What changed in this filing

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Item 1A. Risk Factors

2023-03-31 compared with 2023-01-31 · 57 added, 61 removed, 355 unchanged (25% 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.

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

The risks set forth in this Section 1A are presented as of December 31, 2022 and the periods then 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.

Global health developments and economic uncertainty resulting from pandemics such as the COVID-19 pandemic, and governmental action related thereto, have adversely affected, and may 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.

While COVID-19 did not significantly impact our operations in 2022, the impact of pandemics may 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 future pandemics or future governmental regulations or legislation that may be passed as a result of ongoing or future outbreaks.

The impact of pandemics 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 or deflation 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.

During 2022, we experienced significantly elevated commodity and supply chain costs including the cost of labor, sourced goods, energy, fuel, packaging materials and other inputs necessary for the distribution and production of our products, and elevated levels of inflation may continue or worsen in 2023.

Periods of significant product cost inflation or deflation 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.

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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

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

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

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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.

The global supply chain, ranging from consumer goods, electronics, and industrial raw materials to food supplies, was negatively impacted by the 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.

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.

and 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.

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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.

We purchase goods and services from related parties of our current and former management team, as well as our largest shareholder, and sell products to related parties of our current and former management team, as well as our largest shareholder.

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

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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.

For more information on our related party transactions, see Note 14 - Related Party Transactions in our consolidated financial statements in this 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.

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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.

We have determined to consolidate certain related parties as VIEs, see Note 3 - Variable Interest Entities in our consolidated financial statements in this 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.

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If we fail to comply with requirements imposed by applicable law and other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.

We are subject to regulation by various federal, state, and local governments, applicable to food safety and sanitation, ethical business practices, transportation, minimum wage, overtime, other wage payment requirements, employment discrimination, immigration, and human health and safety.

We are subject to regulation by various federal, state, and local governments, applicable to food safety and sanitation, ethical business practices, securities, transportation, minimum wage, overtime, other wage payment requirements, employment discrimination, immigration, and human health and safety.

While we attempt to comply with all applicable laws and regulations, we cannot represent that we are in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or that we will be able to comply with any future laws, regulations or interpretations of these laws and regulations.

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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, 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.

Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time.

The cost to defend future litigation may be significant.

There may also be adverse publicity associated with litigation that may decrease consumer confidence in our businesses, regardless of whether the allegations are valid or whether we are ultimately found liable.

As a result, litigation may materially adversely affect our businesses, financial condition, results of operations and cash flows.

From time to time, we may be party to various claims and legal proceedings.

For example, as reported previously, the Company is subject to a non-public investigation by the SEC and has responded to various information requests from the SEC in connection with that investigation.

The Company is fully cooperating with the SEC’s requests and cannot predict the outcome of this investigation.

See Part I, Item 3.

Legal Proceedings to this Form 10-K for more information.

We evaluate these claims and proceedings to assess the likelihood of unfavorable outcomes and to estimate, if probable and estimable, the amount of potential losses.

Based on these assessments and estimates, we may establish reserves, as appropriate.

These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment.

Actual outcomes or losses may differ materially from our assessments and estimates.

Even when not merited, the defense of these lawsuits or legal proceedings, including potential securities litigation and/or other legal actions, is expensive and may divert management’s attention, and we may incur significant expenses in defending these lawsuits or legal proceedings.

The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us, which could negatively impact our financial position, cash flows or results of operations.

Increased commodity prices and availability may impact profitability.

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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.

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.

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.

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In the event we determine to take such action, our customers may reduce their orders from us, which could negatively affect our profitability and operating results.

Severe weather, natural disasters and adverse climate changes may materially adversely affect our financial condition and results of operations.

Severe weather, natural disasters and adverse climate changes, as well as the legal, regulatory or market measures being implemented to address climate change, may materially adversely affect our financial condition and results of operations.

Severe weather conditions and other natural disasters in areas where our distribution network covers or from which we obtain the products we sell may materially adversely affect our operations and our product offerings and, therefore, our results of operations.

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

There is an increased focus around the world by regulatory and legislative bodies at all levels towards policies relating to climate change and the impact of global warming, including the regulation of greenhouse gas (GHG) emissions, energy usage and sustainability efforts.

Increased compliance costs and expenses due to the impacts of climate change on our business, as well as additional legal or regulatory requirements regarding climate change or designed to reduce or mitigate the effects of carbon dioxide and other GHG emissions on the environment, may cause disruptions in, or an increase in the costs associated with, the running of our business, particularly with regard to our distribution and supply chain operations.

Moreover, compliance with any such legal or regulatory requirements may require that we implement changes to our business operations and strategy, which would require us to devote substantial time and attention to these matters and cause us to incur additional costs.

The effects of climate change, and legal or regulatory initiatives to address climate change, could have a long-term adverse impact on our business and results of operations.

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

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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.

Breaches have occurred, and 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.

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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.

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 on 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.

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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.

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

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

• sales of our equity securities common stock by shareholders, including the owners of businesses we have acquired, management, or our founder and his affiliated trusts and family members;

• actions by shareholders;

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If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the market price of our common stock could decline significantly, and our business and financial condition could be adversely affected.

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 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.

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 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.

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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.

After the resolution of certain merger-related issues in September 2022, our ability to timely file periodic reports was 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.

We filed our delinquent periodic reports on January 31, 2023.

As a result of this delay, we have delayed convening our annual meeting of stockholders for 2022.

As a result of our delay in holding our annual meeting of stockholders, we are not in compliance with the listing requirements of NASDAQ Listing Rule 5260(a), which requires NASDAQ-listed companies to hold their annual meeting of stockholders within the twelve months following the end of such company’s fiscal year.

Under NASDAQ's listing rules, we were permitted to submit to NASDAQ a plan to regain compliance, after which we were granted a stay of delisting procedures subject to our meeting certain conditions, including holding our annual meeting of stockholders no later than June 30, 2023.

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

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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.

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), 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, each filed on January 31, 2023, 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.

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

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

As of March 27, 2023, there were 53,827,531 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.

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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.

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.

Zhou Min Ni has significant influence over the Company and may have interests that conflict with those of our other shareholders.

The Company’s former Chairman and Co-CEO Zhou Min Ni, directly and indirectly through the trustee of the trusts established for the benefit of his family, beneficially owns approximately 25% of our common stock.

As a result, Mr.

Ni has sufficient voting power to significantly influence matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions.

Further, the possibility that Mr.

Ni may sell all or a large portion of his common stock in a short period of time could adversely affect the trading price of our common stock.

The interests of Mr.

Ni may not align with the interests of other holders of our common stock.

Ni’s significant beneficial ownership may also adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

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

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.

Therefore, you are not likely to receive any dividends on your common stock in the near term, and capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

ITEM 1B UNRESOLVED STAFF COMMENTS.

Therefore, investors are not likely to receive any dividends on common stock in the near term, and capital appreciation, if any, of our common stock will be an investor’s sole source of gain for the foreseeable future.

UNRESOLVED STAFF COMMENTS.

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