What changed in this filing

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Item 1. Financial Statements

2023-01-31 compared with 2023-01-31 · 106 added, 123 removed, 709 unchanged (24% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data) September 30, 2022 December 31, 2021

(In thousands, except share data) June 30, 2022 December 31, 2021

CURRENT ASSETS

33 unchanged sentences

SHAREHOLDERS’ EQUITY

Preferred stock, $ 0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and December 31, 2021

Common stock, $ 0.0001 par value, 100,000,000 shares authorized, 53,813,366 and 53,706,392 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Preferred stock, $ 0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 and December 31, 2021

Common stock, $ 0.0001 par value, 100,000,000 shares authorized, 53,706,392 shares issued and outstanding as of June 30, 2022 and December 31, 2021

Additional paid-in capital 597,738 597,227

8 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

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

(In thousands, except share and per share data) 2022 2021 2022 2021

7 unchanged sentences

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

(LOSS) INCOME FROM OPERATIONS ( 3,096 ) 10,864 13,950 17,547

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

Other Expense (Income)

4 unchanged sentences

Total Other Expense (Income), net 1,136 612 7,211 ( 353 )

(LOSS) INCOME BEFORE INCOME TAX PROVISION ( 4,566 ) 10,587 5,269 17,623

Income tax (benefit) provision ( 672 ) 2,676 1,529 4,738

NET (LOSS) INCOME AND COMPREHENSIVE INCOME ( 3,894 ) 7,911 3,740 12,885

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

Income tax provision 1,097 1,416 2,201 2,062

NET INCOME AND COMPREHENSIVE INCOME 4,494 3,316 7,634 4,974

net income (loss) attributable to noncontrolling interests ( 70 ) ( 91 ) ( 44 ) 209

NET (LOSS) INCOME AND COMPREHENSIVE INCOME ATTRIBUTABLE TO HF FOODS GROUP INC.

NET INCOME AND COMPREHENSIVE INCOME ATTRIBUTABLE TO HF FOODS GROUP INC.

$ 4,564 $ 3,407 $ 7,678 $ 4,765

(LOSS) EARNINGS PER COMMON SHARE - BASIC $ ( 0.07 ) $ 0.15 $ 0.07 $ 0.24

(LOSS) EARNINGS PER COMMON SHARE - DILUTED $ ( 0.07 ) $ 0.15 $ 0.07 $ 0.24

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

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

WEIGHTED AVERAGE SHARES - BASIC 53,706,392 51,913,411 53,706,392 51,913,411

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Six Months Ended June 30,

(In thousands) 2022 2021

5 unchanged sentences

Provision for doubtful accounts 111 ( 23 )

Allowance for inventories 67

Deferred tax benefit ( 2,674 ) ( 1,305 )

Income from equity method investment ( 270 ) ( 49 )

Return on equity method investment 147 —

Change in fair value of interest rate swap contracts ( 565 ) ( 1,319 )

5 unchanged sentences

Changes in operating assets and liabilities (excluding effects of acquisitions):

Accounts receivable ( 8,221 ) ( 8,861 )

Accounts receivable, net ( 6,529 ) ( 5,428 )

Accounts receivable - related parties ( 629 ) ( 660 )

34 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Nine Months Ended September 30,

Six Months Ended June 30,

(In thousands) 2022 2021

17 unchanged sentences

Shareholders’

(In thousands, except share data) Number of

(In thousands, except for shares) Number of

Shares Amount

8 unchanged sentences

Balance at June 30, 2021 51,913,411 $ 5 $ 583,723 $ ( 323,664 ) $ 260,064 $ 3,282 $ 263,346

Net income — — — 7,554 7,554 357 7,911

Capital contributions by shareholders — — — — — 180 180

Distribution to shareholders — — — — — ( 62 ) ( 62 )

Stock-based compensation — — 375 — 375 — 375

Balance at September 30, 2021 51,913,411 $ 5 $ 584,098 $ ( 316,110 ) $ 267,993 $ 3,757 $ 271,750

Balance at January 1, 2022 53,706,392 $ 5 $ 597,227 $ ( 306,284 ) $ 290,948 $ 4,041 $ 294,989

8 unchanged sentences

Balance at June 30, 2022 53,706,392 $ 5 $ 597,738 $ ( 298,606 ) $ 299,137 $ 4,617 $ 303,754

Net loss — — — ( 3,864 ) ( 3,864 ) ( 30 ) ( 3,894 )

Issuance of common stock pursuant to equity compensation plan 138,412 — — — — — —

Shares withheld for tax withholdings on vested stock awards ( 31,438 ) — ( 162 ) — ( 162 ) — ( 162 )

Stock-based compensation — — 162 — 162 — 162

Balance at September 30, 2022 53,813,366 $ 5 $ 597,738 $ ( 302,470 ) $ 295,273 $ 4,587 $ 299,860

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

14 unchanged sentences

On April 29, 2022, the Company completed the acquisition of substantially all of the assets of Sealand Food, Inc.

This included equipment, machinery and vehicles for cash consideration of $ 20.0 million plus, inventory for cash consideration of $ 14.4 million, and additional fixed assets for cash consideration of approximately $ 0.5 million (the "Sealand Acquisition").

This included the acquisition of equipment, machinery and vehicles for cash consideration of $ 20.0 million, inventory for cash consideration of $ 14.4 million, and additional fixed assets for cash consideration of approximately $ 0.5 million (the "Sealand Acquisition").

The acquisition was completed as part of the Company’s strategy to develop a national footprint through continued expansion in the East Coast of the United States, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.

18 unchanged sentences

These financial statements are condensed and should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended December 31, 2021 and 2020.

Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The accompanying consolidated financial statements include the accounts of HF Group and certain variable interest entities for which the Company is the primary beneficiary.

8 unchanged sentences

GAAP requires that noncontrolling interests in subsidiaries and affiliates be reported in the equity section of the Company’s condensed consolidated balance sheet.

In addition, the amounts attributable to the net income of those subsidiaries are reported separately in the condensed consolidated statements of operations and comprehensive income.

As of September 30, 2022 and December 31, 2021, noncontrolling interest equity consisted of the following:

In addition, the amounts attributable to the net income of those subsidiaries are reported separately in the condensed consolidated statements of income and comprehensive income.

As of June 30, 2022 and December 31, 2021, noncontrolling interest equity consisted of the following:

($ in thousands) Ownership of

Noncontrolling

Interest September 30, 2022 December 31, 2021

Interest June 30,

2022 December 31,

HF Foods Industrial, Inc.

77 unchanged sentences

The Company did not have any guarantees, commitments, or other forms of financing with these entities.

All transactions with Revolution Industry and UGO ceased in 2021, therefore, these entities are no longer considered VIE's as of September 30, 2022.

All transactions with Revolution Industry and UGO ceased in 2021, therefore, these entities are no longer considered VIEs as of June 30, 2022.

Related party transactions, such as purchases of goods and services, with Revolution Industry and UGO are disclosed in Note 13 - Related Party Transactions .

14 unchanged sentences

The Company’s revenue streams are recognized at a specific point in time.

For the three and nine months ended September 30, 2022 and 2021, revenue recognized from performance obligations related to prior periods was immaterial.

For the three and six months ended June 30, 2022 and 2021, revenue recognized from performance obligations related to prior periods was immaterial.

Revenue expected to be recognized in any future periods related to remaining performance obligations is immaterial.

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

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

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

($ in thousands) 2022 2021 2022 2021

8 unchanged sentences

Accounts receivable, net consisted of the following:

(In thousands) September 30, 2022 December 31, 2021

(In thousands) June 30, 2022 December 31, 2021

Accounts receivable $ 43,478 $ 37,121

2 unchanged sentences

Movement of allowance for doubtful accounts is as follows:

Nine Months Ended September 30,

Six Months Ended June 30,

(In thousands) 2022 2021

4 unchanged sentences

Long-term investments consisted of the following:

(In thousands) Ownership as of September 30,

2022 September 30, 2022 December 31, 2021

($ in thousands) Ownership as of June 30,

2022 June 30, 2022 December 31, 2021

Asahi Food, Inc.

5 unchanged sentences

is accounted for under the equity method due to the fact that the Company has significant influence but does not exercise control over this investee.

The Company determined there was no impairment as of September 30, 2022 and December 31, 2021 for these investments.

The Company determined there was no impairment as of June 30, 2022 and December 31, 2021 for these investments.

Property and equipment, net consisted of the following:

(In thousands) September 30, 2022 December 31, 2021

(In thousands) June 30, 2022 December 31, 2021

Automobiles $ 34,787 $ 31,577

7 unchanged sentences

Property and equipment, net $ 142,006 $ 145,908

Depreciation expense was $ 2.2 million and $ 2.0 million for the three months ended September 30, 2022 and 2021, respectively.

Depreciation expense was $ 6.6 million and $ 6.0 million for the nine months ended September 30, 2022 and 2021, respectively.

Depreciation expense was $ 2.2 million and $ 2.0 million for the three months ended June 30, 2022 and 2021, respectively.

Depreciation expense was $ 4.4 million and $ 4.0 million for the six months ended June 30, 2022 and 2021, respectively.

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

9 unchanged sentences

For the Company's fixed rate debt, the fair values were estimated using discounted cash flow analyses, based on the current incremental borrowing rates for similar types of borrowing arrangements.

As of September 30, 2022, the carrying value of the fixed rate debt was $ 4.7 million and the fair value was $ 4.1 million.

As of June 30, 2022, the carrying value of the fixed rate debt was $ 5.0 million and the fair value was $ 3.7 million.

As of December 31, 2021, the carrying value of the fixed rate debt, which included the Company's promissory note payable to related party, was $ 15.0 million and the fair value was $ 12.2 million.

The variable and fixed rate debt are both classified as Level 2.

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

Of the $ 4.7 million of fixed rate debt as of September 30, 2022, $ 2.4 million is attributable to real estate term loans with East West Bank, $ 2.0 million is attributable to vehicle and equipment term loans with Bank of America, and $ 0.3 million is attributable to vehicle loans with other financial institutions.

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

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

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

Please refer to Note 9 - Derivative Financial Instruments for additional information regarding the fair value of the Company's derivative financial instruments which are classified as Level 2.

9 unchanged sentences

Goodwill is calculated as the excess of the purchase price over the net assets recognized and represent synergies and benefits expected as a result from combining operations with an emerging national presence.

The transaction costs for the acquisition totaled approximately $ 0.7 million and were reflected in distribution, selling and administrative expenses in the unaudited condensed consolidated statement of operations and comprehensive income for the nine months ended September 30, 2022.

The transaction costs for the acquisition totaled approximately $ 0.6 million for the six months ended June 30, 2022 and were reflected in distribution, selling and administrative expenses in the unaudited condensed consolidated statement of income and comprehensive income.

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

1 unchanged sentence

Preliminary Purchase Price Allocation

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

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

(In thousands) Amount

22 unchanged sentences

The final aggregate price for the purchased assets was $ 43.7 million with $ 30.8 million paid in cash at closing and the issuance of 1,792,981 shares of common stock of the Company (based on a 60-day VWAP of $7.36), with a fair value of $ 12.9 million based on the share price of $ 8.11 per share at closing and an 11.5 % discount due to a lock-up restriction.

In addition to the closing cash payment, the Company separately acquired all of the Sellers’ saleable product inventory for approximately $ 24.3 million (fair value of $ 24.7 million) of which approximately $ 6.8 million was paid during the year ended December 31, 2021 and $ 17.4 million was recorded in accounts payable on the consolidated balance sheets as of December 31, 2021.

In addition to the closing cash payment, the Company separately acquired all of the Sellers’ saleable product inventory of approximately $ 24.3 million (fair value of $24.7 million) of which approximately $ 6.8 million was paid during the year ended December 31, 2021 and $ 17.4 million was recorded in accounts payable on the consolidated balance sheets as of December 31, 2021.

The Company also acquired additional vehicles for approximately $ 0.2 million.

4 unchanged sentences

The transaction costs for the acquisition were reflected in distribution, selling and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss) and totaled $ 0.4 million for the nine months ended September 30, 2022.

The transaction costs for the acquisition were reflected in distribution, selling and administrative expenses in the condensed consolidated statements of income and comprehensive income (loss) and totaled $ 0.4 million for the six months ended June 30, 2022.

10 unchanged sentences

These intangible assets include tradenames and trademarks of $ 10.5 million, customer relationships of $ 17.2 million and non-compete agreements of $ 2.4 million.

The fair value of customer relationships was determined by applying the income approach utilizing the excess earnings methodology and Level 3 inputs including a discount rate.

The fair value of customer relationships was determined by applying the income approach utilizing the excess earnings methodology using Level 3 inputs including a discount rate.

The fair value of tradenames and trademarks was determined by applying the income approach utilizing the relief from royalty methodology and Level 3 inputs including a royalty rate of 1% and a discount rate.

The fair value of non-competition agreements was determined by applying the income approach and Level 3 inputs including a discount rate.

The fair value of non-competition agreements was determined by applying the income approach using Level 3 inputs including a discount rate.

Discount rates used in determining fair values for customer relationships, tradenames and trademarks, and non-competition agreements ranged from 11.5% to 14.0%.

2 unchanged sentences

Unaudited Supplemental Pro Forma Financial Information

The following table presents the Company’s unaudited pro forma results for the three and nine months ended September 30, 2022, as if both the Great Wall Acquisition and Sealand Acquisition had been consummated on January 1, 2021.

The following table presents the Company’s unaudited pro forma results for the three and six months ended June 30, 2022, as if both the Great Wall Acquisition and Sealand Acquisition had been consummated on January 1, 2021.

The unaudited pro forma financial information presented includes the effects of adjustments related to the amortization of acquired intangible assets and excludes synergies and other non-recurring transaction costs directly associated with the acquisition such as legal and other professional service fees.

1 unchanged sentence

Accordingly, the unaudited pro forma information does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations.

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

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

(In thousands) 2022 2021 2022 2021

4 unchanged sentences

The changes in the carrying amount of goodwill are presented below:

(In thousands) Amount

(In thousands) Six Months Ended June 30, 2022

Balance at December 31, 2021 $ 80,257

Acquisition of Sealand Food, Inc.

Balance at September 30, 2022 $ 85,118

The Company’s policy is to test goodwill for impairment annually in the fourth quarter or more frequently if certain triggering events or circumstances indicate it could be impaired.

The Company is monitoring the decline in its stock price and the potential for this to impact its recorded goodwill.

While the Company has determined there to be no triggering events at September 30, 2022, a sustained decline in the Company’s stock price could result in the Company performing a quantitative test of impairment in the fourth quarter.

Balance at June 30, 2022 $ 85,118

Acquired Intangible Assets

The components of the intangible assets are presented below:

September 30, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(In thousands) Gross

9 unchanged sentences

Total $ 233,854 $ ( 31,620 ) $ 202,234 $ 218,648 $ ( 23,596 ) $ 195,052

Amortization expense for intangible assets was $ 4.1 million and $ 2.7 million for the three months ended September 30, 2022 and September 30, 2021, respectively.

Amortization expense for intangible assets was $ 11.7 million and $ 8.2 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

During the nine months ended September 30, 2022, the Company impaired its acquired developed technology and recognized impairment expense of $ 0.4 million in distribution, selling and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

Amortization expense for intangible assets was $ 4.0 million and $ 2.7 million for the three months ended June 30, 2022 and June 30, 2021, respectively.

Amortization expense for intangible assets was $ 7.6 million and $ 5.4 million for the six months ended June 30, 2022 and June 30, 2021, respectively.

During the three months ended June 30, 2022, the Company impaired its acquired developed technology and recognized impairment expense of $ 0.4 million in distribution, selling and administrative expenses in the unaudited condensed consolidated statements of income and comprehensive income.

NOTE 9 - DERIVATIVE FINANCIAL INSTRUMENTS

15 unchanged sentences

The Company evaluated the above mentioned interest rate swap contracts currently in place and did not designate those as cash flow hedges.

Hence, the fair value change on the aforementioned interest rate swap contracts are accounted for and recognized

as a change in fair value of interest rate swap contracts in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

As of September 30, 2022, the Company determined that the fair value of the IRS contracts in an asset position was $ 0.6 million, which is included in other current assets in the unaudited condensed consolidated balance sheets.

Hence, the fair value change on the aforementioned interest rate swap contracts are accounted for and recognized as a change in fair value of interest rate swap contracts in the unaudited condensed consolidated statements of income and comprehensive income (loss).

As of June 30, 2022, the Company determined that the fair value of the IRS contracts in an asset position was $ 0.3 million, which is included in other current assets in the unaudited condensed consolidated balance sheets.

As of December 31, 2021, the Company determined that the fair value of the interest rate swap contracts in a liability position was $ 0.3 million, which is included in accrued expenses and other liabilities in the unaudited condensed consolidated balance sheets.

16 unchanged sentences

Additionally, $ 0.1 million of the unamortized financing fees related to the Revolving Facility has been deferred and will be amortized over the life of the Revolving Facility.

As of September 30, 2022, the Company was in compliance with its covenants.

Subsequent to September 30, 2022, the Company's lenders consented to the delivery of the Company's 2021 audited financial statements on or before January 31, 2023.

The outstanding principal balance on the line of credit as of September 30, 2022 was $ 71.3 million.

As of June 30, 2022, the Company was in compliance with its covenants.

Subsequent to June 30, 2022, the Company's lenders consented to the delivery of the Company's 2021 audited financial statements on or before January 31, 2023.

The outstanding principal balance on the line of credit as of June 30, 2022 was $ 60.0 million.

Long-Term Debt

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

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

(In thousands)

Bank Name Maturity Interest Rate as of September 30, 2022 September 30, 2022 December 31, 2021

Bank Name Maturity Interest Rate as of June 30, 2022 June 30, 2022 December 31, 2021

Bank of America (a)

7 unchanged sentences

Other finance institutions (e)

October 2022 - March 2024 3.90 % — 6.14 % 204 838

July 2022 - March 2024 3.90 % — 6.14 % 261 838

Total debt, principal amount 125,472 87,403

9 unchanged sentences

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

(d) Real estate term loan with a principal balance of $ 112.6 million as of September 30, 2022 and $ 69.8 million as of December 31, 2021 is secured by assets held by the Company and has a maturity date of January 2030.

Equipment term loan with a principal balance of $ 0.5 million as of September 30, 2022 and $ 1.0 million as of December 31, 2021 is secured by specific vehicles and equipment as defined in loan agreements.

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

(d) Real estate term loan with a principal balance of $ 113.9 million as of June 30, 2022 and $ 69.9 million as of December 31, 2021 is secured by assets held by the Company and has a maturity date of January 2030.

Equipment term loan with a principal balance of $ 0.7 million as of June 30, 2022 and $ 1.0 million as of December 31, 2021 is secured by specific vehicles and equipment as defined in loan agreements.

Equipment term loans mature in February 2023 and December 2023.

1 unchanged sentence

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 September 30, 2022 and December 31, 2021, the Company was in compliance with its covenants.

Subsequent to September 30, 2022, the Company's lenders consented to the delivery of the Company's 2021 audited financial statements on or before January 31, 2023.

As of June 30, 2022 and December 31, 2021, the Company was in compliance with its covenants.

Subsequent to June 30, 2022, the Company's lenders consented to the delivery of the Company's 2021 audited financial statements on or before January 31, 2023..

NOTE 11 - EARNINGS PER SHARE

4 unchanged sentences

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 3,536 potential common shares related to total shareholder return performance-based restricted stock units that were excluded from the calculation of diluted EPS for the nine months ended September 30, 2022, because their effect would have been anti-dilutive.

There were no anti-dilutive potential common shares for the three and nine months ended September 30, 2021 .

There were 3,471 and 3,668 potential common shares related to total shareholder return performance-based restricted stock units that were excluded from the calculation of diluted EPS for the three and six

months ended June 30, 2022, respectively, because their effect would have been anti-dilutive.

There were no anti-dilutive potential common shares for the three and six months ended June 30, 2021 .

The following table sets forth the computation of basic and diluted EPS:

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

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

(In thousands, except share and per share data) 2022 2021 2022 2021

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

Net income attributable to HF Foods Group Inc.

$ 4,564 $ 3,407 $ 7,678 $ 4,765

2 unchanged sentences

Weighted-average dilutive shares outstanding 53,900,883 51,913,411 53,927,957 51,913,411

(Loss) earnings per common share:

Earnings per common share:

Basic $ 0.08 $ 0.07 $ 0.14 $ 0.09

6 unchanged sentences

The Company has no operations outside the U.S., as such, no foreign income tax was recorded.

For the three and nine months ended September 30, 2022, the Company's effective income tax rate of 14.7 % and 29.0 %, respectively, differed from the federal statutory tax rate primarily as a result of state income taxes.

For the three and nine months ended September 30, 2021, the Company's effective income tax rate of 25.3 % and 26.9 % differed from the federal statutory tax rate primarily as a result of state income taxes.

For the three and six months ended June 30, 2022, the Company's effective income tax rate of 19.6 % and 22.4 %, respectively, differed from the federal statutory tax rate primarily as a result of state income taxes.

For the three and six months ended June 30, 2021, the Company's effective income tax rate of 29.9 % and 29.3 % differed from the federal statutory tax rate primarily as a result of state income taxes.

NOTE 13 - RELATED PARTY TRANSACTIONS

8 unchanged sentences

Jian Ming Ni's, a former Chief Financial Officer of the Company, continued ownership interest in NC Noodle.

Revolution Industry and UGO, are also considered non-consolidated VIEs as discussed further in Note 3 – Variable Interest Entities .

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

Revolution Industry and UGO, are also considered Unconsolidated VIEs as discussed further in Note 3 – Variable Interest Entities .

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

Related Party Sales and Purchases Transactions

1 unchanged sentence

Purchase - related parties

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

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

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

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

(In thousands) Nature 2022 2021 2022 2021

34 unchanged sentences

Sales - related parties

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

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

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

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

(In thousands) 2022 2021 2022 2021

11 unchanged sentences

(i) Fortune One Foods, Inc.

67 136 81 301

(i) Heng Feng Food Services, Inc.

22 unchanged sentences

under an operating lease agreement which was mutually terminated by both parties effective April 1, 2021.

No rental income was recorded for the three and nine months ended September 30, 2022 and for the three months ended September 30, 2021.

Rental income was $ 7,000 for the nine months ended September 30, 2021 and is included in other income in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

No rental income was recorded for the three and six months ended June 30, 2022 and for the three months ended June 30, 2021.

Rental income was $ 7,000 for the six months ended June 30, 2021 and is included in other income in the unaudited condensed consolidated statements of income and comprehensive income.

The Company leased a facility to iUnited Services, LLC ("iUnited"), which has been determined to be a related party due to the equity ownership interest in iUnited of Mr.

2 unchanged sentences

The building and related land was sold to iUnited for $ 1.5 million and a gain of $ 0.8 million.

Rental income for the three and nine months ended September 30, 2021 was $ 15,000 and $ 45,000 , respectively, which is included in other income in the consolidated statements of operations and comprehensive income (loss).

Rental income for the three and six months ended June 30, 2021 was $ 15,000 and $ 30,000 , respectively, which is included in other income in the consolidated statements of income and comprehensive income.

The Company leased a production area to Revolution Industry, LLC under a month-to-month lease agreement.

This lease agreement was terminated as a result of the asset purchase agreement executed on February 25, 2021.

No rental income was recorded for the three and nine months ended September 30, 2022 and for the three months ended September 30, 2021.

Rental income was $ 6,000 for the nine months ended September 30, 2021 and is included in other income in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

No rental income was recorded for the three and six months ended June 30, 2022 and the three months ended June 30, 2021.

Rental income was $ 6,000 for the six months ended June 30, 2021 and is included in other income in the unaudited condensed consolidated statements of income and comprehensive income.

The Company leased a warehouse to Enson Seafood GA Inc.

2 unchanged sentences

(see Note 10 - Debt for additional information).

There was no rental income for the three months ended September 30, 2022.

Rental income for the three months ended September 30, 2021 was $ 120,000 and is included in other income in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

Rental income for nine months ended September 30, 2022 and 2021 was $ 200,000 and $ 360,000 , respectively and is included in other income in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

Rental income for three months ended June 30, 2022 and 2021 was $ 120,000 and $ 120,000 , respectively, and is included in other income in the unaudited condensed consolidated statements of income and comprehensive income.

Rental income for the six months ended June 30, 2022 and 2021 was $ 200,000 and $ 240,000 , respectively, and is included in other income in the unaudited condensed consolidated statements of income and comprehensive income.

In 2020, the Company renewed a warehouse lease from Yoan Chang Trading Inc.

("Yoan") under an operating lease agreement expiring on December 31, 2020.

In February 2021, the Company executed a new five year operating lease agreement with Yoan effective January 1, 2021 and expiring on December 31, 2025.

Rent incurred was $ 86,000 and $ 77,000 for the three months ended September 30, 2022 and 2021, respectively, and is included in distribution, selling and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

Rent incurred to the related party was $ 231,000 and $ 232,000 for the nine months ended September 30, 2022 and 2021, respectively, and is included in distribution, selling and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

In February 2021, the Company executed a new 5-year operating lease agreement with Yoan effective January 1, 2021 and expiring on December 31, 2025.

Rent incurred was $ 72,000 and $ 77,000 for the three months ended June 30, 2022 and 2021, respectively, and is included in distribution, selling and administrative expenses in the unaudited condensed consolidated statements of income and comprehensive income.

Rent incurred to the related party was $ 144,000 and $ 155,000 for the six months ended June 30, 2022 and 2021, respectively, and is included in distribution, selling and administrative expenses in the unaudited condensed consolidated statements of income and comprehensive income.

Related Party Balances

Accounts receivable - related parties, net

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

(In thousands) September 30, 2022 December 31, 2021

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

(In thousands) June 30, 2022 December 31, 2021

(a) ABC Food Trading, LLC $ 492 $ 76

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Other 174 100

Total $ 878 $ 249

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All accounts receivable from these related parties are current and considered fully collectible.

No allowance is deemed necessary as of September 30, 2022 and December 31, 2021.

No allowance is deemed necessary as of June 30, 2022 and December 31, 2021.

Accounts payable - related parties, net

All the accounts payable to related parties are payable upon demand without interest.

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

(In thousands) September 30, 2022 December 31, 2021

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

(In thousands) June 30, 2022 December 31, 2021

(a) Best Food Services, LLC $ 1,483 $ 699

10 unchanged sentences

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

There were no advances to related party suppliers recorded as of September 30, 2022 and December 31, 2021.

There were no advances to related party suppliers recorded as of June 30, 2022 and December 31, 2021.

Promissory note payable - related party

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During the three months ended June 30, 2022, the Company paid the remaining $ 4.5 million of the Unsecured Subordinated Promissory Note.

Interest payments paid were $ 84,000 for the three months ended September 30, 2021.

Interest payments paid were $ 129,000 and $ 282,000 for the nine months ended September 30, 2022 and 2021, respectively.

Interest payments paid were $ 62,000 and $ 97,000 for the three months ended June 30, 2022 and 2021, respectively.

Interest payments paid were $ 129,000 and $ 197,000 for the six months ended June 30, 2022 and 2021, respectively.

NOTE 14 - STOCK-BASED COMPENSATION

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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, non-employee directors and consultants.

As of September 30, 2022, the Company had 549,613 time-based vesting restricted stock units (“RSUs”) outstanding, 119,396 performance-based restricted stock units (“PSUs”) outstanding, and 2,224,017 shares remaining available for future awards under the 2018 Incentive Plan.

For the three and nine months ended September 30, 2022, stock-based compensation expense was $ 0.2 million and $ 0.7 million, respectively.

For the three and nine months ended September 30, 2021, stock-based compensation expense was $ 0.4 million.

Stock-based compensation expense is recorded in distribution, selling and administrative expenses in the Company's unaudited condensed consolidated statements of operations and comprehensive income.

As of September 30, 2022, there was $ 2.9 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 2.60 years.

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

For the three and six months ended June 30, 2022, stock-based compensation expense was $ 0.2 million and $ 0.5 million, respectively, and was included in distribution, selling and administrative expenses in the Company's unaudited condensed consolidated statements of income and comprehensive income.

No stock-based compensation expense was recognized for three and six months ended June 30, 2021.

As of June 30, 2022, there was $ 1.4 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 1.97 years.

NOTE 15 - COMMITMENTS AND CONTINGENCIES

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Many of the allegations contained in the Bishop Demand were the subject of a shareholder derivative action that Bishop filed in August 2020 (the “Bishop Derivative Action”).

On November 24, 2021, after the United States District Court for the Central District of California dismissed with prejudice a related securities

class action, captioned Mendoza v.

On November 24, 2021, after the United States District Court for the Central District of California dismissed with prejudice a related securities class action, captioned Mendoza v.

HF Foods Group Inc.

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In accordance with ASC 460, Guarantees , the Company has determined that its maximum exposure resulting from the 275 Fifth Avenue lease guarantee includes future minimum lease payments plus potential additional payments to satisfy maintenance, property tax and insurance requirements under the leases with a remaining term of approximately 11 years.

The Company elected a policy to apply the discounted cash flow method to loss contingencies with more than 18 months of

The Company elected a policy to apply the discounted cash flow method to loss contingencies with more than 18 months of payments.

During the three months ended March 31, 2022, the Company recorded a lease guarantee liability of $ 5.9 million.

The Company determined the discounted value of the lease guarantee liability using a discount rate of 4.55 % and is classified as Level 2 in the fair value hierarchy.

The Company determined the discounted value of the lease guarantee liability was $ 5.9 million as of March 31, 2022 using a discount rate of 4.55 % and is classified as Level 2 in the fair value hierarchy.

The current portion of the lease guarantee liability of $ 0.3 million is recorded in Accrued expenses and other liabilities on the condensed consolidated balance sheet.

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

The estimated future minimum lease payments as of September 30, 2022 are presented below:

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

The estimated future minimum lease payments as of June 30, 2022 are presented below:

(In thousands) Amount

Year Ending December 31,

2022 (remaining three months) $ 127

2022 (remaining six months) $ 254

Thereafter 5,116

4 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-Q

Item 1. Financial Statements