HF Foods Group Inc. 10-Q

ITEM 1. Financial Statements. HF Foods Group Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except share data) (Unaudited) June 30, 2025 December 31, 2024 ASSETS CURRENT ASSETS: Cash $ 15,650 $ 14,467 Accounts receivable, net of allowances of $ 2,174 and $ 1,557 52,083 54,107 Accounts receivable - related parties 409 239 Inventories 127,240 97,783 Prepaid expenses and other current assets 6,784 11,507 TOTAL CURRENT ASSETS 202,166 178,103 Property and equipment, net 158,011 149,572 Operating lease right-of-use assets 27,998 13,944 Long-term investments 2,239 2,350 Customer relationships, net 131,332 136,615 Trademarks, trade names and other intangibles, net 28,060 24,911 Goodwill 38,815 38,815 Other long-term assets 4,916 5,681 TOTAL ASSETS $ 593,537 $ 549,991 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Checks issued not presented for payment $ 6,989 $ 5,687 Line of credit 60,815 57,483 Accounts payable 68,011 50,592 Accounts payable - related parties 240 52 Current portion of long-term debt, net 5,410 5,410 Current portion of obligations under finance leases 6,405 3,797 Current portion of obligations under operating leases 4,253 4,177 Accrued expenses and other liabilities 17,576 18,001 TOTAL CURRENT LIABILITIES 169,699 145,199 Long-term debt, net of current portion 100,614 103,324 Obligations under finance leases, non-current 27,847 19,929 Obligations under operating leases, non-current 24,856 10,125 Deferred tax liabilities 27,425 29,392 Other long-term liabilities 1,979 728 TOTAL LIABILITIES 352,420 308,697 COMMITMENTS AND CONTINGENCIES (Note 14) SHAREHOLDERS’ EQUITY: Series A Participating Preferred Stock, par value $ 0.001 ; 100,000 shares authorized, no shares issued and outstanding — — Preferred Stock, $ 0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding — — Common Stock, $ 0.0001 par value; 100,000,000 shares authorized; 55,012,128 and 54,735,073 shares issued and 53,014,705 and 52,737,650 shares outstanding as of June 30, 2025 and December 31, 2024, respectively 5 5 Treasury stock, at cost; 1,997,423 shares as of June 30, 2025 and December 31, 2024 ( 7,750 ) ( 7,750 ) Additional paid-in capital 605,078 604,235 Accumulated deficit ( 357,628 ) ( 357,199 ) TOTAL SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC. 239,705 239,291 Noncontrolling interests 1,412 2,003 TOTAL SHAREHOLDERS’ EQUITY 241,117 241,294 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 593,537 $ 549,991 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 1 HF Foods Group Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (In thousands, except share and per share data) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Net revenue - third parties $ 313,550 $ 301,331 $ 611,023 $ 596,167 Net revenue - related parties 1,303 1,011 2,258 1,829 TOTAL NET REVENUE 314,853 302,342 613,281 597,996 Cost of revenue - third parties 258,552 248,957 505,143 493,441 Cost of revenue - related parties 1,169 920 2,047 1,679 TOTAL COST OF REVENUE 259,721 249,877 507,190 495,120 GROSS PROFIT 55,132 52,465 106,091 102,876 Distribution, selling and administrative expenses 51,013 49,840 100,818 100,336 INCOME FROM OPERATIONS 4,119 2,625 5,273 2,540 Interest expense 2,817 3,119 5,426 5,953 Other (income) expense, net ( 414 ) 3,466 ( 591 ) 3,372 Change in fair value of interest rate swap contracts 685 ( 361 ) 1,869 ( 2,331 ) Lease guarantee income — ( 5,433 ) — ( 5,548 ) INCOME (LOSS) BEFORE INCOME TAXES 1,031 1,834 ( 1,431 ) 1,094 Income tax expense (benefit) 521 1,599 ( 411 ) 1,418 NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) 510 235 ( 1,020 ) ( 324 ) Less: net (loss) income attributable to noncontrolling interests ( 706 ) 218 ( 591 ) 353 NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC. $ 1,216 $ 17 $ ( 429 ) $ ( 677 ) EARNINGS (LOSS) PER COMMON SHARE - BASIC $ 0.02 $ — $ ( 0.01 ) $ ( 0.01 ) EARNINGS (LOSS) PER COMMON SHARE - DILUTED $ 0.02 $ — $ ( 0.01 ) $ ( 0.01 ) WEIGHTED AVERAGE SHARES - BASIC 52,969,037 52,585,715 52,853,982 52,370,842 WEIGHTED AVERAGE SHARES - DILUTED 53,414,715 52,661,119 52,853,982 52,370,842 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 HF Foods Group Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, 2025 2024 Cash flows from operating activities: Net loss $ ( 1,020 ) $ ( 324 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 14,019 13,266 Provision (credit) for expected credit losses 618 ( 40 ) Deferred tax benefit ( 1,967 ) ( 824 ) Change in fair value of interest rate swap contracts 1,869 ( 2,331 ) Stock-based compensation 999 1,260 Non-cash lease expense 2,488 1,930 Lease guarantee income — ( 5,548 ) Other non-cash (income) expense ( 330 ) 485 Changes in operating assets and liabilities: Accounts receivable 1,406 ( 3,303 ) Accounts receivable - related parties ( 170 ) ( 240 ) Inventories ( 29,457 ) ( 13,614 ) Prepaid expenses and other current assets 4,723 1,149 Other long-term assets 541 723 Checks issued not presented for payment 1,302 1,958 Accounts payable 17,419 10,880 Accounts payable - related parties 188 254 Operating lease liabilities ( 1,735 ) ( 2,007 ) Accrued expenses and other liabilities ( 425 ) ( 1,733 ) Net cash provided by operating activities 10,468 1,941 Cash flows from investing activities: Purchase of property and equipment ( 6,731 ) ( 6,331 ) Proceeds from sale of property and equipment 139 — Net cash used in investing activities ( 6,592 ) ( 6,331 ) Cash flows from financing activities: Payments for tax withholding related to vested stock awards ( 156 ) ( 128 ) Proceeds from line of credit 631,713 735,717 Repayment of line of credit ( 628,237 ) ( 727,958 ) Repayment of long-term debt ( 2,730 ) ( 2,768 ) Payment of debt financing costs ( 213 ) — Repayment of obligations under finance leases ( 3,070 ) ( 1,737 ) Net cash (used in) provided by financing activities ( 2,693 ) 3,126 Net increase (decrease) in cash 1,183 ( 1,264 ) Cash at beginning of the period 14,467 15,232 Cash at end of the period $ 15,650 $ 13,968 Supplemental disclosure of non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease liabilities $ 16,542 $ 5,222 Property acquired in exchange for finance leases 13,596 9,218 Dissolution of noncontrolling interests — 772 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 HF Foods Group Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (In thousands, except share data) (Unaudited) Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Total Shareholders’ Equity Attributable to HF Foods Group Inc. Noncontrolling Interests Total Shareholders’ Equity Shares Amount Shares Amount Balance at January 1, 2024 54,153,391 $ 5 1,997,423 $ ( 7,750 ) $ 603,094 $ ( 308,688 ) $ 286,661 $ 1,322 $ 287,983 Net (loss) income — — — — — ( 694 ) ( 694 ) 135 ( 559 ) Stock-based compensation — — — — 738 — 738 — 738 Balance at March 31, 2024 54,153,391 $ 5 1,997,423 $ ( 7,750 ) $ 603,832 $ ( 309,382 ) $ 286,705 $ 1,457 $ 288,162 Net income — — — — — 17 17 218 235 Issuance of common stock pursuant to equity compensation plan 555,181 — — — — — — — — Shares withheld for tax withholdings on vested awards ( 40,403 ) — — — ( 128 ) — ( 128 ) — ( 128 ) Dissolution of noncontrolling interests — — — — ( 772 ) — ( 772 ) 772 — Stock-based compensation — — — — 522 — 522 — 522 Balance at June 30, 2024 54,668,169 $ 5 1,997,423 $ ( 7,750 ) $ 603,454 $ ( 309,365 ) $ 286,344 $ 2,447 $ 288,791 Balance at January 1, 2025 54,735,073 $ 5 1,997,423 $ ( 7,750 ) $ 604,235 $ ( 357,199 ) $ 239,291 $ 2,003 $ 241,294 Net (loss) income — — — — — ( 1,645 ) ( 1,645 ) 115 ( 1,530 ) Stock-based compensation — — — — 374 — 374 — 374 Balance at March 31, 2025 54,735,073 $ 5 1,997,423 $ ( 7,750 ) $ 604,609 $ ( 358,844 ) $ 238,020 $ 2,118 $ 240,138 Net income (loss) — — — — — 1,216 1,216 ( 706 ) 510 Issuance of common stock pursuant to equity compensation plan 316,251 — — — — — — — — Shares withheld for tax withholdings on vested awards ( 39,196 ) — — — ( 156 ) — ( 156 ) — ( 156 ) Stock-based compensation — — — — 625 — 625 — 625 Balance at June 30, 2025 55,012,128 $ 5 1,997,423 $ ( 7,750 ) $ 605,078 $ ( 357,628 ) $ 239,705 $ 1,412 $ 241,117 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 HF Foods Group Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements Note 1 - Organization and Description of Business Organization and General HF Foods Group Inc., headquartered in Las Vegas, Nevada, operating through our subsidiaries (collectively “HF Foods” or the “Company”) is a marketer and distributor of fresh produce, frozen and dry food, and non-food products to Asian restaurants, as well as other foodservice customers, throughout the United States. With multiple distribution centers located throughout the nation, HF Foods supplies Asian cuisine through its relationships with growers and suppliers of food products in North America, South America and Asia. The Company’s business consists of one operating segment, which is also its one reportable segment: HF Foods, which operates solely in the United States, offers specialty restaurant foods and supplies to its customers. 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 generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. All adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 17, 2025 (our “2024 Annual Report”). There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our 2024 Annual Report. All significant intercompany balances and transactions have been eliminated 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 interests in its condensed consolidated statements of operations and comprehensive income (loss) equal to the percentage of the economic or ownership interest retained in such entity by the respective noncontrolling party. Reclassifications During 2024, the Company reclassified the presentation of checks issued not presented for payment from cash flows from financing activities to cash flows from operating activities in the condensed consolidated statement of cash flows. Prior periods amounts were reclassified to conform to the current period presentation. The reclassification did not impact condensed consolidated balance sheets or condensed consolidated statements of operations and comprehensive income (loss). Variable Interest Entities GAAP provides guidance on the identification of a variable interest entity (“VIE”) and financial reporting for an entity 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) has the obligation to absorb losses or the right to receive the economic benefits of the VIE that could be potentially significant to the VIE. If deemed the primary beneficiary, the Company consolidates the VIE. For the quarter ended June 30, 2025, the Company had no VIEs. The Company had one VIE, AnHeart, Inc. (“AnHeart”), for which the Company was not the primary beneficiary and therefore did not consolidate. Effective April 30, 2024, the Company assumed the lease for which AnHeart was a lessee and the Company was a guarantor, and as such, it no longer recognizes AnHeart as a VIE. See Note 14 - Commitments and Contingencies for additional information on AnHeart. 5 Noncontrolling Interests GAAP requires that noncontrolling interests in subsidiaries and affiliates be reported in the equity section of the Company’s condensed consolidated balance sheets. In addition, the amounts attributable to the net income (loss) of those noncontrolling interests are reported separately in the condensed consolidated statements of operations and comprehensive income (loss). As of June 30, 2025 and December 31, 2024, noncontrolling interest equity consisted of the following: ($ in thousands) Ownership of noncontrolling interest at June 30, 2025 June 30, 2025 December 31, 2024 Min Food, Inc. 39.75 % $ 1,047 $ 1,561 Monterey Food Service, LLC 35.00 % 365 442 Total $ 1,412 $ 2,003 Uses of Estimates The preparation of condensed consolidated financial statements in conformity with 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 condensed 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 condensed consolidated financial statements include, but are not limited to, inventory reserves, impairment of long-lived assets, and impairment of goodwill. Recently Issued Accounting Pronouncements not yet Adopted In December 2023, the FASB issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities to disclose specific categories in its annual effective tax rate reconciliation and disaggregated information about significant reconciling items by jurisdiction and by nature. This guidance also requires entities to disclose their income tax payments (net of refunds) to international, federal, and state and local jurisdictions. This guidance is effective for fiscal years beginning after December 15, 2024. Upon adoption, ASU 2023-09 should be applied on a prospective basis while retrospective application is permitted. The Company does not expect this adoption to have a material impact on its consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The guidance requires additional disclosure of certain amounts included in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses. This guidance is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The Company is in the process of assessing the impact the adoption of this guidance will have on the Company’s financial statement disclosures. Recently Adopted Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about segment expenses on an annual and interim basis. This standard is effective for the Company’s consolidated financial statements for the year ending December 31, 2024 and for interim periods beginning in 2025. See Note 13 - Segment Information in the accompanying notes to the condensed consolidated financial statements for further detail. 6 Note 3 - Revenue The following table presents the Company’s net revenue disaggregated by principal product categories: Three Months Ended June 30, Six Months Ended June 30, ($ in thousands) 2025 2024 2025 2024 Seafood $ 112,080 36 % $ 99,530 33 % $ 217,655 36 % $ 193,925 32 % Asian Specialty 57,124 18 % 77,493 26 % 118,104 19 % 157,702 26 % Meat and Poultry 71,769 23 % 63,792 20 % 137,794 22 % 121,542 20 % Produce 27,606 9 % 32,171 11 % 55,517 9 % 64,254 11 % Packaging and Other 14,979 4 % 15,645 5 % 29,100 5 % 32,019 6 % Commodity 31,295 10 % 13,711 5 % 55,111 9 % 28,554 5 % Total $ 314,853 100 % $ 302,342 100 % $ 613,281 100 % $ 597,996 100 % Note 4 - Balance Sheet Components Accounts receivable, net consisted of the following: (In thousands) June 30, 2025 December 31, 2024 Accounts receivable $ 54,257 $ 55,664 Less: allowance for expected credit losses ( 2,174 ) ( 1,557 ) Accounts receivable, net $ 52,083 $ 54,107 Movement of allowance for expected credit losses was as follows: Six Months Ended June 30, (In thousands) 2025 2024 Beginning balance $ 1,557 $ 2,119 Provision (credit) for expected credit losses 618 ( 40 ) Bad debt write-offs ( 1 ) ( 2 ) Ending balance $ 2,174 $ 2,077 Prepaid expenses and other current assets consisted of the following: (In thousands) June 30, 2025 December 31, 2024 Prepaid expenses $ 1,878 $ 4,443 Advances to suppliers 3,772 5,606 Other current assets 1,134 1,458 Prepaid expenses and other current assets $ 6,784 $ 11,507 7 Property and equipment, net consisted of the following: (In thousands) June 30, 2025 December 31, 2024 Automobiles (1) $ 63,614 $ 50,565 Buildings 63,045 63,045 Building improvements (1) 24,157 22,709 Furniture and fixtures 422 398 Land 49,929 49,929 Machinery and equipment (1) 14,311 13,216 Construction in progress 8,017 10,370 Subtotal 223,495 210,232 Less: accumulated depreciation ( 65,484 ) ( 60,660 ) Property and equipment, net $ 158,011 $ 149,572 _________________ (1) The cost and accumulated depreciation of property and equipment related to finance leases was $ 49.5 million and $ 17.5 million, respectively, at June 30, 2025 and $ 36.1 million and $ 14.3 million, respectively, at December 31, 2024. The total future minimum lease payments under all finance leases as of June 30, 2025 is $ 47.1 million. Depreciation expense was $ 3.2 million and $ 2.5 million for the three months ended June 30, 2025 and 2024, respectively. Depreciation expense was $ 6.1 million and $ 5.1 million for the six months ended June 30, 2025 and 2024, respectively. Long-term investments consisted of the following: (In thousands) Ownership as of June 30, 2025 June 30, 2025 December 31, 2024 Asahi Food, Inc. (“Asahi”) 49 % $ 439 $ 550 Pt. Tamron Akuatik Produk Industri (“Tamron”) 12 % 1,800 1,800 Total long-term investments $ 2,239 $ 2,350 The investment in Tamron is accounted for using the measurement alternative under Accounting Standards Codification (“ASC”) Topic 321 Investments—Equity Securities , 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 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 for the three months ended June 30, 2025 and 2024 for these investments. Accrued expenses and other liabilities consisted of the following: (In thousands) June 30, 2025 December 31, 2024 Accrued compensation $ 7,164 $ 7,497 Accrued professional fees 818 553 Accrued interest and fees 877 938 Self-insurance liability 2,060 1,671 Advance from customers 1,380 3,081 Other 5,277 4,261 Total accrued expenses and other liabilities $ 17,576 $ 18,001 8 Note 5 - Fair Value Measurements The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of the dates indicated: June 30, 2025 December 31, 2024 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (In thousands) Assets: Interest rate swaps $ — $ 280 $ — $ 280 $ — $ 504 $ — $ 504 Liabilities: Interest rate swaps $ — $ 1,645 $ — $ 1,645 $ — $ — $ — $ — The Company follows the provisions of ASC Topic 820 Fair Value Measurement which 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. 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 condensed consolidated balance sheets for cash, accounts receivable, other current assets, accounts payable, checks issued not presented for payment and accrued expenses and other liabilities approximate their fair value based on the short-term maturity of these instruments. See Note 7 - Derivative Financial Instruments for additional information regarding the Company’s interest rate swaps. 9 Carrying Value and Estimated Fair Value of Outstanding Debt - The following table presents the carrying value and estimated fair value of the Company’s outstanding debt as described in Note 8 - Debt , including the current portion, as of the dates indicated: Fair Value Measurements (In thousands) Level 1 Level 2 Level 3 Carrying Value June 30, 2025 Fixed rate debt: Bank of America $ — $ — $ 79 $ 84 Variable rate debt: JPMorgan Chase $ — $ 98,532 $ — $ 98,532 Bank of America $ — $ 1,987 $ — $ 1,987 East West Bank $ — $ 5,426 $ — $ 5,421 December 31, 2024 Fixed rate debt: Bank of America $ — $ — $ 104 $ 113 Other finance institutions $ — $ — $ — $ — Variable rate debt: JPMorgan Chase $ — $ 101,040 $ — $ 101,040 Bank of America $ — $ 2,063 $ — $ 2,063 East West Bank $ — $ 5,518 $ — $ 5,518 The carrying value of the variable rate debt approximates its fair value because of the variability of interest rates associated with these 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. See Note 8 - Debt for additional information regarding the Company’s debt. Nonrecurring Fair Values The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. No adjustments to fair value from the write-down of asset values due to impairment were made during the six months ended June 30, 2025 and 2024. As further disclosed in Note 6 - Goodwill and Acquired Intangible Assets, we performed a quantitative goodwill impairment analysis as of December 31, 2024. The results of testing as of December 31, 2024 concluded that the estimated fair value of our one reporting unit fell short of carrying value, and therefore impairment existed as of that date. Goodwill impairment charges of $ 46.3 million were recorded in the fourth quarter of the year ended December 31, 2024. The calculation of the fair value of our reporting unit was determined using Level 3 fair value measurements due to its use of internal projections and unobservable measurement inputs. There were no assets that were carried at nonrecurring fair value at June 30, 2025. There were no assets carried at nonrecurring fair value other than goodwill at December 31, 2024. 10 Note 6 - Goodwill and Acquired Intangible Assets Goodwill There is only one reporting unit at June 30, 2025 and December 31, 2024. The Company tests goodwill for impairment at least annually, as of December 31, or whenever events or changes in circumstances indicated goodwill might be impaired. As a result of the declines in the level of stock price prior to year end, the Company performed a quantitative impairment assessment as of December 31, 2024. The results of the testing as of December 31, 2024, concluded that the estimated fair value of the reporting unit fell short of carrying value, and therefore impairment existed as of that date. A goodwill impairment charge of $ 46.3 million was recorded in the fourth quarter during the year ended December 31, 2024. Assumptions used in impairment testing are made at a point in time and require significant judgment; therefore, they are subject to change based on the facts and circumstances present at each impairment test date. Additionally, these assumptions are generally interdependent and do not change in isolation. If, in future periods, the financial performance of the reporting unit does not meet forecasted expectations, or a prolonged decline occurs in the market price of the Company’s common stock, it may cause a change in the results of the impairment assessment and, as such, could result in further impairment of goodwill. The Company determined that there were no events or circumstances during the six months ended June 30, 2025 that would more likely than not reduce the fair value of the reporting unit below its carrying value. Goodwill was $ 38.8 million as of June 30, 2025 and December 31, 2024. Acquired Intangible Assets The components of the intangible assets are as follows: June 30, 2025 December 31, 2024 (In thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Non-competition agreement $ 3,892 $ ( 3,892 ) $ — $ 3,892 $ ( 3,723 ) $ 169 Trademarks and trade names 44,207 ( 21,676 ) 22,531 44,207 ( 19,465 ) 24,742 Customer relationships 185,266 ( 53,934 ) 131,332 185,266 ( 48,651 ) 136,615 Inventory Management System 5,667 ( 138 ) 5,529 — — — Total $ 239,032 $ ( 79,640 ) $ 159,392 $ 233,365 $ ( 71,839 ) $ 161,526 Amortization expense for acquired intangible assets was $ 3.9 million and $ 4.1 million for the three months ended June 30, 2025 and 2024. Amortization expense for acquired intangible assets was $ 7.8 million and $ 8.1 million for the six months ended June 30, 2025 and 2024. Note 7 - Derivative Financial Instruments Derivative Instruments The Company utilizes interest rate swaps (“IRS”) for the sole purpose of mitigating interest rate fluctuation risk associated with floating rate debt instruments (as defined in Note 8 - Debt ). The Company does not use any other derivative financial instruments for trading or speculative purposes. On August 20, 2019, HF Foods entered into two IRS contracts with East West Bank (the “EWB IRS”) for initial notional amounts of $ 1.1 million and $ 2.6 million, respectively. On April 20, 2023, the Company amended the corresponding mortgage term loans, which pegged the two mortgage term loans to 1-month Term SOFR (Secured Overnight Financing Rate) + 2.29 % per annum for the remaining duration of the term loans. The amended EWB IRS contracts fixed the two term loans at 4.23 % per annum until maturity in September 2029. 11 On December 19, 2019, HF Foods entered into an IRS contract with Bank of America (the “BOA IRS”) for an initial notional amount of $ 2.7 million in conjunction with a newly contracted mortgage term loan of corresponding amount. On December 19, 2021, the Company entered into the Second Amendment to Loan Agreement, which pegged the mortgage term loan to Term SOFR + 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 mature in December 2029. On March 15, 2023, the Company entered into an amortizing IRS contract with JPMorgan Chase for an initial notional amount of $ 120.0 million, effective from March 1, 2023 and expiring in March 2028, as a means to partially hedge its existing floating rate loans exposure. Pursuant to the agreement, the Company will pay the swap counterparty a fixed rate of 4.11 % in exchange for floating payments based on Term SOFR. The Company evaluated the aforementioned IRS contracts currently in place and did not designate those as cash flow hedges. Hence, the fair value changes of these IRS contracts are accounted for and recognized as a change in fair value of interest rate swap contracts in the condensed consolidated statements of operations and comprehensive income (loss). As of June 30, 2025, the Company determined that the fair values of the IRS contracts were $ 0.3 million in an asset position and $ 1.6 million in a liability position. As of December 31, 2024, the fair values of the IRS contracts were $ 0.5 million in an asset position and none in a liability position. The Company includes these in other long-term assets and other long-term liabilities , respectively, on the condensed consolidated balance sheets. Note 8 - Debt Long-term debt at June 30, 2025 and December 31, 2024 is summarized as follows: ($ in thousands) Bank Name Maturity Interest Rate at June 30, 2025 June 30, 2025 December 31, 2024 Bank of America (a) October 2026 - December 2029 4.34 % - 6.94 % $ 2,072 $ 2,176 East West Bank (b) August 2027 - September 2029 6.61 % - 8.00 % 5,421 5,518 JPMorgan Chase (c) January 2030 6.30 % 98,726 101,255 Total debt, principal amount 106,219 108,949 Less: debt issuance costs ( 195 ) ( 215 ) Total debt, carrying value 106,024 108,734 Less: current portion ( 5,410 ) ( 5,410 ) Long-term debt $ 100,614 $ 103,324 _______________ (a) Loan balance consists of real estate term loan and equipment term loan, collateralized by one real property and specific equipment. The real estate term loan is pegged to TERM SOFR + 2.5 %. (b) Real estate term loans with East West Bank are collateralized by three real properties. Balloon payments of $ 1.8 million and $ 3.0 million are due at maturity in 2027 and 2029, respectively. (c) Real estate term loan with a principal balance of $ 98.7 million as of June 30, 2025 and $ 101.3 million as of December 31, 2024 is secured by assets held by the Company and has a maturity date of January 2030. The terms of the various loan agreements related to long-term bank borrowings require the Company to comply with certain financial covenants, including, but not limited to, a fixed charge coverage ratio and effective tangible net worth. As of June 30, 2025, the Company was in compliance with its covenants. Credit Facility On March 31, 2022, the Company entered into the Third Amended Credit Agreement extending the Revolving Facility for five years , with a maturity date of March 31, 2027. The Third Amended Credit Agreement provides for a $ 100.0 million asset-secured revolving credit facility with a one-month SOFR plus a credit adjustment of 0.1 % plus 1.375 % per annum. On February 6, 2024, the Company amended the Third Amended Credit Agreement to (i) remove a cap on permitted indebtedness in respect of capital lease obligations, subject to certain enumerated conditions; (ii) create a reserve on the borrowing base, which will be reduced on a dollar-for-dollar basis once the Company has made expenditures in excess of such amount relating to the development and construction of certain real property, and which amounts shall be excluded from certain financial covenants 12 under the Third Amended Credit Agreement and; (iii) remove certain sublease income from various financial covenants. On July 15, 2024, the Company again amended the Third Amended Credit Agreement to (i) increase the issuing bank sublimit to $ 10.0 million and; (ii) modify the due date for a borrowing base certificate based on availability under the revolving credit facility. On February 12, 2025, the Company amended certain terms and conditions of the Third Amended Credit Agreement, by, among other things, (i) increasing the Revolving Commitment (as defined in the Credit Agreement) from $ 100.0 million to $ 125.0 million, (ii) joining three new subsidiaries of the Company to the Credit Agreement, each as a “Borrower” thereunder, (iii) joining Wells Fargo Bank, N.A. to the credit agreement as a “Lender” thereunder, (iv) amending certain affirmative covenants commensurate with the increase in the Revolving Facility, and (v) amending certain restrictions regarding incurring obligations under real property leases and equipment financings in the ordinary course of business. As of June 30, 2025, the Company was in compliance with its covenants. The outstanding principal balance on the line of credit as of June 30, 2025 was $ 60.8 million and outstanding letters of credit amounted to $ 6.4 million leaving access to approximately $ 57.8 million in additional funds through our $ 125.0 million line of credit, subject to a borrowing base calculation. Note 9 - Earnings (Loss) 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 (loss) 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 restricted stock) 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 1,305,105 and 1,354,908 potential common shares related to performance-based restricted stock units and restricted stock units that were excluded from the calculation of diluted EPS for the six months ended June 30, 2025 and 2024, respectively, because their effect could have been anti-dilutive. The following table sets forth the computation of basic and diluted EPS: Three Months Ended June 30, Six Months Ended June 30, ($ in thousands, except share and per share data) 2025 2024 2025 2024 Numerator: Net income (loss) attributable to HF Foods Group Inc. $ 1,216 $ 17 $ ( 429 ) $ ( 677 ) Denominator: Weighted-average common shares outstanding 52,969,037 52,585,715 52,853,982 52,370,842 Effect of dilutive securities 445,678 75,404 — — Weighted-average dilutive shares outstanding 53,414,715 52,661,119 52,853,982 52,370,842 Earnings (Loss) per common share: Basic $ 0.02 $ — $ ( 0.01 ) $ ( 0.01 ) Diluted $ 0.02 $ — $ ( 0.01 ) $ ( 0.01 ) Note 10 - Income Taxes The determination of the Company’s overall effective income tax rate requires the use of estimates. The effective income tax rate reflects the income earned and taxed in U.S. federal and various state jurisdictions based on enacted tax law, permanent differences between book and tax items, tax credits and the Company’s change in relative income in each jurisdiction. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s effective income tax rate in the future. As of June 30, 2025, the Company had one subsidiary outside the U.S. that generated an insignificant amount of activity. As such, no foreign income tax was recorded. For the three and six months ended June 30, 2025, the Company’s effective income tax rate of 50.5 % and 28.7 %, respectively, differed from the federal statutory tax rate primarily as a result of permanent differences and state income taxes, partially offset 13 by tax credits. The company’s tax provision for the three and six months ended June 30, 2025 includes a discrete tax expense of $ 500 related to stock-based compensation shortfalls. For the three and six months ended June 30, 2024, the Company’s effective income tax rate of 87.2 % and 129.6 %, respectively, differed from the federal statutory tax rate primarily as a result of discrete tax items, permanent differences and state income taxes. The Company’s tax provision for the three and six months ended June 30, 2024 included a discrete tax expense of $ 1.0 million related to the Company’s SEC settlement and $ 0.1 million tax expense related to stock-based compensation shortfalls. Absent the discrete items, the estimated annual effective income tax rate from continuing operations for the three and six months ended June 30, 2024 was 25.5 % and 25.1 %, respectively. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company is currently evaluating the impact of the new legislation but does not expect it to have a material impact on its consolidated financial statements. Note 11 - 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’s officers and/or shareholders who owned no less than 10 % shareholdings of the Company. The Company believes that Mr. Xiao Mou Zhang (“Mr. Zhang”), the former Chief Executive Officer through October 24, 2024, together with certain of his immediate family members are collectively beneficial owners of more than 10 % of the Company’s outstanding common stock, and they have ownership interests in various related parties involved in (i) the distribution of food and related products to restaurants and other retailers and (ii) the supply of fresh food, frozen food, and packaging supplies to distributors. Mr. Zhang does not have any involvement in negotiations with any of the above-mentioned related parties. The Company believes that Mr. Zhou Min Ni (“Mr. Ni”), the Company’s former Co-Chief Executive Officer, together with various trusts for the benefit of Mr. Ni’s four children, are collectively beneficial owners of more than 10 % of the outstanding shares of the Company’s common stock, and he and certain of his immediate family members have ownership interests in related parties involved in (i) the distribution of food and related products to restaurants and other retailers and (ii) the supply of fresh food, frozen food, and packaging supplies to distributors. The related party transactions as of June 30, 2025 and December 31, 2024 and for the three and six months ended June 30, 2025, and 2024, are identified as follows: Related Party Sales, Purchases, and Lease Agreements Purchases Below is a summary of purchases of goods and services from related parties recorded for the three and six months ended June 30, 2025 and 2024, respectively: Three Months Ended June 30, Six Months Ended June 30, (In thousands) Nature 2025 2024 2025 2024 (a) Asahi Food, Inc. Trade $ 40 $ 29 $ 65 $ 56 (b) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) Trade 935 1,763 1,959 2,913 (c) Ocean Pacific Seafood Group, Inc. Trade 41 60 114 140 (c) Rainfield Ranches, LP Trade 22 38 43 95 Total $ 1,038 $ 1,890 $ 2,181 $ 3,204 _______________ (a) The Company, through its subsidiary Mountain Food, LLC, owns an equity interest in this entity. (b) An equity interest is held by three Irrevocable Trusts for the benefit of Mr. Zhang’s children. (c) Mr. Zhou Min Ni owns an equity interest in this entity. 14 Sales Below is a summary of sales to related parties recorded for the three months ended June 30, 2025 and 2024, respectively: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2025 2024 2025 2024 (a) ABC Food Trading, LLC $ 497 $ 431 $ 924 $ 834 (b) Asahi Food, Inc. 235 148 387 287 (a) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) 498 335 840 588 (c) First Choice Seafood, Inc. — 6 6 13 (c) Fortune One Foods, Inc. 62 91 90 107 (d) Ocean Pacific Seafood Group, Inc. 11 — 11 — Total $ 1,303 $ 1,011 $ 2,258 $ 1,829 _______________ (a) An equity interest is held by three Irrevocable Trusts for the benefit of Mr. Zhang’s children. (b) The Company, through its subsidiary Mountain Food, LLC, owns an equity interest in this entity. (c) Mr. Zhou Min Ni owns an equity interest in this entity indirectly through its parent company. (d) Mr. Zhou Min Ni owns an equity interest in this entity. Lease Agreements The Company leases various facilities to related parties. In 2020, the Company renewed a warehouse lease from Yoan Chang Trading Inc. under an operating lease agreement which expired on December 31, 2020. In February 2021, the Company executed a new five-year operating lease agreement with Yoan Chang Trading Inc., effective January 1, 2021 and expiring on December 31, 2025. Rent expense, which is included in distribution, selling and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss), was $ 0.1 million for both the three months ended June 30, 2025 and 2024, and $ 0.2 million for both the six months ended June 30, 2025 and 2024. Beginning 2014, the Company leased a warehouse to Asahi Food, Inc. under a commercial lease agreement which was rescinded March 1, 2020. A new commercial lease agreement for a period of one year was entered into, expiring February 28, 2021, with a total of four renewal periods with each term being one year . The lease term was extended by an addendum dated September 1, 2023, which extended the lease through September 1, 2025. Rental income was $ 36 thousand for both the three months ended June 30, 2025 and 2024, and $ 72 thousand for both the six months ended June 30, 2025 and 2024, which is included in other expense (income), net in the condensed consolidated statements of operations and comprehensive income (loss). Related Party Balances Accounts Receivable - Related Parties, Net Below is a summary of accounts receivable with related parties recorded as of June 30, 2025 and December 31, 2024, respectively: (In thousands) June 30, 2025 December 31, 2024 (a) ABC Food Trading, LLC $ 58 $ 155 (b) Asahi Food, Inc. 115 84 (a) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) 236 — Total $ 409 $ 239 _______________ (a) An equity interest is held by three Irrevocable Trusts for the benefit of Mr. Zhang’s children. (b) The Company, through its subsidiary Mountain Food, LLC, owns an equity interest in this entity. 15 All accounts receivable from these related parties are current and considered fully collectible. No additional allowance is deemed necessary as of June 30, 2025 and December 31, 2024. Line of Credit Note - Related Parties The Company issued a $ 51,000 line of credit note to Asahi Food, Inc. on November 1, 2024, which is outstanding at June 30, 2025 and included in other current assets in the consolidated balance sheet. Interest shall accrue at a rate of 7.25 % per annum with monthly payments of interest only due beginning December 1, 2024 and continuing through the first day of each calendar month until the maturity date of October 31, 2025. Interest income was $ 924 and $ 2,157 for the three and six months ended June 30, 2025, which is included in other income, net in the condensed consolidated statements of operations and comprehensive income (loss). Accounts Payable - Related Parties 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 June 30, 2025 and December 31, 2024, respectively: (In thousands) June 30, 2025 December 31, 2024 (a) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) $ 229 $ 35 Others 11 17 Total $ 240 $ 52 _______________ (a) An equity interest is held by three Irrevocable Trusts for the benefit of Mr. Zhang’s children. Note 12 - Stock-Based Compensation In 2021, the Company began issuing awards under the HF Foods Group Inc. 2018 Omnibus Equity Incentive Plan (the “2018 Incentive Plan”), which reserves up to 3,000,000 shares of the Company’s common stock for issuance of awards to employees and non-employee directors. On June 3, 2024, the Company’s shareholders approved an amendment to the 2018 Incentive Plan which increased the number of shares of the Company’s common stock available for issuance under the 2018 Incentive Plan to 7,000,000 , an increase of 4,000,000 shares. As of June 30, 2025, the Company had 671,128 time-based vesting restricted stock units unvested, 1,077,464 performance-based restricted stock units unvested, 1,486,194 shares of common stock vested and 3,765,214 shares remaining available for future awards under the 2018 Incentive Plan. Stock-based compensation expense was $ 0.6 million and $ 0.5 million for the three months ended June 30, 2025 and 2024, respectively. Stock-based compensation expense was $ 1.0 million and $ 1.3 million for the six months ended June 30, 2025 and 2024, respectively. Stock-based compensation expense was included in distribution, selling and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive income (loss). As of June 30, 2025, there was $ 4.8 million of total unrecognized compensation cost related to all non-vested outstanding RSUs and PSUs outstanding under the 2018 Incentive Plan, with a weighted average remaining service period of 2.25 years. 16 Note 13 - Segment Information The Company’s business consists of one operating segment, which is also its one reportable segment. The Company operates solely in the United States and derives revenues by providing sales of food and non-food to customers. The segment’s customer base consists primarily of Asian restaurants located throughout the United States. The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews financial information presented on a consolidated basis. The CODM uses consolidated net (loss) income to assess financial performance and allocate resources. The Company’s measure of segment assets is total assets, as reported on the condensed consolidated balance sheets. The following table presents selected financial information with respect to the Company’s single operating segment for the three and six months ended June 30, 2025 and 2024: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2025 2024 2025 2024 Net Revenue $ 314,853 $ 302,342 $ 613,281 $ 597,996 Less: Cost of Revenue 259,721 249,877 507,190 495,120 Operating Expenses: Payroll and related labor costs 25,644 24,202 50,423 49,069 Professional fees 2,138 2,603 4,728 6,813 Depreciation 3,241 2,520 6,129 5,126 Amortization 4,021 4,070 7,890 8,140 Other segment expenses (a) 15,969 16,445 31,648 31,188 Distribution, selling and administrative expenses 51,013 49,840 100,818 100,336 Interest expense 2,817 3,119 5,426 5,953 Other (income) expense, net ( 414 ) 3,466 ( 591 ) 3,372 Change in fair value of interest rate swap contracts 685 ( 361 ) 1,869 ( 2,331 ) Lease guarantee income — ( 5,433 ) — ( 5,548 ) Income tax expense (benefit) 521 1,599 ( 411 ) 1,418 Less: net income attributable to noncontrolling interests ( 706 ) 218 ( 591 ) 353 NET INCOME AND COMPREHENSIVE INCOME ATTRIBUTABLE TO HF FOODS GROUP INC. $ 1,216 $ 17 $ ( 429 ) $ ( 677 ) _______________ (a) Other segment expenses include distribution, selling and administrative expenses which are not provided to the chief operating decision maker on a regular basis. These expenses include primarily auto & truck expense, insurance, occupancy expense and utilities. Note 14 - 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 its pending litigation and revises its estimates when additional information becomes available. Adverse outcomes in some or all of these matters may result in significant monetary damages or injunctive relief against the Company that could adversely affect its ability to conduct business. There also exists the possibility of a material adverse effect on the Company’s financial statements for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable. Legal costs associated with loss contingencies are expensed as incurred. 17 AnHeart Lease Guarantee 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. The Company previously determined that AnHeart was a VIE as a result of the guarantees. However, the Company concluded it was not the primary beneficiary of AnHeart and therefore did not consolidate, because it did not have the power to direct the activities of AnHeart that most significantly impact AnHeart’s economic performance. 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 273 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. In March 2024, the Company began construction of a multi-use facility on 273 Fifth Avenue and committed $ 7.0 million for the completion of the construction project. The Company has incurred $ 7.2 million in construction costs which was recorded in construction in progress within property and equipment, net in the Company’s condensed consolidated balance sheet as of June 30, 2025. The Company completed construction as of June 2025 and is currently waiting for final approval on its certificate of occupancy for the building. 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. As a result, during the year ended December 31, 2022, the Company recorded a lease guarantee liability of $ 5.9 million. 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 that 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. AnHeart subsequently defaulted on these obligations. On October 25, 2023, the Company commenced a new legal action by filing a complaint in New York County Supreme Court to pursue legal remedies against AnHeart and Minsheng (the “2023 Action”). As of the filing of the new summons and complaint, AnHeart and Minsheng are indebted to the Company in the amount of $ 474,000 . AnHeart and the Company have since reached a settlement agreement (the “Settlement Agreement”) for AnHeart to pay the Company $ 40,000 a month in rent through December 2024, $ 46,750 a month in rent from January 2025 through December 2025, and commence regular monthly rental payments in accordance with the lease for 275 Fifth Avenue. The Settlement Agreement also provides that AnHeart will pay twenty-four monthly installments of $ 11,250 from January 2025 through December 2026 as payment for all back rent due. Effective April 30, 2024, the Company through its subsidiary assumed the lease of a building located on the premises of 275 Fifth Avenue. The assumption of the lease had no impact on the Company’s obligations as guarantor. The lease covers certain portions of the ground floor, lower level, and second floor of the building. The lease term ends on April 30, 2034 and is renewable at the option of the Company for up to two additional five-year terms. The Company shall pay rent of approximately $ 45,000 per month with provisions for yearly increases. With the assumption of the lease for 275 Fifth Avenue, the Company no longer recognized AnHeart as a VIE. In addition, the remaining lease guarantee liability of $ 5.4 million was reversed and an operating lease right-of-use asset and liability of $ 4.9 million was recorded to the consolidated balance sheet. As a result of the reversal, a gain of $ 5.4 million was recorded to other expense (income), net on the consolidated statements of operations and comprehensive income (loss) in the second quarter of 2024. Other Commitments On September 30, 2024, the Company entered into an operating lease of a new distribution center located in Georgia. The lease term commenced February 1, 2025 for a period of 10 years and five months and is renewable at the option of the Company for up to three additional five-year terms. The Company is reasonably likely to exercise the first of the three five-year renewal options due to the investment the Company is making to the leased property infrastructure. The Company shall pay rent of approximately $ 120,000 per month with provisions for yearly increases totaling $ 29.0 million in future minimum lease payments over 15 years. As of June 30, 2025, the current portion and non-current portion of obligations under all operating leases was $ 4.3 million and $ 24.9 million, respectively. 18 As of June 30, 2025, the Company had additional automobile leases that had not yet commenced which total $ 0.8 million in future minimum lease payments. Note 15 - Subsequent Events No subsequent events have occurred that would require recognition in the unaudited condensed consolidated financial statements or disclosure in the accompanying notes. 19