attributable~~2022, compared to ~~our stockholders of $344.6~~$4.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020. Excluding the goodwill impairment charge in 2020, year over year change in net income increased $19.3~~2021. The increase of $2.9 million, or ~~approximately 304% as compared to effective net loss of $6.3 million in 2020. The positive trend~~61.1%, is ~~attributed~~primarily attributable to increased consumer demand for dine-in/take out meals as COVID-19 restrictions eased in ~~2021,~~2022, thereby prompting restaurants to replenish products ~~at a~~ more ~~frequent rate.~~frequently, partially offset by $5.9 million in lease guarantee expense related to our AnHeart lease guarantee and the increased costs disclosed above.

EBITDA and Adjusted EBITDA

The following table sets forth of the calculation of EBITDA and Adjusted EBITDA, and reconciliation to net income, ~~(loss),~~ the closest ~~U.S.~~ GAAP measure:

Nine Months Ended September 30,
2021 2020 Amount %
Net income (loss) $ 13,537,350 $ (344,397,661) $ 357,935,011 103.9 %
Interest expense 2,155,328 3,116,739 (961,411) 30.8 %
Income tax provision (benefit) 4,621,749 (2,052,426) 6,674,175 325.2 %
Depreciation & Amortization 12,807,049 13,184,904 (377,855) 2.9 %
EBITDA 33,121,476 (330,148,444) 363,269,920 110.0 %
Goodwill impairment loss — 338,191,407 (338,191,407) 100.0 %
Unrealized Change in fair value of interest rate swap contracts (654,150) 1,284,276 (1,938,426) 150.9 %
Realized gain on termination of interest rate swap contract (716,800) — (716,800) 100.0 %
COVID-19 bad debt reserve (recovery) (178,250) 1,135,836 (1,314,086) 115.7 %
Non-recurring expenses* 6,598,575 3,272,086 3,326,489 101.7 %
Adjusted EBITDA $ 38,170,851 $ 13,735,161 $ 24,435,690 177.9 %
Percentage of revenue 6.7 % 3.3 % 3.4 % 105.5 %


	Six Months Ended June 30,						Change
($ in thousands)	2022			2021			Amount		%
Net income	$	7,634		$	4,974		$	2,660	53.5	%
Interest expense	2,827			1,830			997		54.5	%
Income tax provision	2,201			2,062			139		6.7	%
Depreciation and amortization	11,859			9,490			2,369		25.0	%
EBITDA	24,521			18,356			6,165		33.6	%
Lease guarantee expense	5,889			—			5,889		NM
Change in fair value of interest rate swap contracts	(566)			(1,319)			753		(57.1)	%
Stock-based compensation expense	511			—			511		NM
Acquisition and integration costs	1,059			—			1,059		NM
Impairment loss	422			—			422		NM
Adjusted EBITDA	$	31,836		$	17,037		$	14,799	86.9	%
Adjusted EBITDA margin	5.4		%	4.8		%

____________________

* For the nine months ended September 30, 2021, non-recurring expenses comprised of $6.6 million for legal fees related to the defense of class action lawsuits and an internal investigation stemming from the lawsuits (see Note 17 to our financial statements for additional information.).NM - Not meaningful

Adjusted EBITDA was ~~$38.2~~$31.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~$24.5~~$14.8 million, or ~~177.9%~~86.9%, compared to ~~$13.7~~$17.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~$24.5~~$14.8 million increase in Adjusted EBITDA was primarily attributable to our strong business recovery to pre-COVID-19 pandemic levels and an improvement of distribution, selling and administrative expenses as a percentage of net revenue from 16.4% for the six months ended June 30, 2021 to 14.9% for the six months ended June 30, 2022. In addition, there is ~~directly related~~a net positive impact of $0.8 million due to the change in fair value of ~~net income improvement of $19.7 million, as well as a $6.7 million swing in income tax provision.~~

interest rate swap contracts.

Liquidity and Capital Resources

On January 17, 2020, the Company entered into the Second Amended Credit Agreement by and among JP Morgan, as Administrative Agent, and certain lender parties thereto, including Comerica Bank. The Second Amended Credit Agreement provided for a $100 million asset-secured revolving credit facility maturing on November 4, 2022, and mortgage-secured Term Loans of $75.6 million.

As of ~~September~~June 30, ~~2021,~~2022, we had cash of approximately ~~$15.5~~$18.8 million, checks issued not presented for payment of $20.2 million and access to approximately ~~$77.0~~$40.0 million in additional funds through our ~~$100~~$100.0 million line of credit, subject to a borrowing base calculation. ~~The strategic cost management actions undertaken following the outbreak of COVID-19 in late March 2020 resulted in an overall increase of the available line of credit over time.~~ We have funded working capital and other capital requirements primarily by cash flow from operations and

~~Table~~ our line of ~~Contents~~

~~bank loans.~~credit. Cash is required to pay purchase costs for inventory, salaries, fuel and trucking expenses, selling expenses, rental expenses, income taxes, other operating expenses and to service debts.

Based on current sales volume, which ~~had~~has been increasing steadily quarter-on-quarter since the third quarter of fiscal year 2020, ~~management believes~~we believe that ~~the~~our cash flow generated from operations ~~will be~~is sufficient to meet our normal working capital needs and debt obligations 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. Management has ~~considered the~~taken into consideration historical experience, ~~the economy, the~~general economic trends in the ~~food service~~United States, and trends in the foodservice distribution industry to determine the expected collectability of accounts receivable and the realization of ~~the~~ inventories as of ~~September~~June 30, ~~2021.~~ 2022.

On March 31, 2022, we amended the Credit Agreement with J.P. Morgan extending our line of credit for five years. 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. 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 related to the timing of our filing of our 2021 audited financial statements.

On April 29, 2022, we completed the Sealand Acquisition for cash consideration of $20.0 million plus approximately $14.4 million of inventory. We financed the Sealand Acquisition through our $100.0 million line of credit. See Note 7 - Acquisitions for additional information regarding the Sealand Acquisition.

During the three months ended June 30, 2022, we sold a warehouse to a related party for approximately $7.2 million and used a portion of the proceeds to pay the outstanding balance of our $4.5 million loan with First Horizon Bank. See Note 10 - Debt for additional information.

During the three months ended June 30, 2022, we paid the remaining $4.5 million of our related party promissory note payable. See Note 13 - Related Party Transactions for additional information.

Based on the above considerations, management ~~is of the opinion that~~believes we have sufficient funds to meet our working capital requirements and debt obligations in the next 12twelve months. 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 ~~respond~~response to a potential resurgence of COVID-19, competitive pricing in the ~~food service~~foodservice distribution industry, and our bank and suppliers being able to provide continued support. The Company has initiated renewal discussions with JPM and intends to renew the revolving credit facility in the next six months. In the event that a renewal cannot be secured with JPM, Company's operations may be limited to a reduced capacity until a replacement credit facility is secured. If the future cash flow from operations and other capital resources is insufficient to fund our liquidity needs, we may have to resort to reducing or delaying our expected acquisition plans, liquidating assets, obtaining additional debt or equity capital, or refinancing all or a portion of our debt.

~~The following table sets forth cash flow data for the nine months ended September~~As of June 30, ~~2021 and 2020:~~

For the Nine Months Ended September 30,
2021 2020
Net cash provided by operating activities $ 10,158,472 $ 44,311,146
Net cash used in investing activities (6,443,939) (94,253,697)
Net cash provided by (used in) financing activities 2,247,791 44,584,579
Net increase in cash and cash equivalents $ 5,962,324 $ (5,357,972)

~~Operating Activities~~

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, changes in deferred income taxes and others, and adjusted for the effect of working capital changes. Net cash provided by operating activities decreased $34.2 million, or 77.1%, as a result of changes in working capital items due mainly to two factors: (a) Accounts receivable balance as of September 30, 2020 was significantly lower as the business pivoted to lower sales volume on open credit terms and higher sales volume on Cash on Delivery (COD) in response to the heightened risk from the COVID-19 pandemic. In 2021, sales increased as the COVID-19 impact began to subside, resulting in normalization of credit terms given to customers, hence a higher accounts receivable balance as of September 30, 2021 compared to September 30, 2020; (b) Inventory level as of September 30, 2020 was significantly lower due to lower demand in 2020, while inventory level as of September 30, 2021 increased sharply as a direct result of increasing sales volume and the need for more inventory purchases during the period.

~~Investing Activities~~

Net cash used in investing activities decreased $87.8 million, or 93.2%, primarily due to a one-off payment of $94.0 million in the prior year for the acquisition of the BRGR Subsidiaries. The decrease was offset by a $5.0 million payment for the purchase of the minority shareholder's interest in Kirnland earlier this year, as well as the purchase of property and equipment for $1.0 million.

~~Financing Activities~~

Net cash from financing activities decreased $42.3 million, or 95.0%, caused primarily by a non-recurring $75.6 million term loan obtained in the prior year to finance the acquisition of the BRGR Subsidiaries and a $2.0 million increase in repayment of notes payable - related parties. These changes were offset by a $14.0 million decrease in repayment of bank overdraft and a $20.8 million increase in proceeds from the line of credit.

~~Table of Contents~~

~~Commitments and Contractual Obligations~~

~~The following table presents the Company’s material contractual obligations as of September 30, 2021:~~

Contractual Obligations Total Less than 1
year 1-3 years 3-5 years More than 5
years
Line of credit $ 23,020,114 $ — $ 23,020,114 $ — $ —
Long-term debt 89,385,697 5,677,453 8,898,221 8,118,740 66,691,283
Promissory note payable - related party 5,000,000 — — — 5,000,000
Finance lease obligations 19,239,341 728,921 1,457,096 988,340 16,064,984
Operating lease obligations 3,084,389 798,451 1,294,810 991,128 —
Total $ 139,729,541 $ 7,204,825 $ 34,670,241 $ 10,098,208 $ 87,756,267

~~Off-Balance Sheet Arrangements~~

We2022, we have no ~~off-balance~~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.

The following table summarizes cash flow data for the six months ended June 30, 2022and 2021:


	Six Months Ended June 30,				Change
($ in thousands)	2022		2021		Amount		%
Net cash provided by operating activities	$	13,658	$	14,159	$	(501)	(3.5)%
Net cash used in investing activities	(48,655)		(5,595)		(43,060)		769.6%
Net cash provided by (used in) financing activities	39,023		(4,720)		43,743		NM
Net increase in cash and cash equivalents	$	4,026	$	3,844	$	182	4.7%

____________________

NM - Not meaningful

Operating Activities

Net cash provided by operating activities decreased to $13.7 million for the six months ended June 30, 2022, compared to $14.2 million for the six months ended June 30, 2021.

Investing Activities

Net cash used in investing activities was $48.7 million for the six months ended June 30, 2022, compared to net cash used in investing activities of $5.6 million for the six months ended June 30, 2021, an increase of $43.1 million primarily due to the Sealand Acquisition of $34.9 million and the $17.4 million paid for the inventory acquired related to the Great Wall Acquisition partially offset by proceeds from the $7.2 million sale of a warehouse.

Financing Activities

Net cash provided by financing activities was $39.0 million for the six months ended June 30, 2022, compared to net cash used in financing activities of $4.7 million for the six months ended June 30, 2021, primarily due to the $46.0 million increase of our mortgage-secured term loan, partially offset by the $4.5 million payoff of our related party promissory note payable and the $4.5 million repayment of long-term debt related to our related party warehouse sale mentioned above.

Critical Accounting Policies and Estimates

We have prepared the financial information in this Quarterly Report in accordance with ~~U.S.~~ GAAP. Preparing ~~the Company's~~our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during these reporting periods. We base our estimates and judgments on historical experience and other factors we believe are reasonable under the circumstances. These assumptions form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Part II, Item ~~7—“Management’s~~7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the ~~2020~~2021 Annual Report on Form 10-K includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenue, or expenses during the ~~nine month period~~six months ended ~~September~~June 30, ~~2021.~~2022.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, ~~see Note 2,~~refer to Recent Accounting Pronouncements in Note 2 - Summary of Significant Accounting Policies in our unaudited condensed consolidated financial statements.

~~Table of Contents~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk

Our debt exposes us to risk of fluctuations in interest rates. Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at higher rates. 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. See Note 10 - Debt to the unaudited condensed consolidated financial statements in this Form 10-Q for additional information.

As of ~~September~~June 30, ~~2021,~~2022, our aggregate floating rate debt’s outstanding principal balance was ~~$71.8~~$174.3 million, or ~~61.2%~~94.1% of total debt, consisting of long-term debt and our revolving line of ~~credit (See Notes 9 and 10). Floating~~credit. See Note 10 - Debt to the unaudited condensed consolidated financial statements in this Form 10-Q for additional information. Our floating rate debt ~~bore~~ interest ~~rate~~is based on the floating 1-month ~~LIBOR~~SOFR plus a predetermined credit adjustment rate plus the bank ~~spreads.~~spread. The remaining ~~38.8%~~5.9% of our debt ~~are on~~is fixed-rate

and floating rate with hedge. In a ~~fixed rate. A~~ hypothetical scenario, a 1% ~~fluctuation~~change in the applicable rate would cause the interest expense on our floating rate debt to change by approximately ~~$0.7~~$1.7 million per year.

Fuel Price Risk

We are also exposed to risks relating to fluctuations ~~risk~~ in the price and availability of diesel fuel. 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~~despite the fact that prices in the current quarter increased ~~38.4%~~by 69.9% from the comparable period of ~~2020.~~2021. However, 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. Increases in the cost of diesel fuel could increase our cost of goods sold and operating costs to deliver products to our customers.

~~The Company does~~We do not actively hedge ~~the~~against price ~~fluctuation~~fluctuations of diesel fuel in general. Instead, we seek to minimize fuel cost risk through delivery route optimization and ~~improving~~ fleet ~~utilization.~~utilization improvements.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. In connection with this review and the audit of our consolidated financial statements for the year ended December 31, ~~2020,~~2021, we identified two material weaknesses ~~and control deficiencies in our internal control over financial reporting. The~~as were reported previously, which continue to exist as of June 30, 2022. In addition, there were other material weaknesses identified include: (1) The Company has limited in-house accounting personnel with sufficient U.S. GAAP and SEC reporting experience related to complex transactions; and (2) the Company lacks sufficient IT resources toduring 2021 that exist as of June 30, 2022. We did not properly design or maintain effective ~~IT General Controls, including missing certain entity level~~ controls ~~in IT management, lack of segregation of duties in IT functions, proper review~~over the control environment, risk assessment, monitoring, control activities, and information and communication components of the ~~operation~~Committee of ~~application systems, and measures to protect data security and maintain business sustainability. Control deficiencies are related to~~Sponsoring Organizations of the ~~lack of proper documentation to evidence the management review of various business processes.~~ Treadway Commission in 2013.

Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that as a result of the material ~~weakness in our internal~~weaknesses and control ~~over financial reporting~~deficiencies as reported in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, our disclosure controls and procedures were not effective as of ~~September~~June 30, ~~2021.~~2022. Notwithstanding the weaknesses, our management has concluded that the financial statements included elsewhere in this report present fairly, and in all ~~materials~~material respects, our financial position, on results of operation and cash flow in conformity with ~~U.S.~~ GAAP.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

~~Table of Contents~~

As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2020, management concluded that our internal control over financial reporting was ineffective due to material weaknesses and control deficiencies in our internal control over financial reporting. The material weaknesses identified includes: (1) the Company has limited in-house accounting personnel with sufficient U.S. GAAP and SEC reporting experiences, especially related to complex transactions and new accounting pronouncements; and (2) the Company lacks sufficient IT resources to maintain effective IT General Controls, including missing certain entity level controls in IT management, lack of segregation of duties in IT functions, proper review of the operation of application systems, and measures to protect data security and maintain business sustainability. Control deficiencies are related to the lack of proper documentation to evidence the management review of various business processes.

In order to address and resolve the foregoing material ~~weakness,~~weaknesses, we have begun to implement measures designed to improve our internal control over financial reporting to remediate these material weaknesses, including continuously hiring additional financial personnel with requisite training and experience in the preparation of financial statements in compliance with applicable SEC requirements, formalizing our processes to generate documentation sufficient to support customer orders and purchase orders, and implementing controls to obtain documentation evidencing customer agreements to transaction amounts and account balances. System integration on accounting and procurement software between HF and B&R Global were substantially completed in March 2021. Operating on the same system strengthened internal control over financial reporting and IT general control by providing a seamless environment to perform operational and reporting functions.

The measures we ~~have implemented~~are implementing are subject to continued management review supported by confirmation and testing, as well as audit committee oversight. Management remains committed to ~~the implementation of remediation~~ongoing efforts to address these material weaknesses. Although we will continue to implement measures to remedy our internal control deficiencies, there can be no assurance that our efforts will be successful or avoid potential future material weaknesses. In addition, until remediation steps have been completed ~~and/or~~and operated for a sufficient period of time, and subsequent evaluation of their effectiveness is completed, the material weaknesses identified and described above will continue to exist.

5135

~~Table of Contents~~

There have been no other change to our internal control over financial reporting during the three months ended June 30, 2022.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, ~~the Company is~~we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. With respect to our outstanding legal matters, we believe that the amount or estimable range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. ~~However, the outcome of litigation is inherently uncertain. Therefore, if one or more of these ordinary-course~~For information relating to legal ~~matters were resolved against us for amounts~~proceedings, see Note 15 - Commitments and Contingencies in ~~excess of management's expectations,~~ our ~~results of operations and~~consolidated financial ~~condition, including in a particular reporting period, could be materially adversely affected.~~

statements.

As previously disclosed, in March 2020, a short-seller report suggested certain improprieties in the Company’s operations. These allegations became the subject of two putative stockholder class actions filed on or after March 29, 2020 in the United States District Court for the Central District of California generally alleging 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 (the “Class Actions”). After the second putative stockholder class action was filed, the Class Actions were consolidated. On January 19, 2021, the Company and the director and officer defendants filed a Motion to Dismiss the consolidated Class Actions. On August 25, 2021, the Court granted the Motion to Dismiss with leave to amend the complaint. The Plaintiff elected not to amend his complaint, and the Court entered Judgment in favor of the Company and the director and officer defendants on September 20, 2021. The Court’s decision was not appealed, and the Class Actions are now closed.

In response to the allegations in the March 2020 short-seller report, the Company's Board of Directors appointed a Special Committee of Independent Directors to conduct an internal independent investigation with the assistance of counsel (the “Special Committee”).

In addition, the SEC initiated a formal, non-public investigation of the Company, and the SEC informally requested, and later issued a subpoena for, documents and other information. The subpoena relates to but is not necessarily limited to the matters identified in the Class Actions. The Special Committee and the Company are cooperating with the SEC. The SEC and the Special Committee investigations are ongoing. There have been no changes to the status of these proceedings as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Refer to Independent Investigation Update in Note 1.

While the Special Committee has reached no final conclusions in conjunction with its investigation, it has made a number of recommendations to management regarding improvements to Company operations and structure, including but not limited to its dealings with related parties.

The Company has also instituted structural changes including the retirement of the former Co-Chief Executive Officer and Chairman of the Board. The Company now has an independent Chairman of the Board. In addition, the Company hired an in-house General Counsel and Chief Compliance Officer, who reports to the Chief Executive Officer and the Chairman of the Board.

~~Table of Contents~~

Item 1A. Risk Factors.

We are dependent upon the timely delivery of products from our vendors. 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.

The global supply chain, ranging from consumer goods, electronics, and industrial raw materials to food supplies, has been negatively impacted by the ongoing COVID-19 pandemic, shipping bottlenecks, and rapidly rising freight costs. The Company procures the majority of its food supply domestically (approximately 85%) and has not been materially impacted to date. Food production is widely dispersed throughout the U.S. and there are currently no widespread disruptions reported in the domestic food supply chain. However, we depend on producers of food and restaurant supply products to timely deliver these components of our inventory in quantities sufficient to meet customer demand. Any disruptions or delays in our supply chains as a result of labor shortages or inefficiencies in distribution or logistical services could cause delays in the shipment or delivery of our products to our customers. 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.

~~Other than the risk described above, there~~There have been no material changes ~~with respect to~~from the risk factors ~~as previously~~that we believe are material to our business, results of operations, and financial condition from those disclosed in the Previous Report. Investing in our common stock involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described in our Previous Report, our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I, Item 1A — “Risk Factors" of ~~this Quarterly~~the Annual Report on Form 10-Q, our consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes, as well as our Management’s Discussion and Analysis of Financial Condition and Results of Operations and10-K for the ~~other information in our Previous Report. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the SEC.~~year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities.

~~There have been no changes with respect to unregistered sales of equity securities as previously disclosed in the Previous Report.~~None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

5336

~~Table of Contents~~

Item 6. Exhibits.

The following exhibits are being filed or furnished with this ~~quarterly report~~Quarterly Report on Form 10-Q:

Incorporated by Reference

Exhibit Number

Description

Form

Exhibit

Filing Date

3.1

Second Amended and Restated Certificate of Incorporation

8-K

3.1

8/11/2017

3.2

Certificate of Amendment to Certificate of Incorporation

8-K

3.1.2

8/27/2018

3.3

Amended and Restated Bylaws

8-K

3.02

11/04/2022

4.1

Specimen Common Stock Certificate

S-1/A

4.2

7/28/2017

4.2

Form of Rights Agreement, dated August 8, 2017, by and between American Stock Transfer & Trust Company, LLC and the Registrant

8-K

4.1

8/11/2017

4.3

Form of Unit Purchase Option between the Registrant and Chardan Capital Markets, LLC

S-1/A

4.5

7/28/2017

10.1†

Offer of Employment for Felix Lin dated April 15, 2022

8-K

10.1

4/20/2022

10.2

Asset Purchase Agreement, dated as of April 19, 2022, by and among Sealand Food, Inc., Connie Wang, Jenny Wang and Great Wall Seafood VA, L.L.C. and, solely for purposes of Section 2.1(d) thereof, HF Foods Group, Inc.

8-K

10.1

4/25/2022

10.3†

Separation and Release Agreement, dated May 18, 2022, by and among HF Foods Group Inc. and Kong Hian Lee

8-K

10.1

5/24/2022

31.1*

Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

31.2*

Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1**

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*	Filed herewith.
~~Exhibit No.~~**		~~Description~~Furnished herewith.
~~31.1~~		~~Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.~~

~~31.2~~		~~Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.~~

~~32.1~~		~~Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~32.2~~		~~Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~101.INS~~†		~~XBRL Instance Document~~

~~101.SCH~~Indicates a management contract or compensatory plan or arrangement.		~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~104~~		~~Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)~~

5437

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			HF FOODS GROUP INC.

			By: /s/ Xiao Mou Zhang
			Xiao Mou Zhang Chief Executive Officer

			By: /s/ ~~Kong Hian Lee~~Carlos Rodriguez
			~~Kong Hian Lee~~Carlos Rodriguez Chief Financial Officer (Principal accounting and financial officer)

Date: ~~November 15, 2021~~January 31, 2023

5538


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020

Net revenue - third parties	$	213,178,708	$	137,631,565	$	560,630,604	$	409,446,496
Net revenue - related parties	2,363,341		2,287,377		7,839,509		10,835,878
TOTAL NET REVENUE	215,542,049		139,918,942		568,470,113		420,282,374

Cost of revenue - third parties	171,431,310		112,535,923		453,990,363		335,202,455
Cost of revenue - related parties	2,198,771		2,220,161		8,003,887		10,329,232
TOTAL COST OF REVENUE	173,630,081		114,756,084		461,994,250		345,531,687

GROSS PROFIT	41,911,968		25,162,858		106,475,863		74,750,687

Distribution, selling and administrative expenses	30,972,019		25,050,419		89,003,273		79,549,580
Goodwill impairment loss	—		—		—		338,191,407
TOTAL OPERATING EXPENSES	30,972,019		25,050,419		89,003,273		417,740,987

INCOME (LOSS) FROM OPERATIONS	10,939,949		112,439		17,472,590		(342,990,300)

Other Income (Expenses)
Interest income	—		133		—		396
Interest expense	(703,845)		(840,851)		(2,155,328)		(3,116,739)
Other income	558,138		270,452		1,470,887		940,832
Change in fair value of interest rate swap contracts	52,314		(20,022)		1,370,950		(1,284,276)
Total Other Income (Expenses), net	(93,393)		(590,288)		686,509		(3,459,787)

INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT)	10,846,556		(477,849)		18,159,099		(346,450,087)

PROVISION (BENEFIT) FOR INCOME TAXES	2,637,444		(80,910)		4,621,749		(2,052,426)
NET INCOME (LOSS)	8,209,112		(396,939)		13,537,350		(344,397,661)
Less: net income attributable to non-controlling interests	357,345		226,865		566,055		168,988
NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.	$	7,851,767	$	(623,804)	$	12,971,295	$	(344,566,649)

Earnings (loss) per common share - basic and diluted	$	0.15	$	(0.01)	$	0.25	$	(6.61)
Weighted average shares - basic	51,913,411		52,145,096		51,913,411		52,145,096
Weighted average shares - diluted	51,932,712		52,145,096		51,919,932		52,145,096


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity Attributable to HF Foods Group Inc.		Non-controlling Interests		Total Shareholders’ Equity
	Number of Shares	Amount		Number of Shares	Amount
Balance at January 1, 2021	51,913,411	$	5,191	—	$	—	$	587,579,093	$	(327,150,398)	$	260,433,886	$	4,367,547	$	264,801,433
Net income	—	—		—	—		—		1,522,932		1,522,932		300,267		1,823,199
Distribution to shareholders	—	—		—	—		—		—		—		(73,000)		(73,000)
Balance at March 31, 2021	51,913,411	5,191		—	—		587,579,093		(325,627,466)		261,956,818		4,594,814		266,551,632
Net income (loss)	—	—		—	—		—		3,596,596		3,596,596		(91,557)		3,505,039
Acquisition of non-controlling interest	—	—		—	—		(3,855,887)		—		(3,855,887)		(1,144,113)		(5,000,000)
Distribution to shareholders	—	—		—	—		—		—		—		(77,550)		(77,550)
Balance at June 30, 2021	51,913,411	5,191		—	—		583,723,206		(322,030,870)		261,697,527		3,281,594		264,979,121


Net income	—	—		—	—		—		7,851,767		7,851,767		357,345		8,209,112
Distribution to shareholders	—	—		—	—		—		—		—		(61,750)		(61,750)
Stock-based compensation	—	—		—	—		205,433		—		205,433		—		205,433
Balance at September 30, 2021	51,913,411	$	5,191	—	$	—	$	583,928,639	$	(314,179,103)	$	269,754,727	$	3,577,189	$	273,331,916

Balance at January 1, 2020	53,050,211	$	5,305	(905,115)	$	(12,038,030)	$	599,617,009	$	15,823,661	$	603,407,945	$	4,248,787	$	607,656,732
Net income (loss)	—	—		—	—		—		(339,883,942)		(339,883,942)		197,410		(339,686,532)
Distribution to shareholders	—	—		—	—		—		—		—		(125,000)		(125,000)
Balance at March 31, 2020	53,050,211	5,305		(905,115)	(12,038,030)		599,617,009		(324,060,281)		263,524,003		4,321,197		267,845,200
Net loss	—	—		—	—		—		(4,058,903)		(4,058,903)		(255,287)		(4,314,190)
Balance at June 30, 2020	53,050,211	5,305		(905,115)	(12,038,030)		599,617,009		(328,119,184)		259,465,100		4,065,910		263,531,010
Net income (loss)	—	—		—	—		—		(623,804)		(623,804)		226,865		(396,939)
Balance at September 30, 2020	53,050,211	$	5,305	(905,115)	$	(12,038,030)	$	599,617,009	$	(328,742,988)	$	258,841,296	$	4,292,775	$	263,134,071


Name of Entity	Percentage of Non-controlling Interest Ownership	September 30, 2021		December 31, 2020
Kirnland	—%	$	—	$	1,384,780
HFFI	40.00%	(977)		—
MIN	39.75%	1,268,809		889,596
MS	35.00%	452,677		459,816
OW	32.50%	1,856,680		1,633,355
Total		$	3,577,189	$	4,367,547


	Estimated Useful Lives (Years)
Automobiles	3	—	7
Buildings and improvements	7	—	39
Furniture and fixtures	4	—	10
Machinery and equipment	3	—	10


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Arizona	$	13,241,260	$	8,418,352	$	36,757,835	$	25,344,389
California	80,777,266		43,159,185		205,560,026		145,316,702
Colorado	12,468,369		9,177,067		32,971,787		25,618,734
Florida	24,289,395		17,167,155		66,900,082		47,562,057
Georgia	18,148,570		12,524,287		49,390,449		34,699,175
North Carolina	37,161,307		28,688,103		100,378,085		79,672,578
Utah	16,167,635		13,717,413		43,087,364		39,010,162
Washington	13,288,247		7,067,380		33,424,485		23,058,577
Total	$	215,542,049	$	139,918,942	$	568,470,113	$	420,282,374


	Operating Leases
Twelve months ending	As reported March 31, 2021		As revised March 31, 2021		As reported June 30, 2021		As revised June 30, 2021
2022	$	999,730	$	717,230	$	1,011,964	$	706,964
2023	985,718		629,468		1,139,353		776,853
2024	856,936		475,686		964,309		576,809
2025	816,708		410,458		987,997		575,497
2026	723,859		292,609		791,576		354,076
Thereafter	17,466,321		—		17,396,355		42,534
Total Lease Payments	21,849,272		2,525,451		22,291,554		3,032,733
Less Imputed Interest	(5,752,558)		(201,194)		(5,750,563)		(267,723)
Total	$	16,096,714	$	2,324,257	$	16,540,991	$	2,765,010


	Finance Leases
Twelve months ending	As reported March 31, 2021		As revised March 31, 2021		As reported June 30, 2021		As revised June 30, 2021
2022	$	424,308	$	805,558	$	336,501	$	724,001
2023	320,868		739,618		322,569		747,569
2024	288,572		732,322		274,426		724,426
2025	165,248		625,373		96,496		559,996
2026	—		473,929		—		477,405
Thereafter	—		16,307,267		—		16,187,916
Total Lease Payments	1,198,996		19,684,067		1,029,992		19,421,313
Less Imputed Interest	(218,012)		(10,868,310)		(126,570)		(10,657,257)
Total	$	980,984	$	8,815,757	$	903,422	$	8,764,056


	Ownership as of September 30, 2021	As of September 30, 2021		As of December 31, 2020
Asahi Food, Inc.	49%	$	643,885	$	577,164
Pt. Tamron Akuatik Produk Industri ("Tamron")	12%	1,800,000		1,800,000
Total		$	2,443,885	$	2,377,164


Twelve months ending September 30,	Amount
2022	$	10,890,300
2023	10,890,300
2024	10,890,300
2025	10,890,300
2026	10,890,300
Thereafter	113,178,425
Total	$	167,629,925


Bank name	Maturity	Interest rate as of September 30, 2021			As of September 30, 2021		As of December 31, 2020
Bank of America – (a)	October 2021 - December 2029	3.73%	—	5.80%	$	5,374,589	$	5,905,472
BMO Harris Bank N.A. – (b)	April 2022 - January 2024	5.96%	—	5.99%	153,991		280,164
East West Bank – (c)	August 2027 - September 2029	4.25%	—	4.40%	6,656,129		6,802,271
First Horizon Bank – (d)	October 2027	3.85%			4,622,762		4,773,378
J.P. Morgan Chase – (e)	February 2023 - January 2030	1.96%	—	2.09%	71,759,021		74,687,806
Peoples United Bank – (b)	December 2022 - January 2023	7.44%	—	7.53%	473,967		725,282
Other finance institutions – (b)	July 2022 - March 2024	3.90%	—	6.14%	345,238		475,689
Total debt					89,385,697		93,650,062
Less: current portion					(5,677,453)		(5,641,259)
Long-term debt					$	83,708,244	$	88,008,803


Twelve months ending September 30,	Operating Leases		Finance Leases
2022	$	798,451	$	728,921
2023	737,858		750,665
2024	556,952		706,431
2025	575,350		507,354
2026	415,778		480,986
Thereafter	—		16,064,984
Total Lease Payments	3,084,389		19,239,341
Less Imputed Interest	(386,685)		(10,520,562)
Total	$	2,697,704	$	8,718,779


	As of September 30, 2021		As of December 31, 2020
Deferred tax assets
Allowance for doubtful accounts	$	296,081	$	443,151
Inventories	680,411		481,016
Federal net operating loss	128		101,828
State net operating loss	5,203		257,490
Fair value change in interest rate swap contracts	81,628		244,622
Leases	104,503		—
Accrued expenses	265,407		268,813
Total deferred tax assets	1,433,361		1,796,920

Deferred tax liabilities
Property and equipment	(2,314,639)		(2,660,874)
Intangibles assets	(43,318,258)		(45,461,272)
Total deferred tax liabilities	(45,632,897)		(48,122,146)
Net deferred tax liabilities	$	(44,199,536)	$	(46,325,226)


Name of Related Party		Nine Months Ended September 30, 2021		Nine Months Ended September 30, 2020
(a)	Allstate Trading Company, Inc.	$	—	$	308,865
(b)	Best Food Services, LLC	6,225,024		4,204,084
(c)	Eastern Fresh NJ, LLC	4,425,286		3,240,575
(d)	Enson Group, Inc. (formerly "Enson Group, LLC")	127,577		58,515
(e)	First Choice Seafood, Inc.	265,934		355,261
(f)	Fujian RongFeng Plastic Co., Ltd	2,397,794		2,598,952
(g)	Hanfeng (Fujian) Information Technology Co., Ltd.	—		1,581,450
(h)	N&F Logistics, Inc.	2,646		368,529
(i)	Ocean Pacific Seafood Group, Inc.	452,312		383,211
(j)	Revolution Industry, LLC	189,701		1,701,490
(k)	UGO USA, Inc.	212,384		429,073
(l)	Union Foods, LLC	—		1,246,720
	Others	216,192		122,073
Total		$	14,514,850	$	16,598,798


	Shares	Weighted Average Grant Date Fair Value
Unvested RSUs at June 30, 2021	—	$	—
Granted	352,761	5.17
Forfeited	2,322	5.17
Vested	—	—
Unvested RSUs at September 30, 2021	350,439	$	5.17


	Shares	Weighted Average Grant Date Fair Value
Unvested PSUs at June 30, 2021	—	$	—
Granted	143,277	3.82
Forfeited	—	—
Vested	—	—
Unvested PSUs at September 30, 2021	143,277	$	3.82


	PSUs awarded July 8, 2021		PSUs awarded September 8, 2021
Risk-free interest rate	0.32%	-	0.34%
Expected dividend yield	—%
Expected term (years)	2.56	-	2.73
Expected volatility (1)	64.26%	-	65.74%


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Net revenue
Sales to independent restaurants	$	207,559,475	$	134,167,324	$	548,116,720	$	400,060,302
Wholesale	7,982,574		5,751,618		20,353,393		20,222,072
Total	$	215,542,049	$	139,918,942	$	568,470,113	$	420,282,374


	As of September 30, 2021		As of December 31, 2020
Total assets:
Sales to independent restaurants	$	496,082,096	$	456,721,529
Wholesale	18,421,175		27,506,076
Total Assets	$	514,503,271	$	484,227,605


	Three Months Ended September 30,						Changes
	2021			2020			Amount			%
Sales to independent restaurants
Net revenue	$	207,559,475		$	134,167,324		$	73,392,151		54.7	%
Cost of revenue	166,638,813			109,339,945			57,298,868			52.4	%
Gross profit	$	40,920,662		$	24,827,379		$	16,093,283		64.8	%
Gross Margin	19.7		%	18.5		%	1.2		%	6.5	%

Wholesale
Net revenue	$	7,982,574		$	5,751,618		$	2,230,956		38.8	%
Cost of revenue	6,991,268			5,416,139			1,575,129			29.1	%
Gross profit (loss)	$	991,306		$	335,479		$	655,827		195.5	%
Gross Margin	12.4		%	5.8		%	6.6		%	113.8	%

Total sales
Net revenue	$	215,542,049		$	139,918,942		$	75,623,107		54.0	%
Cost of revenue	173,630,081			114,756,084			58,873,997			51.3	%
Gross profit	$	41,911,968		$	25,162,858		$	16,749,110		66.6	%
Gross Margin	19.4		%	18.0		%	1.4		%	7.8	%


	Nine Months Ended September 30,
	2021			2020			Amount			%
Sales to independent restaurants
Net revenue	$	548,116,720		$	400,060,302		$	148,056,418		37.0	%
Cost of revenue	442,864,604			326,484,372			116,380,232			35.6	%
Gross profit	$	105,252,116		$	73,575,930		$	31,676,186		43.1	%
Gross Margin	19.2		%	18.4		%	0.8		%	4.3	%

Wholesale
Net revenue	$	20,353,393		$	20,222,072		$	131,321		0.6	%
Cost of revenue	19,129,646			19,047,315			82,331			0.4	%
Gross profit	$	1,223,747		$	1,174,757		$	48,990		4.2	%
Gross Margin	6.0		%	5.8		%	0.2		%	3.4	%

Total sales
Net revenue	$	568,470,113		$	420,282,374		$	148,187,739		35.3	%
Cost of revenue	461,994,250			345,531,687			116,462,563			33.7	%
Gross profit	$	106,475,863		$	74,750,687		$	31,725,176		42.4	%
Gross Margin	18.7		%	17.8		%	0.9		%	5.1	%


Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Line of credit	$	23,020,114	$	—	$	23,020,114	$	—	$	—
Long-term debt	89,385,697		5,677,453		8,898,221		8,118,740		66,691,283
Promissory note payable - related party	5,000,000		—		—		—		5,000,000
Finance lease obligations	19,239,341		728,921		1,457,096		988,340		16,064,984
Operating lease obligations	3,084,389		798,451		1,294,810		991,128		—
Total	$	139,729,541	$	7,204,825	$	34,670,241	$	10,098,208	$	87,756,267