What changed in this filing

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Item 9A. Controls and Procedures

2024-03-26 compared with 2023-03-31 · 69 added, 81 removed, 210 unchanged (42% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the fiscal year ended December 31, 2022.

Based on this evaluation, our principal executive officers and principal financial and accounting officers have concluded that as a result of the material weakness in our internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of December 31, 2022.

Notwithstanding the material weakness, our management has concluded that the financial statements included elsewhere in this report present fairly, and in all materials respects, our financial position, results of operations and cash flow in conformity with GAAP.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting for the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management, including our principal executive officer and principal financial and accounting officer, conducted an evaluation of the effectiveness of our internal controls over financial reporting, and disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report.

Based on that evaluation, our principal executive officer and principal financial and accounting officer concluded that, due to the material weaknesses described below, our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2023.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.

Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal controls over financial reporting is a process designed under the supervision of our principal executive officer and principal financial and accounting officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements.

Also, projections of any evaluation of the effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As of December 31, 2022, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “ Internal Control - Integrated Framework” , issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission in 2013.

In connection with the audit of our consolidated financial statements for the year ended December 31, 2020 and 2021, we identified material weaknesses that were reported previously, which continue to exist as of December 31, 2022.

As of December 31, 2023, management assessed the effectiveness of our internal controls over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated Framework”, issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission in 2013.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Based on this assessment, our management concluded that our internal control over financial reporting was not effective as of December 31, 2023, due to the material weaknesses in our internal control over financial reporting described below.

As previously reported, we identified the following material weaknesses, which continue to exist as of December 31, 2023.

We did not maintain appropriately designed entity-level controls impacting the (1) control environment, (2) risk assessment procedures, (3) control activities, (4) information and communication, and (5) monitoring activities to prevent or detect material misstatements to the financial statements and assess whether the components of internal control were present and functioning properly.

These deficiencies were primarily attributed to an insufficient number of qualified resources to support and provide proper oversight and accountability over the performance of controls.

Additionally, we did not have adequate selection and development of effective control activities, resulting in the following material weaknesses:

• Information Technology (IT) General Controls – We did not design and maintain effective information technology general controls over logical access and program change management for key IT systems.

Specifically, access to certain key IT systems was not restricted between business and IT administration access privileges, resulting in improper segregation of duties for certain business processes.

Additionally, management did not design effective controls to protect data security and maintain business sustainability.

• As a result of the material weakness related to IT general controls, we did not properly design or maintain effective controls over the relevance and quality of internal data used in the financial reporting process and in the operation of business process control activities.

• We did not properly design or maintain effective controls over complex accounting, significant management estimates, and new accounting pronouncements, including but not limited to business combinations, impairment of long-lived assets, goodwill impairment, leases and income taxes.

• We did not properly design or maintain effective controls over the financial reporting process to enable timely reporting of complete and accurate financial information.

Specifically, we did not design and implement review controls with a sufficient precision to prevent or detect a material misstatement, did not consistently perform independent reviews of journal entries or consistently retain adequate supporting documentation for financial statement balances and the related footnote disclosures.

As it relates to monitoring activities:

• We did not adequately perform timely and ongoing evaluations to ascertain whether components of internal control are present and functioning.

Due to the foregoing material weaknesses, management concluded that as of December 31, 2022, our internal control over financial reporting was ineffective.

In order to address and resolve the foregoing material weaknesses, we have begun to implement measures designed to improve our internal control over financial reporting to remediate these material weaknesses, including continuously hiring additional financial personnel with requisite training and experience in the preparation of financial statements in compliance with applicable SEC requirements, formalizing our processes to generate documentation sufficient to support customer orders and purchase orders, and implementing controls to obtain documentation evidencing customer agreements to transaction amounts and account balances.

System integrations on accounting and procurement software were substantially completed in March 2021.

Operating on the same system strengthened our internal control over financial reporting and IT general controls by providing a single environment to perform operational and reporting functions.

The measures we are implementing are subject to continued management review supported by confirmation and testing, as well as audit committee oversight.

Management remains committed to ongoing efforts to address these material weaknesses.

Although we will continue to implement measures to remedy our internal control deficiencies, there can be no assurance that our efforts will be successful or avoid potential future material weaknesses.

In addition, until remediation steps have been completed and operated for a sufficient period of time, and subsequent evaluation of their effectiveness is completed, the material weaknesses identified and described above will continue to exist.

Our independent registered public accounting firm, BDO USA, LLP, has issued an audit report on our internal control over financial reporting as of December 31, 2022, which is included herein.

These entity-level material weaknesses resulted in the following specific material weaknesses:

• Information Technology (IT) General Controls - We did not design and maintain effective information technology general controls over logical access, program change management, and segregation of duties for key IT systems.

As a result, certain business process controls that are dependent upon information from these systems were also not effective.

Additionally, we did not design and maintain effective controls over the implementation of new IT systems.

• Financial Reporting - We did not properly design or maintain effective controls over the financial reporting process to enable timely reporting of complete and accurate financial information.

We did not design and implement certain review controls with a sufficient precision to prevent or detect a material misstatement, did not consistently perform

sufficient review of journal entries, or consistently retain adequate supporting documentation for financial statement balances and the related footnote disclosures.

Additionally, we did not design and maintain effective controls over certain non-routine transactions or significant management estimates, including the review of underlying data and assumptions for completeness and accuracy.

Remediation Activities

In response to these material weaknesses, with oversight from the Audit Committee of the Board of Directors, we have continued to implement measures to improve our internal control structure.

Specifically, we have:

• Hired additional finance and accounting personnel and also provided training in key financial reporting and internal control areas;

• Designed and implemented new entity-level controls (“ELCs”) with greater alignment to the COSO 2013 Internal Controls Framework;

• Established requirements over documentation and retention of appropriate evidence to support the operation of ELCs, business process controls, IT general controls;

• Enhanced the structure, governance, and communication over related party transactions;

• Designed and implemented enhanced review procedures over technical accounting memos for non-routine transactions and complex accounting matters;

• Implemented new enterprise finance and human capital system and evaluated technology alternatives to initiate a change from our legacy inventory and distribution system to better ensure data accuracy, completeness, and continued progress towards an improved operational and control environment;

• Designed and implemented uniform controls across all distribution centers and improved processes around our inventory cycle counts and year-end inventory count procedures;

• Designed and implemented controls over stock compensation, corporate tax, and year-end financial reporting procedures with enhanced precision and control attributes;

• Designed and implemented an enhanced control testing program throughout the period to evaluate our system of internal control to determine whether components of the internal control were present and functioning properly in a more timely manner.

We are committed to ensuring that our internal controls over financial reporting are designed and operating effectively.

We believe the efforts taken to date and certain measures that are in progress will improve the effectiveness of our internal controls over financial reporting and mitigate risks of material misstatement.

We are still in the process of implementing these steps and cannot assure investors that these measures will significantly improve or remediate the material weaknesses described above.

Additionally, while we believe these efforts will improve our internal control environment, our remediation is still in progress and subject to ongoing testing of the design and operating effectiveness over a sufficient period of time in order to effectively remediate these material weaknesses.

The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by BDO USA, P.C., an independent registered public accounting firm, as stated in their attestation report, which is included in Part II, Item 8 of this Form 10-K.

Changes in Internal Controls Over Financial Reporting and Disclosure Controls

Other than the actions taken to continue our material weaknesses remediation efforts, described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

3 unchanged sentences

Opinion on Internal Control over Financial Reporting

We have audited HF Foods Group Inc’s (the “Company’s”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”) In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We have audited HF Foods Group Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as “the financial statements”) and our report dated March 31, 2023 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as “the financial statements”) and our report dated March 26, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Annual Report on Internal Control over Financial Reporting”.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

10 unchanged sentences

These deficiencies were primarily attributed to an insufficient number of qualified resources to support and provide proper oversight and accountability over the performance of controls.

Additionally, the Company did not have adequate selection and development of effective control activities, resulting in the following additional material weaknesses:

• Information Technology (IT) General Controls – The Company did not design and maintain effective information technology general controls over logical access and program change management for key IT systems.

Specifically, access to certain key IT systems was not restricted between business and IT administration access privileges, resulting in improper segregation of duties for certain business processes.

Additionally, management did not design effective controls to protect data security and maintain business sustainability.

• As a result of the material weakness related to IT general controls, the Company did not properly design or maintain effective controls over the relevance and quality of internal data used in the financial reporting process and in the operation of business process control activities.

• The Company did not properly design or maintain effective controls over complex accounting, significant management estimates, and new accounting pronouncements, including but not limited to business combinations, impairment of long-lived assets, goodwill impairment, leases, and income taxes.

• The Company did not properly design or maintain effective controls over the financial reporting process to enable timely reporting of complete and accurate financial information.

Specifically, the Company did not design and implement review controls with a sufficient precision to prevent or detect a material misstatement, did not consistently perform independent reviews of journal entries, or consistently retain adequate supporting documentation for financial statement balances and the related footnote disclosures.

As it relates to monitoring activities:

• The Company did not adequately perform timely and ongoing evaluations to ascertain whether components of internal control are present and functioning.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 financial statements, and this report does not affect our report dated March 31, 2023 on those financial statements.

These entity-level material weaknesses resulted in the following specific material weaknesses:

• Information Technology (IT) General Controls – The Company did not design and maintain effective information technology general controls over logical access, program change management and segregation of duties for key IT systems.

As a result, certain business process controls that are dependent upon information from these systems were also not effective.

Additionally, the Company did not design and maintain effective controls over the implementation of new IT systems.

• Financial Reporting - The Company did not properly design or maintain effective controls over the financial reporting process to enable timely reporting of complete and accurate financial information.

The Company did not design and implement certain review controls with a sufficient precision to prevent or detect a material misstatement, did not consistently perform sufficient review of journal entries, or consistently retain adequate supporting documentation for financial statement balances and the related footnote disclosures.

Additionally, the Company did not design and maintain effective controls over certain non-routine transactions or significant management estimates, including the review of underlying data and assumptions for completeness and accuracy.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 financial statements, and this report does not affect our report dated March 26, 2024.

Definition and Limitations of Internal Control over Financial Reporting

5 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

/s/ BDO USA, P.C.

Troy, Michigan

32 unchanged sentences

8-K 3.02 11/4/2022

3.3 Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock

8-K 3.1 4/12/2023

3.4 First Amendment to Amended and Restated Bylaws, dated April 25, 2023

8-K 3.1 4/26/2023

4.1 Specimen Common Stock Certificate

4 unchanged sentences

S-1/A 4.5 7/28/2017

4.4* Description of Registrant's Securities

10.1 Investment Management Trust Account Agreement, dated August 8, 2017, by and between American Stock Transfer & Trust Company, LLC and the Registrant

8-K 10.1 8/11/2017

10.2 Registration Rights Agreement, dated August 8, 2017, by and among the Registrant and the initial stockholders

8-K 10.2 8/11/2017

10.3 Stock Escrow Agreement dated August 8, 2017 among the Registrant, American Stock Transfer & Trust Company, LLC, and the initial stockholders

4.4 Preferred Stock Rights Agreement, dated as of April 11, 2023, by and between HF Foods Group Inc.

and American Stock Transfer & Trust Company, LLC, as rights agent

8-K 4.1 4/12/2023

10.4 Form of Letter Agreement by and between the Registrant, the initial stockholders and the officers and directors of the Company

S-1/A 10.2 7/28/2017

4.5* Description of Registrant's Securities

10.1† HF Food Group Inc.

1 unchanged sentence

DEF14A B 7/18/2018

10.60 Form of Escrow Agreement between Atlantic Acquisition Corp., Loeb and Loeb L.P.

as escrow agent and HF Group and Zhou Min Ni, as representative of the stockholders of HF Group

8-K 10.8 8/27/2018

10.70 Form of Registration Rights Agreement between the Company, HF Group Holdings Corporation and Zhou Min Ni, as representative of the stockholders of HF Group

8-K 10.9 8/27/2018

10.80 Form of Lock Up Agreement dated August 22, 2018 between Atlantic Acquisition Corp.

and the stockholders of HF Group

10.2 Form of Registration Rights Agreement between the Company, HF Group Holdings Corporation and Zhou Min Ni, as representative of the stockholders of HF Foods

8-K 10.9 8/27/2018

28 unchanged sentences

10-K 10.18 4/1/2019

10.19† Employment Agreement with Kong Hian Victor Lee dated December 6, 2019

10-Q 10.1 11/9/2020

10.20† Amendment to Employment Agreement with Kong Hian Victor Lee dated October 1, 2020

10-Q 10.2 11/9/2020

10.13 Membership Interest Purchase Agreement among B&R Global Holdings, Inc., B&R Group Realty Holding, LLC, and subsidiaries of B&R Group Realty Holding, LLC, dated January 17, 2020

10-Q 2.1 5/18/2020

Incorporated by Reference

Exhibit Number Description Form Exhibit/

Appendix Filing Date

10.14 Second Amended and Restated Credit Agreement among HF Foods Group Inc.

5 unchanged sentences

10-Q 10.2 5/18/2020

10.24 Mutual Rescission Agreement between HF Group and Rescinding Shareholders dated April 1, 2020

10.16 Mutual Rescission Agreement between HF Foods and Rescinding Shareholders dated April 1, 2020

10-Q 10.3 5/18/2020

8 unchanged sentences

10-K 10.27 3/16/2021

Incorporated by Reference

Exhibit Number Description Form Exhibit/

Appendix Filing Date

10.20† Separation Agreement between HF Foods Group Inc.

39 unchanged sentences

8-K 10.1 5/24/2022

10.42† Letter Agreement, dated June 30, 2022, by and among HF Foods Group Inc.

and Jose Maroto

8-K 10.1 7/7/2022

10.34† Offer Letter, dated July 8, 2022, by and among HF Foods Group, Inc.

1 unchanged sentence

8-K 10.1 7/14/2022

10.44† Letter Agreement, dated January 17, 2022, by and among HF Food s Group Inc.

10.35† Letter Agreement, dated January 17, 2022, by and among HF Foods Group Inc.

and Prudence Kuai

8-K 10.1 1/19/2023

Incorporated by Reference

Exhibit Number Description Form Exhibit/

Appendix Filing Date

10.36 Consent Under Third Amended and Restated Credit Agreement, dated October 26, 2022

3 unchanged sentences

10-K 10.45 1/31/2023

16.1 Letter from Friedman LLP to the Securities and Exchange Commission dated September 10, 2021

8-K 16.1 9/10/2021

21.1* Subsidiaries of Registrant

23.1* Consent of BDO USA, LLP.

23.2* Consent of Friedman LLP

23.1* Consent of BDO USA, P.C.

31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended

2 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Incorporated by Reference

Exhibit Number Description Form Exhibit/

Appendix Filing Date

32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

97.1* Policy for the Recovery of Erroneously Awarded Compensation

101* Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K

12 unchanged sentences

March 26, 2024 By:

/s/ Carlos Rodriguez

Carlos Rodriguez

Chief Financial Officer

/s/ Felix Lin

Interim Chief Financial Officer;

President and Chief Operating Officer

(Principal accounting and financial officer)

11 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 9A. Controls and Procedures