What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-01-31 compared with 2021-03-16 · 172 added, 90 removed, 244 unchanged (52% of the section changed)

1 unchanged sentence

The following are significant factors known to us that could materially adversely affect our business, reputation, operating results, industry, financial position and/or future financial performance.

Risk Factors Relating to Our Business

Global health developments and economic uncertainty resulting from the COVID-19 pandemic have adversely affected,

and are expected to continue to adversely affect, our business, financial condition and results of operations.

Public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, have impacted our operations directly and are expected to continue to impact us directly, or may continue to disrupt the operations of our business partners, suppliers and customers in ways that could have an adverse effect on our business, results of operations and financial condition.

Fear of such events may further alter consumer confidence, behavior and spending patterns, and could adversely affect the economies and financial markets of many countries (or globally), resulting in an economic downturn that could affect customers’ demand for our products.

In response to the recent outbreak of COVID-19 and its development into a pandemic, governmental authorities have imposed mandatory closures, sought voluntary closures and imposed restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions.

Among other matters, these actions have required or strongly urged various venues where foodservice products are served, including restaurants, schools, hotels and cruise liners, to reduce or discontinue

operations, which have adversely affected and will continue to adversely affect demand in the foodservice industry, including demand for our products and services.

In addition, some consumers are choosing to stay home due to the perceived risk of infection and health risk associated with COVID-19, which is adversely affecting demand in the food service industry, including demand for our products and services.These events have had, and could continue to have, an adverse impact on numerous aspects of our business, financial condition and results of operations including, but not limited to, our growth, product costs, supply chain disruptions, labor shortages, logistics constraints, customer demand for our products and industry demand generally, difficulties in collecting our accounts receivables and corresponding increases in our bad debt exposure, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally.

A prolonged or deeper economic downturn that adversely affects our business, financial condition or results of operations could affect our ability to access the credit markets for additional liquidity.

Adverse conditions may increase the cost of borrowing for us or limit our access to capital.

As a result, we may be unable to continue to comply with the debt covenants, which could result in an event of default.

Table of Conte n t s

The risks set forth in this Section 1A are presented as of December 31, 2021 and the periods the ended.

Risk Factors Relating to Our Business and Industry

Global health developments and economic uncertainty resulting from the COVID-19 pandemic and governmental action related thereto have adversely affected, and are expected to continue to adversely affect, our business, financial condition and results of operations.

In 2020 and through early 2021, we saw the impact of COVID-19 in our operations, including significant decreases in sales.

The impact of COVID-19 may continue to have an adverse impact on numerous aspects of our business, financial condition and results of operations including, our growth, product costs, supply chain disruptions, labor shortages, logistics constraints, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, and the global economy and financial markets generally.

We cannot predict the duration of the COVID-19 pandemic or future governmental regulations or legislation that may be passed as a result of ongoing or future COVID-19 outbreaks.

The continued impact of COVID-19 and the enactment of additional governmental regulations and restrictions may further adversely impact the global economy, the restaurant industry, and our business specifically, despite prior or future actions taken by us.

Our industry is characterized by low margins, and periods of significant or prolonged inflation affect our product and operational costs, which may negatively impact our profitability.

The foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins.

Volatile food costs have a direct impact on our industry.

Periods of significant product cost inflation may adversely affect our results of operations if we are unable to pass on all or a portion of such product cost increases to our customers in a timely manner.

In addition, periods of rapidly increasing inflation may adversely affect our business due to the impact of such inflation on discretionary spending by consumers and our limited ability to increase prices in the current, highly competitive environment.

A shortage of qualified labor could negatively affect our business and materially reduce earnings.

The future success of our operations, including the achievement of our strategic objectives, depends on our ability, and the ability of third parties on which we rely to supply and to deliver our products, to identify, recruit, develop and retain qualified and talented individuals.

As a result, any shortage of qualified labor could significantly and adversely affect our business.

Employee recruitment, development and retention efforts that we or such third parties undertake may not be successful, which could result in a shortage of qualified individuals in future periods.

Any such shortage could decrease our ability to effectively serve our customers and achieve our strategic objectives.

Such a shortage would also likely lead to higher wages for employees (or higher costs to purchase the services of such third parties) and a corresponding reduction in our results of operations.

Unfavorable macroeconomic conditions in the U.S.

may adversely affect the results of operations and financial condition of the Company.

The operating results of the Company are substantially affected by the operating and economic conditions in the regions in which we operate.

may adversely affect our business, financial condition and results of operations.

Our operating results are substantially affected by the operating and economic conditions in the regions in which we operate.

Economic conditions can affect us in the following ways:

• A reduction in discretionary spending by consumers could adversely impact sales of Chinese/Asian restaurants, and their purchases from us.

Future economic conditions affecting disposable consumer income, such as employment levels, business conditions, changes in housing market conditions, the availability of consumer credit, interest rates, tax rates and fuel and energy costs, could reduce overall consumer spending.

Future economic conditions affecting disposable consumer income, such as employment levels, business conditions, changes in housing market conditions, the availability of consumer credit, inflation, interest rates, tax rates and fuel and energy costs, could reduce overall consumer spending.

• Food cost and fuel cost inflation experienced by consumers can lead to reductions in the frequency of and the amount spent by consumers for food away from home purchases, which could negatively impact our business by reducing demand for our products.

2 unchanged sentences

• Liquidity issues and the inability of suppliers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to obtain the foodservice products and supplies needed by us in the quantities and at the prices requested.

In addition, our existing operations are mainly located in the Southeastern and Western United States.

The geographic concentration of our operations creates an exposure to the economic conditions in those regions and any financial downturn in these areas could materially adversely affect our financial condition and results of operations.

In addition, our existing operations are solely in the United States.

The geographic concentration of our operations creates an exposure to economic conditions in the United States and any financial downturn in the United States could materially adversely affect our financial condition and results of operations.

Competition may increase intensively in the future, which may adversely impact our margins and ability to retain customers, and make it difficult to maintain our market share, growth rate and profitability.

2 unchanged sentences

Currently, we face competition from smaller and/or dispersed competitors focusing on the niche market serving Chinese/Asian restaurants, especially Chinese takeout restaurants.

However, with the growing demand for Chinese cuisines, others may also begin operating in this niche market in the future.

However, with the growing demand for Chinese cuisines, others are operating, or may begin operating in this niche market in the future.

Those potential competitors include:

9 unchanged sentences

The cost of fuel affects the price paid by us for products, as well as the costs we incur to deliver products to the customers.

Although we have been able to pass along a portion of increased fuel costs to our customers in the past, there is no guarantee that we will be able to do so in the future.

If fuel costs

Table of Conte n t s

increase in the future, we may experience difficulties in passing all or a portion of these costs along to our customers, which may have a negative impact on our results of operations.

There is no guarantee that we will be able to pass along a portion of increased fuel costs to our customers in the future.

The conflict in Ukraine led to a significant increase in fuel prices.

If fuel costs remain elevated or increase further in the future, we may experience difficulties in passing all or a portion of these costs along to our customers, which may have a negative impact on our results of operations.

Disruption of relationships with vendors could negatively affect our business.

Suppliers may increase product prices, which could increase our product costs.

We purchase our food items and related products from third-party suppliers.

We purchase our food items and related products primarily from third-party suppliers.

Although our purchasing volume can provide benefits when dealing with suppliers, suppliers may not provide the products and supplies needed by us in the quantities and at the prices requested.

3 unchanged sentences

In addition, we purchase seasonal Chinese vegetables and fruits from farms and other vendors.

Increased frequency or duration of extreme weather conditions could impair production capabilities, disrupt our supply chain or impact demand for our products.

Increased frequency or duration of extreme weather conditions could impair production capabilities, disrupt our supply chain or impact demand for our

Input costs could increase at any point in time for a large portion of the products that we sell for a prolonged period.

2 unchanged sentences

The prices of some of our products, especially seasonal products, such as vegetables and fruits, have significant fluctuation.

We can mitigate the risk of fluctuation in the purchasing and distribution costs by either fixing a price for a certain supply period through negotiation with our suppliers, streamlining our inventory turnover, and passing portions of the price fluctuation to our customers.

However, we may not always be able to do that if there are significant and frequent fluctuations.

If we are unable to mitigate these price fluctuations, our performance results will be adversely affected.

We may not always be able to mitigate the impact of these price fluctuations, and our performance results could be adversely affected by such fluctuations.

As a foodservice distributor, it is necessary for us to maintain an inventory of products that may have declines in product pricing levels between the time we purchase the product from suppliers and the time we sell the product to customers, which could reduce the margin on that inventory, adversely affecting our results of operations.

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

Prolonged diminution of global supply chains may impact the availability and price stability of future food supplies, which may in turn adversely impact our business.

The global supply chain, ranging from consumer goods, electronics, and industrial raw materials to food supplies, has been negatively impacted by the ongoing COVID-19 pandemic, shipping bottlenecks, and rapidly rising freight costs.

We procure the majority of our food supply domestically, which includes certain imported products we purchase from domestic brokers, and have not been materially impacted to date.

Food production is widely dispersed throughout the U.S.

and there are currently no widespread disruptions reported in the domestic food supply chain.

However, we depend on producers of food and restaurant supply products to timely deliver these components of our inventory in quantities sufficient to meet customer demand.

Any disruptions or delays in our supply chains as a result of labor shortages, commodity shortages, or inefficiencies in distribution or logistical services could cause delays in the shipment or delivery of our products to our customers.

Any prolonged diminution of global supply chains may impact the availability and price stability of future food supplies, which may in turn adversely impact our business.

Our business has been affected and may in the future be affected by steps taken by the Chinese government to address the COVID-19 pandemic.

We purchase a portion of our inventory directly or indirectly from Chinese suppliers.

In addition, our two outsourced call centers are located in China.

Beginning with the outbreak of the COVID-19 pandemic in 2020, quarantines, travel restrictions, and the closure of stores and business facilities have been imposed in China as part of the government’s “zero-COVID” policy to limit the impact of the pandemic, and these measures were not relaxed until the beginning of 2023.

As a result of the COVID-19 pandemic and the Chinese government’s responses to the pandemic, certain of our suppliers’ and service providers' operations in China were temporarily disrupted.

If the government in China reinstitutes policies that have been relaxed, or institutes new restrictive policies, we may not be able to procure certain inventory items from our suppliers, we may experience further supply chain bottlenecks and price increases, or we could have temporary disruptions in the function of our call centers, any of which could adversely impact our business.

Our relationships with customers may be materially diminished or terminated.

5 unchanged sentences

The loss of a number of customers could adversely affect our business, financial condition, and results of operations.

We may fail to increase or maintain the highest margin portions of our business, including sales to restaurant customers.

Our most profitable customers are independent restaurants.

Our ability to continue to gain market share of independent restaurant customers is critical to achieving increased operating profits.

Changes in the buying practices of independent restaurant customers, including their ability to require us to sell to them at discounted rates, or decreases in our sales to this type of customer could have a material negative impact on our profitability.

Changes in consumer eating habits could materially and adversely affect our business, financial condition, and results of operations.

6 unchanged sentences

We cannot make any assurances regarding our ability to effectively respond to changes in consumer culture preference, health perceptions or resulting new laws or regulations or to adapt our product offerings to trends in eating habits.

Table of Conte n t s

We engage in transactions with related parties and such transactions present possible conflicts of interest that could have an adverse effect on us.

We purchase goods and services from related parties of our management team and sell products to related parties of our management team.

These related-party transactions create the possibility of conflicts of interest with regard to our management, including that:

• we may enter into contracts between us, on the one hand, and related parties, on the other, that are not as a result of arm’s-length transactions;

• our executive officers and directors that hold positions of responsibility with related parties may be aware of certain business opportunities that are appropriate for presentation to us as well as to such other related parties and may present such business opportunities to such other parties;

• our executive officers and directors that hold positions of responsibility with related parties may have significant duties with, and spend significant time serving, other entities and may have conflicts of interest in allocating time.;

• such conflicts could cause an individual in our management to seek to advance his or her economic interests or the economic interests of certain related parties above ours.

Further, the appearance of conflicts of interest created by related-party transactions could impair the confidence of our investors.

Our Special Transactions Review Committee regularly reviews these transactions.

Notwithstanding this, it is possible that a conflict of interest could have an adverse effect on our business, financial condition and results of operations.

For more information on our related party transactions, see Note 15 - Related Party Transactions in our consolidated financial statements in our Annual Report on Form 10-K.

We may in the future be required to consolidate the assets, liabilities, and results of operations of certain existing and future related party entities, which could have an adverse impact on our results of operations, financial position, and gross margin.

The Financial Accounting Standards Board has issued accounting guidance regarding variable interest entities (“VIEs”) that affects our accounting treatment of our existing and future related party entities.

To ascertain whether we are required to consolidate an entity, we are required to determine whether it is a VIE and if we are the primary beneficiary in accordance with the accounting guidance.

Factors we consider in determining whether we are the VIE’s primary beneficiary include evaluating the decision-making authority and management of the day-to-day operations of the related party entity and the obligation to absorb losses or right to receive benefits from the related party in relation to others.

Changes in the financial accounting guidance, or changes in circumstances at each of these related party entities, could lead us to determine that we have to consolidate the assets, liabilities, and results of operations of such related party entities.

We have determined to consolidate certain related parties as VIEs, see Note 3 - Variable Interest Entities in our consolidated financial statements in our Annual Report on Form 10-K for additional information.

The consolidation of other related parties as VIEs could significantly increase our indebtedness and may have a material adverse impact on our results of operations, financial position, and gross margin.

In addition, we may enter into future affiliations with related parties or make other equity investments, which could have an adverse impact on us because of the financial accounting guidance regarding VIEs.

We may be unable to protect or maintain our intellectual property, which could result in customer confusion, a negative perception of our brand and adversely affect our business.

We believe that our intellectual property has substantial value and has contributed significantly to the success of our business.

In particular, our “HF” logo trademarks and the name “Han Feng,” are valuable assets that reinforce our customers’ favorable perception of our products.

In particular, our “HF” logo trademarks and our trade names including “Han Feng,” "Rong Cheng" and "Great Wall," are valuable assets that reinforce our customers’ favorable perception of our products.

Our trademark rights and related registrations may be challenged in the future and could be canceled or narrowed.

9 unchanged sentences

Our success is substantially dependent on the continued service of our senior management and other key personnel.

These executives have been primarily responsible for determining the strategic direction of our business and for executing our growth strategy and are integral to our brand and culture, and the reputation the Company enjoys with suppliers and consumers.

The loss of the services of any of these executives and other key personnel could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all.

12 unchanged sentences

Although we have implemented, and are in the process of enhancing, procedures to ensure our compliance with the employment eligibility verification requirements, there can be no assurance that these procedures are adequate and some of our employees may, without our knowledge, be unauthorized workers.

The employment of unauthorized workers may subject us to fines or civil or criminal penalties, and if any of our workers are found to be unauthorized, we could experience adverse publicity that negatively impacts our brand and makes it more difficult to hire and keep qualified

Table of Conte n t s

We may be required to terminate the employment of certain of our employees who are determined to be unauthorized workers.

20 unchanged sentences

Further, even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image.

With respect to product liability claims, we believe we have sufficient insurance coverage.

However, this insurance may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities.

Our product liability insurance plans may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities.

We generally seek contractual indemnification and insurance coverage from parties supplying products to us, but this indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by such suppliers.

2 unchanged sentences

Our operations are subject to various federal, state, and local laws, rules and regulations relating to the protection of the environment, including those governing:

Table of Conte n t s

• the discharge of pollutants into the air, soil, and water;

9 unchanged sentences

Litigation may materially adversely affect our business, financial condition and results of operations.

Our operations carry an exposure to litigation risk from consumers, customers, our labor force and others, and may be a party to individual personal injury, product liability and/or other legal actions in the ordinary course of our business, including litigation arising from food-related illness.

Our operations carry an exposure to litigation risk from consumers, customers, our labor force, shareholders and others, and may be a party to individual personal injury, product liability and/or other legal actions in the ordinary course of our business, including litigation arising from food-related illness.

The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify.

7 unchanged sentences

While commodity price inputs do not typically represent the substantial majority of our product costs, any increase in commodity prices may cause our vendors to seek price increases from us.

Although we are typically able to mitigate vendor efforts to increase our costs, we may be unable to continue to do so, either in whole or in part.

In the event we are unable to continue mitigating potential vendor price increases, we may in turn consider raising our prices, and our customers may be deterred by any such price increases.

Our profitability may be impacted through increased costs to us which may affect our gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

We may not be able to mitigate vendor efforts to increase our costs, either in whole or in part.

In the event we are unable to mitigate potential vendor price increases, we may in turn consider raising our prices, and our customers may be deterred by any such price increases.

profitability may be impacted through increased costs to us which may affect our gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

government is currently imposing increased tariffs on certain products imported into the U.S., including products imported from China, which may have an adverse impact on our future operating results.

We sell our products based on the cost of such products plus a percentage markup.

We import approximately 20% of our products from other countries, including China.

We sell our products based on the cost of such products plus a percent markup.

government is currently imposing and proposing increased tariffs on certain products imported into the U.S., including products imported from China.

Some of our imported products may be subject to these increased tariffs and accordingly, our purchase costs will be increased.

Some of our imported products and imported products purchased from domestic brokers may be subject to these increased tariffs and accordingly, our purchase costs will be increased.

We may determine to increase our sales prices in order to pass these increased costs to our customers.

3 unchanged sentences

Such conditions may result in physical damage to, or temporary or permanent closure of, one or more of our distribution centers, an insufficient work force in our market regions and/or temporary disruption in the supply of products, including delays in the delivery of goods to our warehouses and/or a reduction in the availability of products in our offerings.

In addition, adverse climate conditions and adverse weather patterns, such as drought or flood, that impact growing conditions and the quantity and quality of crops may materially adversely affect the availability or cost of certain products within our supply

Table of Conte n t s

Any of these factors may disrupt our businesses and materially adversely affect our financial condition, results of operations and cash flows.

Our business may be affected by the impacts of unfavorable geopolitical events or other market disruptions on consumer confidence and spending patterns.

Our net sales, profit, cash flows and future growth may be affected by negative local, regional, national or international political or economic trends or developments that reduce consumers’ ability or willingness to spend, including the effects of national and international security concerns such as war, terrorism or the threat thereof.

The Russian invasion of Ukraine in February 2022 and the financial and economic sanctions and other measures imposed by the European Union, the United States, and other countries and organizations in response thereto is creating, and may continue to create, market disruption and volatility and instability in the geopolitical environment.

The extent to which this conflict escalates to other countries and the resulting impact on the global market remains uncertain.

We are monitoring the conflict, but do not, and cannot, know if this situation will result in broader economic and security concerns or in material implications for our business.

These events could have a material adverse effect on our customers, our business partners and our third-party suppliers.

We rely on technology in our business and any cybersecurity incident, other technology disruption or delay in implementing new technology could negatively affect our business and our relationships with customers.

1 unchanged sentence

We use software and other technology systems, among other things, to generate and select orders, to make purchases, to manage warehouses and to monitor and manage our business on a day-to-day basis.

Further, our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ and suppliers’ personal information, private information about employees, and financial and strategic information about the company and its business partners.

These technology systems are vulnerable to disruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, espionage, cyber-attacks, viruses, theft and inadvertent releases of information.

Any such disruption to these software and other technology systems, or the technology systems of third parties on which we rely, the failure of these systems to otherwise perform as anticipated, or the theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential liability and competitive disadvantage, any or all of which could potentially adversely affect our customer service, decrease the volume of our business and/or result in increased costs and lower profits.

A significant breach of our cybersecurity infrastructure may result from actions by our employees, suppliers, third-party administrators, or unknown third parties or through cyber-attacks.

The risk of a breach can exist whether software services are in our technology systems or are in cloud-based software services.

Breaches have occurred, may occur again, in our systems and in the systems of our suppliers and third-party administrators.

Any such breach could result in operational impairments, significant harm to our reputation and financial losses.

A significant breach could affect our data framework or cause a failure to protect the personal information of our customers, suppliers or employees, or sensitive and confidential information regarding our business and could give rise to legal liability and regulatory action under data protection and privacy laws.

Any such breach of our or our suppliers’ cybersecurity infrastructure could have a material adverse effect on our business, results of operations and financial condition.

Further, as we pursue our strategy to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, we are also expanding and improving our information technology, resulting in a larger technological presence and corresponding exposure to cybersecurity risk.

1 unchanged sentence

Information technology systems continue to evolve and, in order to remain competitive, we need to implement new technologies in a timely and efficient manner.

Investments will continue to be made in attracting, retaining, and training our human capital to remain current on the ever-changing industry best practices related to information security.

If our competitors implement new technologies more quickly or successfully than we do, such competitors may be able to provide lower cost or enhanced services of superior quality compared to those we provide, which could have an adverse effect on our results of operations.

Our current indebtedness may adversely affect our liquidity position and ability of future financing.

As of December 31, 2020, we have $18.3 million of debt borrowed from bank credit lines, $100.7 million of long-term mortgage and equipment loans, which could adversely affect our cash flow, our ability to raise additional capital or obtain financing in the future, react to changes in business and repay other debts.

As of December 31, 2021, we utilized $55.3 million of the $100 million asset-secured revolving credit facility and $87.4 million of long-term mortgage and equipment loans, which could adversely affect our cash flow, our ability to raise additional capital or obtain financing in the future, or react to changes in business and repay other debts.

These bank loans contain covenants that restrict our ability to incur additional debt and operate our business.

We may not be able to generate a sufficient amount of cash needed to pay interest and principal on our debt facilities or refinance all or a portion of our indebtedness, due to a number of factors, including significant change of economic conditions, market competition, weather conditions, natural disaster, and failure to execute our business plan.

An increase in interest rates could adversely affect our cash flow and financial condition.

We are subject to market risks relating to changes in the London Interbank Offered Rate ("LIBOR").

On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out the use of LIBOR by the end of 2021.

In the U.S., the Alternative Reference Rates Committee, a committee convened by the Federal Reserve Board and the Federal Reserve Bank of New York, recommended the Secured Overnight Financing Rate ("SOFR") plus a recommended spread adjustment as LIBOR's replacement.

LIBOR and SOFR have significant differences, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities.

Our LIBOR-based borrowings were converted to SOFR.

The differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in higher interest costs than if LIBOR remained available, which may have an adverse effect our business, financial condition and results of operations.

Furthermore, at this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement.

Additionally, it is uncertain if LIBOR will cease to exist in the future, or whether additional reforms to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for LIBOR.

Alternative benchmark rates may replace LIBOR and could affect our debt securities, debt payments, and receipts.

At this time, it is not possible to predict the effect of any changes to LIBOR, any phase out of LIBOR, or any establishment of alternative benchmark rates.

Any other new benchmark rate will likely not replicate LIBOR exactly, which could impact our contracts that terminate after 2023.

There is uncertainty about how applicable law and the courts will address the replacement of LIBOR with alternative rates on variable rate retail loan contracts and other contracts that do not include alternative rate fallback provisions.

If LIBOR ceases to exist, the interest rates on our variable-rate debts will be based on base rates or an alternative benchmark rate, which may result in higher interest rates.

In addition, any changes to benchmark rates may have an uncertain impact on our cost of funds and our access to the capital markets, which could impact our results of operations and cash flows.

Impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets could adversely affect our financial condition and results of operation.

We review our amortizable intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

We test goodwill and other indefinite-lived intangible assets for impairment at least annually, or more frequently if events or changes in circumstances indicate an asset may be impaired.

Relevant factors, events and circumstances that affect the fair value of goodwill and indefinite-lived intangible assets may include external factors such as macroeconomic, industry, and market conditions, as well as cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit, or sustained decrease in share price.

We may be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined, which would negatively affect our results of operations.

For example, towards the end of first quarter of fiscal year 2020, we experienced significant decline in business volume due to mandatory stay-at-home orders issued by governmental authorities in response to the intensification of the COVID-19 pandemic.

We determined that the B&R Global reporting unit was very sensitive to these declines and that it was more likely than not that an impairment may exist.

We performed an analysis of the fair value of the B&R Global reporting unit as of March 31, 2020 using a discounted cash flow method for goodwill impairment testing purposes.

Based upon the analysis, we concluded that the carrying value of its B&R Global reporting unit exceeded its fair value by approximately $338.2 million.

As a result, we recorded the amount as impairment loss during the first quarter of fiscal year 2020.

Due to structural changes at the Company during 2021, there is only one reporting unit as of December 31, 2021.

No impairment charge was recorded during fiscal year 2021.

Impairment analysis requires significant judgment by management and the fair value of goodwill, indefinite-lived intangible assets or other long-lived assets are sensitive to changes in key assumptions used in the projected cash flows, which include forecasted revenues and perpetual growth rates, among others, as well as current market conditions in both the United States and globally, all of which were unfavorably impacted by the COVID-19 pandemic.

To the extent that business conditions deteriorate further, or if changes in key assumptions and estimates differ significantly from management’s expectations, it may be necessary to record additional future impairment charges, which could be material.

For more information on our goodwill impairment assessment and related impairment charge, see Note 8 - Goodwill and Acquired Intangible Assets in our consolidated financial statements of this Annual Report on Form 10-K.

Risk Factors Relating to our Acquisition Strategy

Our continued growth depends on future acquisitions of other distributors or wholesalers and enlarging our customer bases.

Our continued growth depends on future acquisitions of other distributors or wholesalers and enlarging our customer base.

The failure to achieve these goals could negatively impact our results of operations and financial condition.

3 unchanged sentences

We may not be able to obtain sufficient capital support for our expansion plan, or successfully implement the plan to acquire other competitors timely or within budget or operate those businesses successfully.

If we are unable to integrate acquired businesses successfully (including B&R Global) or realize anticipated economic, operational and other benefits and synergies in a timely manner, our earnings may be materially adversely affected.

If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our earnings may be materially adversely affected.

A significant expansion of our business and operations, in terms of geography or magnitude (such as with the Business Combination), could strain our administrative and operational resources.

Significant acquisitions may also require the issuance of material additional amounts of debt or equity, which could materially alter our debt-to-equity ratio, increase our interest

Table of Conte n t s

expense and decrease net income, and make it difficult for us to obtain favorable financing for other acquisitions or capital investments.

Significant acquisitions may also require the issuance of material additional amounts of debt or equity, which could materially alter our debt-to-equity ratio, increase our interest expense and decrease net income, and make it difficult for us to obtain favorable financing for other acquisitions or capital investments.

Our operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful.

32 unchanged sentences

We are not obligated to follow any particular criteria or standards for identifying acquisition candidates.

Table of Conte n t s

We are not obligated to follow any particular operating, financial, geographic or other criteria in evaluating candidates for potential acquisitions or business combinations.

We will determine the purchase price and other terms and conditions of acquisitions.

Our stockholders will not have the opportunity to evaluate the relevant economic, financial and other information that our management team will use and consider in deciding whether or not to enter into a particular transaction.

Our shareholders will not have the opportunity to evaluate the relevant economic, financial and other information that our management team will use and consider in deciding whether or not to enter into a particular transaction.

We may be required to incur a significant amount of indebtedness in order to successfully implement our acquisition strategy.

6 unchanged sentences

A core component of our business plan is to acquire businesses and assets in the food distribution industry.

There can be no assurance that we will be able to identify, acquire or profitably manage businesses or successfully integrate acquired businesses into the Company without substantial costs, delays or other operational or financial problems.

There can be no assurance that we will be able to identify, acquire or profitably manage businesses or successfully integrate our acquired businesses without substantial costs, delays or other operational or financial problems.

Such acquisitions also involve numerous operational risks, including:

9 unchanged sentences

A trading market for our common stock may not be sustained and our common stock prices could decline.

Although our common stock is listed on the Nasdaq Capital Market under the symbol “HFFG”, an active trading market for the shares of our common stock may not be sustained.

Although our common stock is listed on the Nasdaq Capital Market ("NASDAQ") under the symbol “HFFG”, an active trading market for the shares of our common stock may not be sustained.

Accordingly, no assurance can be given as to the following:

1 unchanged sentence

• the liquidity of any such market;

• the ability of our stockholders to sell their shares of common stock;

• the price that our stockholders may obtain for their common stock.

In addition, our common stock has experienced price and volume volatility over the past year.

The market price and volume of our common stock may continue to experience fluctuations not only due to general stock market conditions but also due to

Table of Conte n t s

government regulatory action, tax laws, interest rates, the condition of the U.S.

• the ability of our shareholders to sell their shares of common stock;

• the price that our shareholders may obtain for their common stock.

In addition, our common stock has historically experienced price and volume volatility.

The market price and volume of our common stock may continue to experience fluctuations not only due to volatile stock market conditions but also due to government regulatory action, tax laws update, interest rates, the condition of the U.S.

economy and a change in sentiment in the market regarding our industry, operations or business prospects.

6 unchanged sentences

• operating results that vary from the expectations of securities analysts and investors;

• sales of our equity securities by stockholders or management or sales of additional equity securities by us;

• actions by stockholders;

• sales of our equity securities by shareholders or management or sales of additional equity securities by us;

• actions by shareholders;

• actions by the SEC or NASDAQ relating to investigations;

• passage of legislation or other regulatory developments that adversely affect us or our industry.

If an active market is not maintained, or if our common stock continues to experience price and volume volatility, the market price of our common stock may decline.

Stockholders of a public company sometimes bring securities class action suits against the company following periods of instability in the market price of that company’s securities.

If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit.

Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future.

In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our results of operations and financial condition.

Furthermore, our ability to raise funds through the issuance of equity securities or otherwise by using our common stock as consideration is impacted by the price of our common stock.

3 unchanged sentences

Our current management does not have extensive corporate governance experience, and we may need to recruit expertise on corporate governance to comply with the regulations and effectively communicate with the capital markets, which may increase our operating expenses.

We have built up and will continue to expand our corporate management team from all areas of expertise.

Lack of in-house talent could also have an adverse impact on both the effectiveness of our operations and the full compliance with all applicable laws and regulations.

In addition, recruiting talent for our management team may increase operational costs substantially and may require longer hiring periods than ordinary employees.

We have identified material weaknesses in our internal control over financial reporting, which could affect our ability to ensure timely and reliable financial reports, affect the ability of our auditors to attest to the effectiveness of our internal controls, and weaken investor confidence in our financial reporting.

4 unchanged sentences

We have taken and will continue to take appropriate actions to remediate such material weakness and inadequate disclosure controls and procedures;

however, such measures may not be sufficient to address the material weaknesses identified or ensure that our disclosure controls and procedures are effective.

however, such continuous measures are still work-in-progress and may not be sufficient to address the material weaknesses identified or ensure that our disclosure controls and procedures are effective.

We may also discover other material weaknesses in the future.

Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in the implementation of

Table of Conte n t s

such controls, could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements and affect the ability of our auditors to attest to the effectiveness of our internal controls over financing reporting.

Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in the implementation of such controls, could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements and affect the ability of our auditors to attest to the effectiveness of our internal controls over financing reporting.

In addition, substantial costs and resources may be required to rectify any internal control deficiencies.

1 unchanged sentence

We are not required to obtain an attestation report on our assessment of our internal control over financial reporting from an independent registered public accounting firm, which may cause investors to lose confidence in us and cause the price of our common stock to be negatively impacted.

Under rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are not required to obtain from our independent registered public accounting firm an attestation report on our assessment of our internal control over financial reporting, and we have not voluntarily sought such a report in the past.

If we do not voluntarily seek to obtain an unqualified attestation report on our assessment of our internal control over financial reporting from our independent registered public accounting firm in the future, or if we seek to obtain such a report but our independent registered public accounting firm is unable to provide one to us, investors may have less confidence in us and the price of our common stock may be negatively impacted.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company”, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies which do not meet the definition of an “emerging growth company”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We intend to take advantage of these reporting exemptions until we are no longer an emerging growth company.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions.

Under rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are not required to obtain from our independent registered public accounting firm an attestation report on our assessment of our internal control over financial reporting until we provide our annual report for the year ended December 31, 2022 and we have not voluntarily sought such a report in the past.

Because, as an emerging growth company, we are not required to and did not voluntarily obtain an unqualified attestation report on our assessment of our internal control over financial reporting from our independent registered public accounting firm, investors may have less confidence in us and the price of our common stock may be negatively impacted.

Our management assessed the effectiveness of our internal control over financial reporting for the year ended December 31, 2021 and identified material weaknesses in our operating effectiveness.

Controls and Procedures.

We will no longer qualify as an emerging growth company for the year ended December 31, 2022, which may lead us to incur additional expenses to comply with applicable regulations.

We have been an “emerging growth company”, as defined in the JOBS Act, and we have taken advantage of certain exemptions from various reporting requirements that are applicable to other public companies which do not meet the definition of an “emerging growth company”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We cannot predict if investors will find our common stock less attractive because we had relied on these exemptions.

If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company for up to five years, until such time when we have more than $1.07 billion of revenues in a fiscal year, have more than $700 million in market value of our common stock held by non-affiliates as of any June 30 or issue more than $1.0 billion of non-convertible debt over a rolling three-year period, whichever is earlier.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

We have elected to avail ourselves of this exemption and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies.

We elected to avail ourselves of this exemption and, therefore, we were not subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

As of December 31, 2022, we will no longer qualify an emerging growth company.

As a result, we will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for the year ending December 31, 2022, and we will no longer be able to take advantage of the exemptions from reporting available to emerging growth companies absent other exemptions or relief available from the SEC.

We will incur additional expenses in connection with compliance to these regulations and our management will need to devote additional time and effort to implement and comply with such requirements.

We have not been in compliance with NASDAQ's requirements for continued listing.

As a result, our common stock may be delisted from trading on NASDAQ, which would have a material effect on us and our shareholders.

We were delinquent in the filing of our periodic reports with the SEC initially as a result of additional review and procedures relating to our merger with B&R Global.

After the resolution of certain merger-related issues in September 2022, our ability to timely file periodic reports continued to be delayed due to additional review and procedures of complex technical and accounting issues relating to the previously disclosed independent investigation by the Special Investigation Committee of the Company’s Board of Directors and the previously disclosed concurrent, non-public SEC investigation.

As a result of these ongoing matters, we were not in compliance with the listing requirements of NASDAQ Listing Rule 5250(c)(1), which requires timely filing of periodic financial reports with the SEC.

Under NASDAQ's listing rules, we were permitted to submit to NASDAQ a plan to regain compliance.

Subsequently, we participated in a hearing before the Nasdaq Hearings Panel (the "Hearings Panel") on November 3, 2022, after which we were granted a stay of delisting procedures subject to our meeting certain conditions, including filing our delinquent periodic reports with the SEC by January 31, 2023.

On January 17, 2023, we received an additional delisting notice from Nasdaq relating to our failure to hold an annual shareholder meeting by December 31, 2022.

We intend to hold our annual shareholder meeting no later than June 2023 in order to establish compliance with NASDAQ listing standards.

If we are unable to re-establish compliance with these standards, our common stock would be subject to delisting by NASDAQ.

If our common stock is delisted, there can no assurance whether or when it would again be listed for trading on NASDAQ or on any other exchange.

Due to the delayed filing with the Commission of our Form 10-K for the year ended December 31, 2021, and Form 10-Q for the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022, we are not currently eligible to use a registration statement on Form S-3 to register the offer and sale of securities and may be delisted by NASDAQ), which may adversely affect our ability to raise future capital or complete acquisitions.

As a result of the delayed filing with the Commission of this Form 10-K for the year ended December 31, 2021 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until we have timely filed all periodic reports required under the Securities Exchange Act of 1934 for one year, and there can be no assurance that we will be able to file all such reports in a timely manner in the future.

Should we wish to register the offer and sale of additional securities to the public, our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our business, strategic plan and financial condition.

Furthermore, if we were subjected to the delisting of our common stock from trading on NASDAQ, this could adversely affect the market price of and hinder our shareholders' ability to trade in our common stock, and could also affect our ability to access the capital markets or complete acquisitions.

If our shares of common stock are delisted, there could be no assurance of it again being listed for trading on NASDAQ or any other exchange.

Future sales of our common stock may cause our stock price to decline.

As of March 15, 2021, there were [51,193,411] shares of our common stock outstanding.

Of this number, approximately 37.7 million shares of common stock were freely tradable without restriction, unless the shares are purchased by our affiliates.

As of January 27, 2023, there were 53,813,316 shares of our common stock outstanding.

Of this number, approximately 53.8 million shares of common stock were freely tradable without restriction, unless the shares were held by our affiliates.

The remaining shares of common stock were “restricted securities” as that term is defined under Rule 144 of the Securities Act.

1 unchanged sentence

The sale of a large number of shares of our common stock, or the belief that such sales may occur, could cause a drop in the market price of our common stock.

If securities analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, the price of our common stock and trading volume could decline.

The trading market for our common stock could be influenced by any research and reports that securities or industry analysts publish about us, our business or our market.

If one or more of the analysts who covers us downgrades our common stock or

Table of Conte n t s

publishes inaccurate or unfavorable research about us, our business or our market, the price of our common stock would likely decline.

If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause the price of our common stock and trading volume to decline.

We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have not declared or paid dividends on our common stock and we do not intend to do so in the near term.

We have not declared nor paid dividends on our common stock and we do not intend to do so in the near term.

We currently intend to invest our future earnings, if any, to fund our growth.

2 unchanged sentences

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-K

Item 1A. Risk Factors