What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 123 added, 91 removed, 207 unchanged (51% of the section changed)

4 unchanged sentences

Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts.

Words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions.

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• Costs to comply with environmental laws and regulations;

• Litigation;

• Litigation, regulatory investigations and potential enforcement actions;

• Increases in commodity prices;

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• Significant stockholders’ ability to significantly influence the Company;

• The impact of state antitakeover laws and related provisions in our governance documents.

• The impact of state anti-takeover laws and related provisions in our governance documents.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

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We are dedicated to serving the vast array of Asian and Chinese restaurants in need of high-quality and specialized food ingredients at competitive prices.

Transformation Plan

To position the business for long-term success, we have initiated a comprehensive, operational transformation plan in an effort to drive growth and cost savings.

Our transformation is focused on four key areas, each of which we expect will positively impact future growth or cost savings.

The components of our transformation are as follows:

• Centralized Purchasing:

We will formalize its national category purchases and welcome new vendors into our ecosystem.

This will allow us to unlock synergies from our prior acquisitions, and deliver savings in our largest categories.

• Fleet and Transportation:

We will be establishing a national fleet maintenance program.

Within this, we plan to define new truck specifications, initiate a replacement program for 50% of our current fleet, implement a national fuel savings program to maximize efficiency, and outsource domestic inbound freight logistics to a third-party partner to adopt a cohesive national approach to its supply chain.

This is expected to deliver substantial improvements to our transportation system.

• Digital Transformation:

We will be implementing a modern ERP solution across all of our distribution centers.

This is expected to deliver enhanced operational efficiency and responsiveness, streamlined processes, and greater data driven decision-making.

• Facility Upgrades:

We will be reorganizing and upgrading our facilities and distribution centers to efficiently streamline costs, and to capitalize on cross-selling opportunities with both new and existing customers.

Financial Overview

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

($ in thousands) 2023 2022 Amount % 2023 2022 Amount %

Net revenue $ 281,453 $ 300,711 $ (19,258) (6.4) % $ 867,620 $ 878,568 $ (10,948) (1.2) %

Net (loss) income $ (1,560) $ 4,494 $ (6,054) (134.7) % $ (7,357) $ 7,634 $ (14,991) (196.4) %

Net income (loss) $ 1,974 $ (3,894) $ 5,868 NM $ (5,383) $ 3,740 $ (9,123) NM

Adjusted EBITDA $ 10,004 $ 3,985 $ 6,019 151.0 % $ 24,024 $ 35,822 $ (11,798) (32.9) %

_________________

NM Not meaningful

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

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Results of Operations

Comparison of Three Months Ended June 30, 2023 to Three Months Ended June 30, 2022

The following table sets forth a summary of our consolidated results of operations for the three months ended June 30, 2023 and 2022 .

Comparison of Three Months Ended September 30, 2023 to Three Months Ended September 30, 2022

The following table sets forth a summary of our consolidated results of operations for the three months ended September 30, 2023 and 2022 .

The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

Three Months Ended June 30, Change

Three Months Ended September 30, Change

($ in thousands) 2023 2022 Amount %

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Distribution, selling and administrative expenses 48,841 54,589 (5,748) (10.5)%

(Loss) income from operations (1,577) 6,727 (8,304) (123.4)%

Income (loss) from operations 2,084 (3,096) 5,180 NM

Interest expense 2,715 2,274 441 19.4%

Other income (490) (462) (28) 6.1%

Change in fair value of interest rate swap contracts (2,856) (208) (2,648) 1,273.1%

Change in fair value of interest rate swap contracts (1,984) (284) (1,700) NM

Lease guarantee expense (95) (58) (37) 63.8%

(Loss) income before income taxes (1,351) 5,591 (6,942) (124.2)%

Income tax expense 209 1,097 (888) (80.9)%

Net (loss) income and comprehensive (loss) income (1,560) 4,494 (6,054) (134.7)%

net (loss) income attributable to noncontrolling interests (710) (70) (640) 914.3%

Net (loss) income and comprehensive (loss) income attributable to HF Foods Group Inc.

Income (loss) before income taxes 1,938 (4,566) 6,504 NM

Income tax expense (benefit) (36) (672) 636 (94.6)%

Net income (loss) and comprehensive income (loss) 1,974 (3,894) 5,868 NM

net income (loss) attributable to noncontrolling interests 90 (30) 120 NM

Net income (loss) and comprehensive income (loss) attributable to HF Foods Group Inc.

$ 1,884 $ (3,864) $ 5,748 (148.8)%

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

Three Months Ended June 30,

Three Months Ended September 30,

Net revenue 100.0 % 100.0 %

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Interest expense 1.0 % 0.8 %

Other income, net — % (0.1) %

Other income (0.2) % (0.2) %

Change in fair value of interest rate swap contracts (0.7) % (0.1) %

Lease guarantee expense — % — %

(Loss) income before income taxes (0.5) % 1.9 %

Income tax expense 0.1 % 0.4 %

Net (loss) income and comprehensive (loss) income (0.5) % 1.5 %

net (loss) income attributable to noncontrolling interests (0.2) % — %

Net (loss) income and comprehensive (loss) income attributable to HF Foods Group Inc.

Income (loss) before income taxes 0.7 % (1.6) %

Income tax expense (benefit) — % (0.2) %

Net income (loss) and comprehensive income (loss) 0.7 % (1.4) %

net income (loss) attributable to noncontrolling interests — % — %

Net income (loss) and comprehensive income (loss) attributable to HF Foods Group Inc.

0.7 % (1.4) %

Net revenue for the three months ended June 30, 2023 decreased by $7.3 million, or 2.4%, compared to the same period in 2022.

This decrease was primarily attributable to a $7.0 million decrease in Meat and Poultry revenue compared to the same period in 2022 driven by deflationary pricing in poultry.

Gross profit was $50.7 million for three months ended June 30, 2023 compared to $52.6 million in the same period in 2022 , a decrease of $1.9 million, or 3.6%.

The decrease was primarily attributable to a decrease in Meat and Poultry revenue.

Gross profit margin for three months ended June 30, 2023 decreased to 17.3% from 17.5% in the same period in 2022 .

The decrease was primarily attributable to the deflationary pressure in Meat and Poultry partially offset by improved Seafood margins.

Net revenue for the three months ended September 30, 2023 decreased by $19.3 million, or 6.4%, compared to the same period in 2022.

This decrease was primarily attributable to decreases of $8.9 million and $6.6 million in Meat and Poultry and Seafood revenue, respectively, compared to the same period in 2022, driven by deflationary pricing in poultry and shrimp.

During the three months ended September 30, 2022, we benefited from the significant inflation experienced in poultry pricing, which created a tough year-over-year revenue compare.

Gross profit was $50.9 million for three months ended September 30, 2023 compared to $51.5 million in the same period in 2022 , a decrease of $0.6 million, or 1.1%.

Gross profit margin for the three months ended September 30, 2023 increased to 18.1% from 17.1% in the same period in 2022 .

The increase in gross profit margin was primarily attributable to a mix shift of higher gross margin shrimp and other frozen food sales realized by our centralized purchasing program and the exit of one of our lower margin chicken processing businesses, partially offset by the deflationary pressure in Meat and Poultry.

Distribution, Selling and Administrative Expenses

Distribution, selling and administrative expenses increased by $6.4 million, or 14.0%, primarily due to an increase of $1.8 million in payroll and related labor costs and higher professional fees, which increased by $1.3 million, from $6.8 million for the three months ended June 30, 2022 to $8.1 million for the three months ended June 30, 2023 .

In addition, the Company recognized asset impairment of $1.2 million related to our exit of HF Foods Industrial, LLC (“HFFI”).

Distribution, selling and administrative expenses as a percentage of net revenue increased to 17.9% for the three months ended June 30, 2023 from 15.3% in the same period in 2022, primarily due to higher professional fees and increased headcount.

Distribution, selling and administrative expenses decreased by $5.7 million, or 10.5%, for the three months ended September 30, 2023 primarily due to a decrease of $3.9 million in professional fees and $0.8 million of delivery-related costs, partially offset by higher payroll and related labor costs.

Distribution, selling and administrative expenses as a percentage of net revenue decreased to 17.4% for the three months ended September 30, 2023 from 18.2% in the same period in 2022, primarily due to lower professional fees offset by increased headcount.

Interest Expense

Interest expense for the three months ended June 30, 2023 increased by $1.3 million, or 83.8% , compared to the three months ended June 30, 2022, primarily due to a sharply higher interest-rate environment.

Average floating interest rates on our floating-rate debt for the three months ended June 30, 2023 increased by approximately 4.3% on our line of credit and 4.3% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2022.

Our average daily line of credit balance increased by $1.6 million, or 4.4% , to $37.2 million for the three months ended June 30, 2023 from $35.6 million for the three months ended June 30, 2022, and our average daily JPMorgan Chase mortgage-secured term loan balance decreased by $5.1 million, or 4.4% , to $109.3 million for the three months ended June 30, 2023 from $114.3 million for the three months ended June 30, 2022.

Income Tax Expense

Income tax expense was $209 thousand for the three months ended June 30, 2023, compared to an income tax expense of $1.1 million for the three months ended June 30, 2022, primarily due to a loss from operations of $1.6 million during the current period compared to income from operations of $6.7 million in the prior period.

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

Net loss attributable to HF Foods Group Inc.

was $0.9 million for the three months ended June 30, 2023 , compared to net income of $4.6 million for the three months ended June 30, 2022.

The decrease of $5.4 million, or 118.6% , is primarily due to the increased distribution, selling, and administrative costs as well as a $1.3 million increase in interest expense, partially offset by the $2.6 million change in the fair value of interest rate swaps.

Interest expense for the three months ended September 30, 2023 increased by $0.4 million, or 19.4% , compared to the three months ended September 30, 2022, primarily due to a sharply higher interest-rate environment.

Average floating interest rates on our floating-rate debt for the three months ended September 30, 2023 increased by approximately 3.1% on our line of credit and 3.1% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2022.

Our average daily line of credit balance decreased by $19.1 million, or 32.6%, to $39.4 million for the three months ended September 30, 2023 from $58.5 million for the three months ended September 30, 2022, and our average daily JPMorgan Chase mortgage-secured term loan balance decreased by $5.1 million, or 4.5%, to $108.0 million for the three months ended September 30, 2023 from $113.1 million for the three months ended September 30, 2022.

Income Tax Expense (Benefit)

Income tax benefit was $36,000 for the three months ended September 30, 2023, compared to an income tax benefit of $0.7 million for the three months ended September 30, 2022, primarily due to an increase in income before income taxes, permanent differences and state income taxes during the current period.

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

Net income attributable to HF Foods Group Inc.

was $1.9 million for the three months ended September 30, 2023 , compared to net loss of $3.9 million for the three months ended September 30, 2022.

The increase of $5.7 million, or 148.8% , is primarily due to the decreased distribution, selling, and administrative costs, the $1.7 million change in the fair value of interest rate swaps, partially offset by lower gross profit, higher interest expense and decreased tax benefit as described above.

EBITDA and Adjusted EBITDA

The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure:

Three Months Ended June 30, Change

Three Months Ended September 30, Change

($ in thousands) 2023 2022 Amount %

Net (loss) income $ (1,560) $ 4,494 $ (6,054) (134.7)%

Net (loss) income $ 1,974 $ (3,894) $ 5,868 NM

Interest expense 2,715 2,274 441 19.4%

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Lease guarantee expense

(95) (58) (37) 63.8%

Change in fair value of interest rate swap contracts (1,984) (284) (1,700) NM

Stock-based compensation expense 752 221 531 240.3%

Acquisition and integration costs — 310 (310) NM

Asset impairment charges 1,200 422 778 184.4%

Stock-based compensation expense 757 162 595 NM

Business transformation costs (1)

Acquisition and integration costs and other (2)

146 71 75 105.6%

Adjusted EBITDA $ 10,004 $ 3,985 $ 6,019 151.0%

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NM Not meaningful

Adjusted EBITDA was $6.9 million for the three months ended June 30, 2023, a decrease of $7.0 million, or 50.1%, compared to $13.9 million for the three months ended June 30, 2022.

The decrease in Adjusted EBITDA was attributable to the lower gross profit and higher distribution, selling and administrative costs.

(1) Represents non-recurring costs associated with the launch of strategic projects including supply chain management improvements and technology infrastructure initiatives.

(2) Includes non-recurring contested proxy and related legal and consulting costs for the three months ended September 30, 2023.

Adjusted EBITDA was $10.0 million for the three months ended September 30, 2023, a decrease of $6.0 million, or 151.0%, compared to $4.0 million for the three months ended September 30, 2022.

The increase in Adjusted EBITDA was attributable to the lower distribution, selling and administrative costs.

Results of Operations

Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022

The following table sets forth a summary of our consolidated results of operations for the six months ended June 30, 2023 and 2022 .

Comparison of Nine Months Ended September 30, 2023 to Nine Months Ended September 30, 2022

The following table sets forth a summary of our consolidated results of operations for the nine months ended September 30, 2023 and 2022 .

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

Nine Months Ended September 30, Change

($ in thousands) 2023 2022 Amount %

3 unchanged sentences

Distribution, selling and administrative expenses 154,013 140,840 13,173 9.4%

(Loss) income from operations (4,334) 17,046 (21,380) (125.4)%

(Loss) income from operations (2,250) 13,950 (16,200) NM

Interest expense 8,430 5,101 3,329 65.3%

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Change in fair value of interest rate swap contracts (2,094) (850) (1,244) 146.4%

Lease guarantee expense (210) 5,889 (6,099) (103.6)%

Lease guarantee expense (305) 5,831 (6,136) NM

(Loss) income before income taxes (7,436) 5,269 (12,705) (241.1)%

Income tax (benefit) expense (2,017) 2,201 (4,218) (191.6)%

Income tax (benefit) expense (2,053) 1,529 (3,582) NM

Net (loss) income and comprehensive (loss) income (5,383) 3,740 (9,123) (243.9)%

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net revenue 100.0 % 100.0 %

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(0.8) % 0.4 %

Net revenue for the six months ended June 30, 2023 increased by $8.3 million, or 1.4%, compared to the same period in 2022.

This increase was attributable to the additional Seafood revenue generated due to the Sealand Food, Inc.

acquisition (the “Sealand Acquisition”) and product cost inflation, partially offset by a $16.0 million decrease in Meat and Poultry revenue compared to the same period in 2022 driven by deflationary pricing in poultry.

Gross profit was $100.8 million for the six months ended June 30, 2023 compared to $103.3 million in the same period in 2022 , a decrease of $2.5 million, or 2.4% .

The decrease was primarily attributable to a decrease in Meat and Poultry revenue, partially offset by the additional Seafood revenue generated due to the Sealand Acquisition.

Gross profit margin for the six months ended June 30, 2023 decreased to 17.2% from 17.9% for the same period in 2022.

The decrease was primarily attributable to the shift in product mix to higher Seafood sales and the deflationary pressure in Meat and Poultry.

Net revenue for the nine months ended September 30, 2023 decreased by $10.9 million, or 1.2%, compared to the same period in 2022.

This decrease was attributable to the $24.8 million decrease in Meat and Poultry revenue, compared to the same period in 2022, driven by deflationary pricing in poultry, as well as a $9.4 million decrease in Packaging and Other due to lower volume, partially offset by an increase of $7.4 million in Commodity revenue due to higher volume as well as the Seafood revenue generated due to the Sealand Food, Inc.

acquisition (the “Sealand Acquisition”).

Gross profit was $151.8 million for the nine months ended September 30, 2023 compared to $154.8 million in the same period in 2022 , a decrease of $3.0 million, or 2.0% .

The gross profit decrease was primarily attributable to decreases in Meat and Poultry, Packaging and Other, partially offset by the additional Seafood revenue generated due to the Sealand Acquisition and increased Commodity revenue.

During the nine months ended September 30, 2023, poultry pricing came down from the elevated levels we benefited from during the same period in 2022.

Gross profit margin for the first nine months of 2023 remained relatively flat at 17.5%.

Distribution, Selling and Administrative Expenses

Distribution, selling and administrative expenses increased by $18.9 million, or 21.9%, primarily due to an increase of $4.6 million in payroll and related labor costs, inclusive of the additional costs due to the Sealand Acquisition.

Professional fees increased $5.5 million to $15.2 million for the six months ended June 30, 2023 , from $9.7 million for the six months ended June 30, 2022.

In addition, the Company recognized asset impairment of $1.2 million related to our exit of HFFI.

Distribution, selling and administrative expenses as a percentage of net revenue increased to 17.9% for the six months ended June 30, 2023 from 14.9% in the same period in 2022, primarily due to higher professional fees and increased headcount.

Distribution, selling and administrative expenses increased by $13.2 million, or 9.4%, primarily due to an increase of $5.1 million in payroll and related labor costs, inclusive of the additional costs due to the Sealand Acquisition, and an increase of $1.9 million in insurance related costs.

Professional fees increased $1.6 million to $18.7 million for the nine months ended September 30, 2023 , from $17.1 million for the nine months ended September 30, 2022.

In addition, the Company recognized asset impairment of $1.2 million related to the exit of our chicken processing facility.

Distribution, selling and administrative expenses as a percentage of net revenue increased to 17.8% for the nine months ended September 30, 2023 from 16.0% in the same period in 2022, primarily due to increased headcount and the higher expense described above.

Interest Expense

Interest expense for the six months ended June 30, 2023 increased by $2.9 million or 102.2% , compared to the six months ended June 30, 2022, primarily due to a sharply higher interest-rate environment.

Average floating interest rates on our floating-rate debt for the six months ended June 30, 2023 increased by approximately 4.4% on the line of credit and 4.4% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2022.

Our average daily line of credit balance decreased by $8.9 million, or 18.2%, to $39.9 million for the six months ended June 30, 2023 from $48.8 million for the six months ended June 30, 2022, and our average daily JPMorgan Chase mortgage-secured term loan balance increased by $18.1 million, or 19.7%, to $109.9 million for the six months ended June 30, 2023 from $91.8 million for the six months ended June 30, 2022.

Interest expense for the nine months ended September 30, 2023 increased by $3.3 million or 65.3% , compared to the nine months ended September 30, 2022, primarily due to a sharply higher interest-rate environment.

Average floating interest rates on our floating-rate debt for the nine months ended September 30, 2023 increased by approximately 3.9% on the line of credit and 3.9% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2022.

Our average daily line of credit balance decreased by $12.3 million, or 23.0%, to $41.2 million for the nine months ended September 30, 2023 from $53.5 million for the nine months ended September 30, 2022, and our average daily JPMorgan Chase mortgage-secured term loan balance increased by $10.7 million, or 10.9%, to $109.3 million for the nine months ended September 30, 2023 from $98.5 million for the nine months ended September 30, 2022.

Income Tax (Benefit) Expense

Income tax benefit of $2.0 million for the six months ended June 30, 2023, compared to income tax expense of $2.2 million for the six months ended June 30, 2022, primarily due to losses from operations during the six months ended June 30, 2023.

Income tax benefit of $2.1 million for the nine months ended September 30, 2023, compared to income tax expense of $1.5 million for the nine months ended September 30, 2022, primarily due to losses from operations during the nine months ended September 30, 2023.

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

Net loss attributable to HF Foods Group Inc.

was $6.8 million for the six months ended June 30, 2023 , compared to net income of $7.7 million for the six months ended June 30, 2022.

The decrease of $14.5 million, or 188.3% , is primarily due to the increased distribution, selling, and administrative costs as well as a $2.9 million increase in interest expense.

was $4.9 million for the nine months ended September 30, 2023 , compared to net income of $3.8 million for the nine months ended September 30, 2022.

The decrease of $8.7 million, or 228.4% , is primarily due to the increased distribution, selling, and administrative costs and interest expense described above, partially offset by the decrease of $6.1 million in lease guarantee expense and the decrease of $1.2 million change in fair value of interest rate swaps.

EBITDA and Adjusted EBITDA

The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure:

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

($ in thousands) 2023 2022 Amount %

Net (loss) income $ (7,357) $ 7,634 $ (14,991) (196.4)%

Net (loss) income $ (5,383) $ 3,740 $ (9,123) NM

Interest expense 8,430 5,101 3,329 65.3%

Income tax (benefit) expense (2,017) 2,201 (4,218) (191.6)%

Income tax (benefit) expense (2,053) 1,529 (3,582) NM

Depreciation and amortization 19,551 18,245 1,306 7.2%

EBITDA 20,545 28,615 (8,070) (28.2)%

Lease guarantee expense (210) 5,889 (6,099) (103.6)%

Change in fair value of interest rate swap contracts (110) (566) 456 NM

Stock-based compensation expense 1,848 511 1,337 261.6%

Acquisition and integration costs — 1,059 (1,059) NM

Lease guarantee expense (305) 5,831 (6,136) NM

Change in fair value of interest rate swap contracts (2,094) (849) (1,245) 146.6%

Stock-based compensation expense 2,605 673 1,932 NM

Business transformation costs (1)

Acquisition, integration costs and other (2)

1,850 1,130 720 63.7%

Asset impairment charges 1,200 422 778 184.4%

2 unchanged sentences

NM Not meaningful

Adjusted EBITDA was $12.2 million for the six months ended June 30, 2023, a decrease of $19.6 million or 61.7%, compared to $31.8 million for the three months ended June 30, 2022.

(1) Represents non-recurring costs associated with the launch of strategic projects including supply chain management improvements and technology infrastructure initiatives.

(2) Includes non-recurring contested proxy and related legal and consulting costs for the nine months ended September 30, 2023.

During the three months ended September 30, 2023, we identified non-recurring charges related to our contested proxy and related legal defense which occurred in prior periods.

Adjusted EBITDA was $24.0 million for the nine months ended September 30, 2023, a decrease of $11.8 million or 32.9%, compared to $35.8 million for the nine months ended September 30, 2022.

The decrease in Adjusted EBITDA was attributable to the lower gross profit and higher distribution, selling and administrative costs.

Liquidity and Capital Resources

As of June 30, 2023, we had cash of approximately $14.9 million, checks issued not presented for payment of $20.9 million and access to approximately $57.8 million in additional funds through our $100.0 million line of credit, subject to a borrowing base calculation.

As of September 30, 2023, we had cash of approximately $14.3 million, checks issued not presented for payment of $6.9 million and access to approximately $48.6 million in additional funds through our $100.0 million line of credit, subject to a borrowing base calculation.

We have funded working capital and other capital requirements primarily by cash flow from operations and bank loans.

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However, our ability to repay our current obligations will depend on the future realization of our current assets.

Management has considered the historical experience, the economy, the trends in the foodservice distribution industry to determine the expected collectability of accounts receivable and the realization of inventories as of June 30, 2023.

We are party to an amortizing IRS contract with J.P.

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The full terms of the settlement of the Delaware Action were incorporated into the long-form settlement agreement, which is subject to approval of the Court of Chancery.

On September 8, 2023, the Court of Chancery approved the proposed settlement and an application by Bishop’s counsel for an award of attorneys’ fees and expenses.

Subsequent to September 30, 2023, on October 16, 2023, after approval of the settlement had become final, the Ni Defendants paid the Company $1.5 million of the Settlement Amount.

As of November 9, 2023, the Ni Defendants had not yet paid the Company the balance of the Settlement Amount ($7.75 million) due under the Settlement Agreement.

The Company and the Ni Defendants are in discussions regarding the timing and form of payment of the balance owed by the Ni Defendants and the Company intends to take all necessary actions to enforce the terms of the Settlement Agreement.

Please refer to Note 14 - Commitments and Contingencies to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

1 unchanged sentence

However, there are a number of factors that could potentially arise which might result in shortfalls in anticipated cash flow, such as the demand for our products, economic conditions, competitive pricing in the foodservice distribution industry, and our bank and suppliers being able to provide continued support.

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.

As of June 30, 2023, we have no off balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

The following table summarizes cash flow data for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30, Change

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.

As of September 30, 2023, we have no off balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

The following table summarizes cash flow data for the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30, Change

($ in thousands) 2023 2022 Amount %

1 unchanged sentence

Net cash used in investing activities (2,595) (50,234) 47,639 (94.8)%

Net cash (used in) provided by financing activities (16,553) 39,023 (55,576) (142.4)%

Net cash (used in) provided by financing activities (28,018) 46,316 (74,334) NM

Net (decrease) increase in cash and cash equivalents $ (9,989) $ 3,014 $ (13,003) NM

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Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, changes in deferred income taxes and others, and includes the effect of working capital changes.

Net cash provided by operating activities decreased by $4.9 million, or 36%, primarily due to the net loss for the six months ended June 30, 2023 as well as the timing of working capital outlays.

Net cash provided by operating activities increased by $13.7 million, or 198%, primarily due to the timing of working capital outlays.

During the three months ended September 30, 2023, we implemented new enterprise accounting and finance applications, which modified our accounts receivable, accounts payable and treasury processes.

As a result of this transformation, there were temporary delays in September that affected our working capital activities.

Investing Activities

Net cash used in investing activities decreased by $47.1 million, or 97%, primarily due to acquisitions in the six months ended June 30, 2022.

Net cash used in investing activities decreased by $47.6 million, or 95%, primarily due to payments related to acquisitions in the nine months ended September 30, 2022.

Financing Activities

Net cash provided by financing activities decreased by $55.6 million, or 142%, to $16.6 million used in financing activities primarily due to proceeds from long-term debt of $46.0 million for the six months ended June 30, 2022, as well as the net impact of our line of credit from net proceeds of $4.9 million for the six months ended June 30, 2022 to a net repayment of $10.9 million for the six months ended June 30, 2023.

Net cash (used in) provided by financing activities decreased by $74.3 million to $28.0 million used in financing activities primarily due to the change in the net impact of our line of credit from net proceeds of $16.2 million for the nine months ended September 30, 2022 to a net repayment of $5.4 million for the nine months ended September 30, 2023, as well as a decrease of $15.1 million in checks issued not presented for payment for the nine months ended September 30, 2023 compared to an increase of $0.7 million for the nine months ended September 30, 2022 related to the changes to certain processes described above.

In addition, the nine months ended September 30, 2022 included proceeds from long-term debt of $46.0 million due to the increase of our mortgage secured term loan.

Critical Accounting Policies and Estimates

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Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2022 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 three months and six months ended June 30, 2023.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis