What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-17 compared with 2024-03-26 · 337 added, 413 removed, 930 unchanged (45% of the section changed)

39 unchanged sentences

As disclosed in management’s report on internal control over financial reporting, the Company identified material weaknesses as of December 31, 2024.

These material weaknesses included ineffective information technology general controls (ITGCs), and ineffective controls over certain non-routine transactions, significant management estimates, and financial reporting.

These material weaknesses included ineffective entity-level controls, ineffective information technology general controls (ITGCs), and ineffective controls over certain non-routine transactions, significant management estimates, and financial reporting.

The completeness and accuracy of the consolidated financial statements, including the financial condition, results of operations and cash flows, is dependent on, in part, the Company’s ability to (i) design and maintain an effective control environment, including maintaining a sufficient number of qualified resources to support and provide proper oversight and accountability over the performance of controls, (ii) design and maintain effective ITGCs for certain information systems relevant to the preparation of the financial statements, and (iii) design and maintain effective controls over financial reporting.

1 unchanged sentence

The ineffective control environment, including the ineffective ITGCs resulted in several material weaknesses.

Designing the appropriate procedures and evaluating audit evidence to ensure the completeness and accuracy of the consolidated financial statements, including higher risk areas, with an ineffective control environment, required especially challenging and subjective auditor judgment due to the increased extent of audit effort including the need to modify the nature and extent of audit evidence obtained.

Designing the appropriate procedures and evaluating audit evidence to ensure the completeness and accuracy of the consolidated financial

statements, including higher risk areas, with an ineffective control environment, required especially challenging and subjective auditor judgment due to the increased extent of audit effort including the need to modify the nature and extent of audit evidence obtained.

The primary procedures we performed to address this critical audit matter included:

• Performing incremental procedures over material financial statement accounts such as revenue and receivables by i) increasing the sample sizes to perform certain audit procedures and ii) lowering the testing thresholds and for journal entries by expanding the types of entries to be tested.

• Performing incremental procedures over material financial statement accounts such as revenue and receivables by i) increasing the sample sizes to perform certain audit procedures and ii) lowering the testing thresholds and by expanding the types of journal entries to be tested.

• Evaluating the impact of improper segregation of duties and designing incremental procedures over disbursements.

2 unchanged sentences

As disclosed in Notes 2 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $38.8 million as of December 31, 2024.

There is only one reporting unit at December 31, 2023.

Goodwill is tested for impairment at the reporting unit level at least annually, or whenever events or changes in circumstances indicate that goodwill might be impaired.

1 unchanged sentence

A change in underlying assumptions could cause a change in the results of the impairment test and, as such, could cause fair value to be less than the carrying amount and result in an impairment of goodwill in the future.

In connection with the annual impairment test completed as of December 31, 2023 using the quantitative goodwill impairment assessment, the Company determined the fair value of the reporting unit, using an average of the income approach, specifically, the discounted cash flow method, and market approaches, specifically, the comparable public company analysis and comparable acquisition analysis methods.

The income approach uses a discounted cash flow model that reflects management significant assumptions that mainly related to revenue growth rates, gross profit margins and a discount rate.

In connection with the impairment tests completed as of September 30, 2024 and December 31, 2024 using the quantitative goodwill impairment assessment, the Company determined the fair value of its one reporting unit, using an average of the income approach, specifically, the discounted cash flow method, and market approaches, specifically, the comparable public company analysis and comparable acquisition analysis methods.

The income approach uses a discounted cash flow model that reflects management significant assumptions that mainly related to revenue growth rates, gross profit margins, distribution, selling & administrative (DS&A) expenses and a discount rate.

The comparable public company and comparable acquisition analysis methods apply a market multiple assumption to the Company’s EBITDA to calculate fair value.

The fair value of the Company’s reporting unit exceeded the carrying value, and therefore the Company concluded no impairment was required to be recorded during the year ended December 31, 2023.

We identified certain assumptions used in the valuation of goodwill for the reporting unit as a critical audit matter.

Management’s determination of the fair value of the reporting unit required the use of significant judgment due to the subjectivity and uncertainty of the revenue growth rates, gross profit margins and discount rate assumptions used in the income approach, and the EBITDA multiple assumption used in the comparable public company analysis and comparable acquisition analysis approaches.

The fair value of the Company’s reporting unit exceeded the carrying value as of September 30, 2024.

The results of the impairment testing as of December 31, 2024 concluded that the fair value of the Company’s reporting unit did not exceed the carrying value, and therefore the Company recorded a goodwill impairment charge of $46.3 million during the year ended December 31, 2024.

We identified certain assumptions used in the valuation of goodwill for the reporting unit for both the September 30, 2024 and December 31, 2024 impairment tests as a critical audit matter.

Management’s determination of the fair value of the reporting unit required the use of significant judgment due to the subjectivity and uncertainty of the gross profit margins, DS&A expenses and discount rate assumptions used in the income approach, and the EBITDA multiple assumption used in the comparable public company analysis and comparable acquisition analysis approaches.

Auditing these elements involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Evaluating the reasonableness of the forecasted revenue and gross profit margins by:

1) evaluating the consistency of the revenue growth rates and gross profit margins with historical results, ii) evaluating the consistency of the revenue growth rates and gross profit margins with the Company’s objectives and strategies, and iii) comparing the forecasted revenue growth rates and gross profit margins with external market data and evidence obtained in other areas of the audit.

• Utilizing personnel with specialized knowledge and skill with valuation to assist in assessing the reasonableness of the discount rate incorporated in the income approach and the EBITDA multiples incorporated in the comparable company analysis and comparable acquisition analysis approaches.

• Evaluating the reasonableness of the gross profit margins and DS&A expenses by:

i) evaluating the consistency of the gross profit margins and DS&A expenses with historical results, ii) evaluating the consistency of the gross profit margins, and DS&A expenses with the Company’s objectives and strategies, and iii) comparing the forecasted gross profit margins and DS&A expenses with external market data and evidence obtained in other areas of the audit.

• Utilizing personnel with specialized knowledge and skill with valuation to assist in assessing the reasonableness of the concluded fair value of the Company’s reporting unit, as well as the discount rate incorporated in the income approach and the EBITDA multiples incorporated in the comparable public company analysis and comparable acquisition analysis approaches.

/s/ BDO USA, P.C.

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Treasury stock, at cost;

1,997,423 shares as of December 31, 2023, and zero shares as of December 31, 2022

1,997,423 shares as of December 31, 2024 and December 31, 2023

( 7,750 ) ( 7,750 )

Additional paid-in capital 604,235 603,094

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Distribution, selling and administrative expenses 198,026 195,062 194,953

INCOME FROM OPERATIONS 8,969 10,559 29,482

Goodwill impairment charges 46,303 — —

(LOSS) INCOME FROM OPERATIONS ( 39,135 ) 8,969 10,559

Interest expense 11,425 11,478 7,457

Other income ( 1,091 ) ( 1,829 ) ( 508 )

Other expense (income), net 2,818 ( 1,091 ) ( 1,829 )

Change in fair value of interest rate swap contracts ( 1,693 ) 1,580 ( 817 )

3 unchanged sentences

NET (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME ( 48,102 ) ( 2,662 ) 235

net (loss) income attributable to noncontrolling interests ( 488 ) ( 225 ) 676

net income (loss) attributable to noncontrolling interests 409 ( 488 ) ( 225 )

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

13 unchanged sentences

Net (loss) income $ ( 48,102 ) $ ( 2,662 ) $ 235

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Depreciation and amortization expense 26,677 25,918 24,936

Treasury stock received via legal settlement — ( 7,750 ) —

Asset impairment charges 1,200 422 —

Goodwill impairment charges 46,303 — —

Other asset impairment charges — 1,200 422

Gain from disposal of property and equipment ( 12 ) ( 362 ) ( 1,327 )

Provision for credit losses 701 82 ( 433 )

Deferred tax benefit ( 5,415 ) ( 5,012 ) ( 6,870 )

(Credit) provision for expected credit losses ( 103 ) 701 82

Deferred tax expense (benefit) 364 ( 5,415 ) ( 5,012 )

Change in fair value of interest rate swap contracts ( 1,693 ) 1,580 817

1 unchanged sentence

Non-cash lease expense 3,992 4,033 4,442

Lease guarantee expense ( 377 ) 5,744 —

Lease guarantee (income) expense ( 5,548 ) ( 377 ) 5,744

Other non-cash expense (income) 1,169 493 ( 266 )

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

Changes in operating assets and liabilities:

Accounts receivable ( 6,421 ) ( 4,039 ) ( 8,577 )

1 unchanged sentence

Inventories 7,835 14,673 ( 3,755 )

Advances to suppliers - related parties — — 197

Prepaid expenses and other current assets ( 1,362 ) ( 1,069 ) ( 4,008 )

Other long-term assets 942 ( 3,418 ) ( 1,199 )

Checks issued not presented for payment 1,193 ( 17,452 ) 4,112

Accounts payable ( 1,025 ) ( 3,898 ) 15,207

6 unchanged sentences

Proceeds from sale of property and equipment 48 2,000 7,794

Contribution to equity method investee ( 49 ) — —

Payment made for acquisition of Sealand — — ( 34,848 )

Payment made for acquisition of Great Wall Group — — ( 17,445 )

Payment made for acquisition of noncontrolling interests — — ( 5,000 )

Settlement of interest rate swap contracts — — 718

Net cash used in investing activities ( 12,548 ) ( 1,514 ) ( 50,786 )

1 unchanged sentence

Payments for tax withholding related to vested stock awards ( 175 ) ( 394 ) —

Checks issued not presented for payment ( 17,452 ) 4,112 2,994

Proceeds from line of credit 1,476,106 1,237,101 1,200,996

5 unchanged sentences

Repayment of promissory note payable - related party — — ( 4,500 )

Proceeds from noncontrolling interests shareholders — 240 480

Cash distribution to shareholders ( 884 ) ( 187 ) ( 338 )

Proceeds from noncontrolling interests — — 240

Cash distributions to noncontrolling interests ( 500 ) ( 884 ) ( 187 )

Net cash (used in) provided by financing activities ( 10,853 ) ( 5,895 ) 24,887

5 unchanged sentences

and Subsidiaries

Consolidated Statements of Cash Flows

Consolidated Statements of Cash Flows (Continued)

(In thousands)

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Intangible asset acquired in exchange for noncontrolling interests — — 566

Common stock issued for consideration of acquisition of Great Wall Group — — 14,541

Deferred consideration from Great Wall Acquisition — — 17,330

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

4 unchanged sentences

Common Stock Treasury Stock Additional

Capital Retained Earnings

(Accumulated Deficit) Total Shareholders’

Capital Accumulated Deficit Total Shareholders’

Equity Attributable to

5 unchanged sentences

Shares Amount

Balance at December 31, 2020 51,913,411 $ 5 — $ — $ 587,579 $ ( 328,429 ) $ 259,155 $ 4,367 $ 263,522

Net income — — — — 22,145 22,145 676 22,821

Acquisition of noncontrolling interest — — — — ( 3,856 ) — ( 3,856 ) ( 1,144 ) ( 5,000 )

Acquisition of Great Wall Group by issuance of common stock 1,792,981 — — — 12,869 — 12,869 — 12,869

Capital contribution by shareholders — — — — — — — 480 480

Distribution to shareholders — — — — — — — ( 338 ) ( 338 )

Stock-based compensation — — — — 635 — 635 — 635

Balance at December 31, 2021 53,706,392 $ 5 — $ — $ 597,227 $ ( 306,284 ) $ 290,948 $ 4,041 $ 294,989

Cumulative effect of adoption of CECL (ASU 2016-13) — — — — — ( 690 ) ( 690 ) — ( 690 )

Balance at January 1, 2022 53,706,392 $ 5 — — $ 597,227 $ ( 306,974 ) $ 290,258 $ 4,041 $ 294,299

6 unchanged sentences

Balance at December 31, 2022 53,813,777 $ 5 — $ — $ 598,322 $ ( 306,514 ) $ 291,813 $ 4,436 $ 296,249

Net income (loss) — — — — — ( 2,174 ) ( 2,174 ) ( 488 ) ( 2,662 )

Net loss — — — — — ( 2,174 ) ( 2,174 ) ( 488 ) ( 2,662 )

Issuance of common stock pursuant to equity compensation plan 391,983 — — — — — — — —

5 unchanged sentences

Balance at December 31, 2023 54,153,391 $ 5 1,997,423 $ ( 7,750 ) $ 603,094 $ ( 308,688 ) $ 286,661 $ 1,322 $ 287,983

Net (loss) income — — — — — ( 48,511 ) ( 48,511 ) 409 ( 48,102 )

Issuance of common stock pursuant to equity compensation plan 638,721 — — — — — — — —

Shares withheld for tax withholdings on vested awards ( 57,039 ) — — — ( 175 ) — ( 175 ) — ( 175 )

Distribution to shareholders — — — — — — — ( 500 ) ( 500 )

Dissolution of noncontrolling interests — — — — ( 772 ) — ( 772 ) 772 —

Stock-based compensation — — — — 2,088 — 2,088 — 2,088

Balance at December 31, 2024 54,735,073 $ 5 1,997,423 $ ( 7,750 ) $ 604,235 $ ( 357,199 ) $ 239,291 $ 2,003 $ 241,294

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

4 unchanged sentences

Organization and General

HF Foods Group Inc.

and subsidiaries (collectively “HF Foods”, or the “Company”) is an Asian foodservice distributor that markets and distributes fresh produce, seafood, frozen and dry food, and non-food products to primarily Asian restaurants and other foodservice customers throughout the United States.

HF Foods Group Inc., headquartered in Las Vegas, Nevada, operating through our subsidiaries (collectively “HF Foods” or the “Company”) is a marketer and distributor of fresh produce, frozen and dry food, and non-food products to Asian restaurants, as well as other foodservice customers, throughout the United States.

With multiple distribution centers located throughout the nation, HF Foods supplies Asian cuisine through its relationships with growers and suppliers of food products in North America, South America and Asia.

The Company’s business consists of one operating segment, which is also its one reportable segment:

HF Foods, which operates solely in the United States.

The Company's customer base consists primarily of Chinese and Asian restaurants, and it provides sales and service support to customers who mainly converse in Mandarin or Chinese dialects.

On December 30, 2021, the Company completed the acquisition of Great Wall Seafood Supply, Inc., Great Wall Restaurant Supplier, Inc., and First Mart Inc.

(collectively the “Great Wall Group”), and substantially all of the operating assets of the Great Wall Group’s seafood and restaurant products sales, marketing, and distribution businesses (the “Great Wall Acquisition”).

The acquisition was completed as part of the Company’s strategy to develop a national footprint through expansion into the Midwest, Southwest and Southern regions of the United States.

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

("Sealand") including equipment, machinery and vehicles.

The acquisition was completed to expand the Company's territory along the East Coast, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.

See Note 7 - Acquisitions for additional information on the Great Wall Group and Sealand acquisitions.

HF Foods, which operates solely in the United States, offers specialty restaurant foods and supplies to its customers.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the U.S.

Securities and Exchange Commission (“SEC”) regarding annual financial reporting.

All adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The accompanying consolidated financial statements for 2023 include the accounts of HF Foods, and for 2022 and 2021, the accounts of HF Foods and certain variable interest entities for which the Company was the primary beneficiary.

The accompanying consolidated financial statements for 2024 and 2023 include the accounts of HF Foods, and for 2022, the accounts of HF Foods and certain variable interest entities for which the Company was the primary beneficiary.

All significant intercompany balances and transactions have been eliminated in consolidation.

For consolidated entities where we own or are exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interest in its consolidated statements of operations and comprehensive income (loss) equal to the percentage of the economic or ownership interest retained in such entity by the respective noncontrolling party.

Reclassifications

During 2024, the Company reclassified the presentation of checks issued not presented for payment from cash flows from financing activities to cash flows from operating activities in the consolidated statement of cash flows.

Prior periods amounts were reclassified to conform to the current period presentation.

The reclassification did not impact consolidated balance sheets or consolidated statements of operations and comprehensive income (loss).

Variable Interest Entities

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If deemed the primary beneficiary, the Company consolidates the VIE.

As of and for the year ended December 31, 2023, the Company has one VIE, AnHeart, Inc.

(“AnHeart”), for which the Company is not the primary beneficiary and therefore does not consolidate.

The Company did not incur expenses from VIEs and did not have any sales to or income from any VIEs during the years ended December 31, 2023 and 2022.

As of and for the years ended December 31, 2023 and 2022, the Company had one VIE, AnHeart, Inc.

(“AnHeart”), for which the Company was not the primary beneficiary and therefore did not consolidate.

Effective April 30, 2024, the Company assumed the lease for which AnHeart was a lessee and the Company was a guarantor, and as such, it no longer recognizes AnHeart as a VIE as of December 31, 2024.

See Note 17 - Commitments and Contingencies for additional information on AnHeart.

For the years ended December 31, 2022 and 2021, the Company had both VIEs for which it was not the primary beneficiary and therefore did not consolidate, and VIEs for which it was the primary beneficiary and did consolidate.

The VIEs are summarized as follows:

• Consolidated VIEs (collectively "Consolidated VIEs"):

• FUSO Trucking LLC (“FUSO”) – Dissolved in 2022

• 8 staffing agencies (collectively, the “Staffing Agencies”) – Suppliers of staffing services through 2021:

◦ Anshun, Inc.

◦ Inchoi, Inc.

◦ Malways, Inc.

• Unconsolidated VIEs (collectively "Unconsolidated VIEs"):

• Revolution Industry, LLC (“Revolution Industry”) – Supplier of goods (until March 2021)

• UGO USA, Inc.

(“UGO”) – Supplier of online goods, customer, and lessee (until April 2021)

• AnHeart, Inc.

Consolidated VIEs

FUSO was established solely to provide exclusive trucking services to the Company and was dissolved in 2022.

The entity lacked sufficient equity to finance its activities without additional subordinated financial support from the Company, and the Company had the power to direct the VIEs’ activities.

In addition, the Company received economic benefits from the entity and concluded that the Company was the primary beneficiary.

The carrying amounts of the assets, liabilities, the results of operations and cash flows of the VIE included in the Company’s consolidated balance sheets, statements of operations and comprehensive income (loss) and statements of cash flows were immaterial.

Staffing Agencies

The Staffing Agencies were set up by an employee of the Company, or their relatives, and provided temporary labor services exclusively to the Company at the direction of the Company.

There were no other substantive business activities of the Staffing Agencies.

There were immaterial assets held, or liabilities owed by the Staffing Agencies and immaterial equity.

The Company determined it was the primary beneficiary for the Staffing Agencies through 2021 as it controlled how and when the labor force would be utilized.

The Company consolidated the Staffing Agencies, recognizing compensation expense within distribution, selling, and administrative expenses in the consolidated statements of operations and comprehensive income (loss), and the related accrued expenses in the consolidated balance sheets.

The Company did not have any guarantees, commitments or other forms of financing to the Staffing Agencies.

As of December 31, 2021, the Company no longer had involvement with any of the Staffing Agencies and therefore was no longer considered a VIE and was no longer consolidated.

Unconsolidated VIEs

Revolution Industry and UGO

Revolution Industry was established to produce egg roll mix for the Company.

UGO was originally designed to be an online marketplace for various Asian goods.

Revolution Industry and UGO were thinly capitalized and were not able to finance their activities without additional subordinated support.

The former Co-CEO's (Mr.

Ni) son, as sole equity holder of Revolution Industry, had unilateral control over the ongoing activities of Revolution Industry and significantly benefited from their operations.

Therefore, the Company was not the primary beneficiary for Revolution Industry.

The former Co-CEO (Mr.

Ni) and his niece, as equity holders, had unilateral control over the ongoing activities of UGO and significantly benefited from its operations.

Therefore, the Company was not the primary beneficiary for UGO.

Revolution Industry and UGO are also related parties and were generally the Company’s suppliers or customers and the Company did not have other involvement with these entities.

Therefore, the Company’s exposure to loss due to its involvement with these entities was limited to amounts due from these entities, which was included in Accounts receivable – related parties.

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.

Related party transactions with Revolution Industry and UGO are disclosed in Note 13 - Related Party Transactions.

AnHeart was previously a subsidiary of the Company designed to sell traditional Chinese medicine, sold to a third-party in February 2019.

As discussed in Note 6 - Leases, after the sale, the Company continued to provide a guarantee for all rent and related costs associated with two leases of AnHeart in Manhattan, New York.

The Company has determined that AnHeart is a VIE as a result of the guarantee.

However, the Company concluded it is not the primary beneficiary of AnHeart because it does not have the power to direct the activities of AnHeart that most significantly impact AnHeart's economic performance.

Please refer to Note 6 - Leases for additional information regarding the Company's maximum exposure to loss related to AnHeart.

The Company did not have any sales to or rental income from any of the other VIEs during the three years ended December 31, 2023.

During the year ended December 31, 2022, the Company consolidated FUSO Trucking, LLC (“FUSO”) which was established to provide exclusive trucking services to the Company and was dissolved in 2022.

The results of operations and cash flows of FUSO prior to being dissolved were immaterial during 2022.

Noncontrolling Interests

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

In addition, the amounts attributable to the net income (loss) of those noncontrolling interests are reported separately in the consolidated statements of operations and comprehensive income (loss).

In addition, the amounts attributable to the net income (loss) of those noncontrolling interests are reported separately in the consolidated statements of operations and comprehensive loss.

As of December 31, 2024 and December 31, 2023, noncontrolling interest equity consisted of the following:

3 unchanged sentences

HF Foods Industrial, LLC (“HFFI”) (a)

45.00 % $ ( 759 ) $ 204

N/A $ — $ ( 759 )

Min Food, Inc.

1 unchanged sentence

Monterey Food Service, LLC 35.00 % 442 366

Ocean West Food Services, LLC (b)

Syncglobal Inc.

Total $ 2,003 $ 1,322

_______________

(a) During the year ended December 31, 2023, the Company exited HFFI operations.

Accordingly, the machinery used in HFFI operations was impaired and subsequently sold.

See Note 4 - Balance Sheet Components for additional information.

(b) Effective June 30, 2023, Ocean West Food Services, LLC (“Ocean West”) became a wholly-owned subsidiary of the Company.

(a) During the year ended December 31, 2024, upon dissolution of HFFI, the Company assumed HFFI’s remaining assets and liabilities.

In accordance with ASC Topic 810 (“ASC 810”), Consolidation, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions.

No gain or loss was recognized.

As a result of this transaction, noncontrolling interests of $ 1.7 million was reclassified to additional paid-in capital on the consolidated balance sheets.

and dissolved the entity.

As a result of this transaction, noncontrolling interest of $( 0.8 ) million was reclassified to additional paid-in capital on the consolidated balance sheets.

Uses of Estimates

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Significant accounting estimates reflected in the Company’s consolidated financial statements include, but are not limited to, inventory reserves, impairment of long-lived assets, impairment of goodwill, and the purchase price allocation and fair value of assets and liabilities acquired with respect to business combinations.

Recent Issued Accounting Pronouncements not yet Adopted

In December 2023, the FASB issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires public entities to disclose specific categories in its annual effective tax rate reconciliation and disaggregated information about significant reconciling items by jurisdiction and by nature.

This guidance also requires entities to disclose their income tax payments (net of refunds) to international, federal, and state and local jurisdictions.

This guidance is effective for fiscal years beginning after December 15, 2024.

Upon adoption, ASU 2023-09 should be applied on a prospective basis while retrospective application is permitted.

The Company does not expect this adoption to have a material impact on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

The guidance requires additional disclosure of certain amounts included in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses.

This guidance is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027.

The Company is in the process of assessing the impact the adoption of this guidance will have on the Company’s financial statement disclosures.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about segment expenses on an annual and interim basis.

This standard is effective for the Company’s consolidated financial statements for the year ending December 31, 2024 and for interim periods beginning in 2025.

See Note 16 - Segment Information in the accompanying notes to the consolidated financial statements for further detail.

Cash and Cash Equivalents

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As of December 31, 2024 and December 31, 2023, the Company had no cash equivalents.

Accounts at banks with an aggregate excess of the amount of outstanding checks over the cash balances are included in checks issued not presented for payment in current liabilities in the consolidated balance sheets.

Checks issued not presented for payment represent accounts at banks with an aggregate excess of the amount of outstanding checks over the cash balances and are presented in current liabilities in the consolidated balance sheets.

The net changes to checks issued not presented for payment are presented in the operating section of the statement of cash flows.

Accounts Receivable, net

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The Company uses specific criteria to determine uncollectible receivables to be written off, including, bankruptcy filings, the referral of customer accounts to outside parties for collection, and the length that accounts remain past due.

As of December 31, 2023 and December 31, 2022, allowances for expected credit losses were $ 2.1 million and $ 1.4 million, respectively.

The Company’s inventories, consisting mainly of food and other foodservice-related products, are considered finished goods.

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Capitalized costs include direct acquisitions as well as software and software development acquired under capitalized leases and internal labor where appropriate.

Capitalized software purchases and related development costs, net of accumulated amortization, were $ 5.1 million as of December 31, 2023 and zero as of December 31, 2022, and are included in other long-term assets on the consolidated balance sheets.

Capitalized software purchases and related development costs, net of accumulated amortization, were $ 4.1 million as of December 31, 2024 and $ 5.1 million as of December 31, 2023, and are included in other long-term assets on the consolidated balance sheets.

Business Combinations

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If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, the Company measures any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

As of December 31, 2023 and December 31, 2022, the Company has one reporting unit for purposes of testing goodwill for impairment.

As of December 31, 2024 and December 31, 2023,

the Company has one reporting unit for purposes of testing goodwill for impairment.

See Note 8 - Goodwill and Acquired Intangible Assets for additional information.

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Estimated Useful Lives

Non-competition agreement 3 years

Tradenames 10 years

Non-competition agreements 3 years

Trademarks and trade names 10 years

Customer relationships 10 to 20 years

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Shipping and handling costs, which include costs related to the selection of products and their delivery to customers, are included in distribution, selling and administrative expenses.

Shipping and handling costs were $ 76.0 million, $ 83.7 million and $ 58.3 million for the years ended December 31, 2023, 2022 and 2021, respectively, and includes estimates for labor associated with shipping and handling activities.

Shipping and handling costs were $ 69.2 million, $ 76.0 million and $ 83.7 million for the years ended December 31, 2024, 2023 and 2022, respectively, and includes estimates for labor associated with shipping and handling activities for the years ended December 31, 2023 and 2022.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

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A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

Based on our assessment, it is more likely than not that most of the net deferred tax assets will be realized through future taxable income.

Management has established a valuation allowance against certain deferred taxes attributable to the Company's subsidiary, HFFI.

Management believes the realization of these deferred tax assets will be limited as the Company exited HFFI operations during the year ended December 31, 2023.

As such, the Company has recorded a valuation allowance of $ 0.7 million on the deferred tax assets of HFFI.

Based on our assessment, it is more likely than not that the deferred tax assets will be realized through future taxable income.

In 2023, management established a valuation allowance of $ 0.7 million against certain deferred taxes attributable to the Company’s subsidiary, HFFI.

In 2024, the Company dissolved its subsidiary, HFFI, and as such, the deferred tax balances and corresponding valuation allowance associated with this entity were written off during the year ended December 31, 2024.

There is no remaining valuation allowance as of December 31, 2024.

The Company will continue to assess the need for a valuation allowance in the future by evaluating both positive and negative evidence that may exist.

1 unchanged sentence

See Note 12 - Income Taxes for additional information.

The Company adopted ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , on January 1, 2021.

ASU 2019-12 is intended to simplify various aspects related to managerial accounting for income taxes.

The adoption had no material impact on the Company's consolidated financial statements.

In 2021, the Organization for Economic Co-operation and Development (“OECD”) published the Tax Challenges Arising from the Global Anti-Base Erosion Model Rules (“Pillar Two”), also referred to as the GloBE Rules or Pillar Two.

The rules are designed to ensure large multinational enterprises (“MNEs”) pay a minimum level of tax (15%) on income of each jurisdiction and are expected to be effective for the first time in January 2024.

The rules are designed to ensure large multinational enterprises (“MNEs”) pay a minimum level of tax (15%) on income of each jurisdiction.

The legislation applies to MNEs with annual consolidated group revenues of at least €750 million if at least one jurisdiction in which the MNE operates has enacted tax laws in accordance with the Pillar Two framework.

The Company continues to monitor the effects of Pillar Two but does not believe it will have a material impact on the financial statements provided that the Company currently has no foreign operations that would be expected to result in the application of Pillar Two.

Many aspects of Pillar Two are effective for tax years beginning after January 1, 2024 with certain remaining aspects to be effective for tax years beginning January 1, 2025 or later.

The Company currently does not have any foreign operations that would trigger the application of Pillar Two and therefore it is not anticipated to have a significant impact.

The Company will continue to monitor the effects of Pillar Two and any potential future developments.

The Company accounts for leases following ASC Topic 842, Leases (“ASC 842”).

The Company determines if an arrangement is a lease at inception and also considers classification of leases as operating or finance.

Operating leases are included in operating lease ROU assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s consolidated balance sheets.

Operating leases are included in

operating lease ROU assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s consolidated balance sheets.

Finance leases are included in property and equipment, net, current portion of obligations under finance leases, and obligations under finance leases, non-current on the consolidated balance sheets.

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Concentrations and Credit Risk

The Company had no customers that comprised more than 10% of consolidated net sales for the years ended December 31, 2024, 2023, or 2022, respectively.

At December 31, 2024 and 2023, the Company had no customers that comprised more than 10% of consolidated accounts receivable.

Accounts receivable are typically unsecured and derived from revenue earned from customers, and thereby exposed to credit risk.

The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.

The risk is mitigated by the Company’s large customer base and ongoing assessments of its customers’ creditworthiness and outstanding balances.

The Company maintains cash balances with banks which at times exceed federally insured limits.

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The management approach considers the internal organization and reporting used by the Company’s operating decision makers for making operational decisions and assessing performance as the source for determining the Company’s reportable segments.

In 2021, former co-CEO Zhou Min Ni resigned, and Xiao Mou Zhang assumed the role of sole CEO and sole Chief Operating Decision Maker ("CODM").

The CODM, reviews operating results and makes resource allocations on a consolidated basis and thus the Company has concluded it has one operating and reportable segment.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326):

Measurement of Credit Losses on Financial Instruments.

ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

ASU 2016-13 was further amended in November 2019 in “Codification Improvements to Topic 326, Financial Instruments-Credit Losses.” The Company adopted this ASU within the annual reporting period ending as of December 31, 2022.

The adoption of this guidance resulted in an adjustment to retained earnings of $ 0.7 million as of January 1, 2022 as evidenced in the Company’s consolidated statements of changes in shareholders’ equity.

In November 2023, the FASB issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about segment expenses on an annual and interim basis.

This standard is effective for the Company’s consolidated financial statements for the year ending December 31, 2024 and for interim periods beginning in 2025.

The impact of the adoption of this ASU is not expected to have a material effect on the Company’s financial position, or operations, however, the Company is currently evaluating the impact of this standard on its disclosures to the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (ASC 740):

Improvement to Income Tax Disclosures, which requires (1) disclosure of specific categories in the rate reconciliation and (2) additional information for reconciling items that meet a quantitative threshold.

Additionally, the amendment requires disclosure of certain disaggregated information about income taxes paid, income from continuing operations before income tax expense (benefit) and income tax expense (benefit).

The standard is effective for the Company’s consolidated financial statements for the year ending December 31, 2025.

The Company is currently evaluating the impact of this standard on its consolidated financial statements.

The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews operating results and makes resource allocations on a consolidated basis and thus the Company has concluded it has one operating and reportable segment.

See Note 16 - Segment Information in the accompanying notes to the consolidated financial statements for further detail.

Stock-Based Compensation

The Company grants restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) annually.

Stock-based compensation expense is based on the fair value of the stock awards at the grant date and is recognized, net of forfeitures, over the requisite service period.

See Note 14 - Stock-Based Compensation to the consolidated financial statements for further information regarding stock-based compensation.

Note 3 - Revenue

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Meat and Poultry 253,008 21 % 215,789 19 % 238,276 20 %

Fresh Produce 123,202 11 % 126,560 11 % 103,168 13 %

Produce 128,837 11 % 123,202 11 % 126,560 11 %

Packaging and Other 62,677 5 % 71,245 6 % 84,489 7 %

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Beginning balance $ 2,119 $ 1,442 $ 1,530

Adjustment for adoption of the CECL standard — 690 —

Increase (decrease) in provision for expected credit losses/doubtful accounts 701 82 ( 433 )

Bad debt (write-offs) recoveries ( 24 ) ( 170 ) 364

(Credit) provision for expected credit losses ( 103 ) 701 82

Bad debt write-offs ( 459 ) ( 24 ) ( 170 )

Ending balance $ 1,557 $ 2,119 $ 1,442

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Automobiles (1)

$ 50,565 $ 37,256

Buildings 63,045 63,045

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Machinery and equipment 13,216 11,532

Construction in progress 10,370 1,391

Subtotal 210,232 185,641

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Property and equipment, net $ 149,572 $ 133,136

_________________

(1) The cost and accumulated depreciation of property and equipment related to finance leases was $ 36.1 million and $ 14.3 million, respectively, at December 31, 2024 and $ 22.2 million and $ 10.3 million, respectively, at December 31, 2023, which primarily relates to Automobiles.

During the year ended December 31, 2024, the Company entered into finance leases for automobiles which mature in 4 to 7 years and have a weighted average discount rate of 6.3 %.

The total future minimum lease payments under finance leases as of December 31, 2024 is $ 35.7 million.

As of December 31, 2024, the Company had additional automobile leases that had not yet commenced which total $ 15.4 million in future minimum lease payments.

Depreciation expense was $ 10.4 million, $ 9.6 million and $ 9.2 million for the years ended December 31, 2024, 2023 and 2022, respectively.

During the year ended December 31, 2023, the Company impaired machinery and recognized impairment expense of $ 1.2 million in distribution, selling and administrative expense in the consolidated statements of operations and comprehensive income (loss).

See Note 2 - Summary of Significant Accounting Policies for additional information regarding the Company’s operations at HFFI.

Long-term investments consisted of the following:

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Self-insurance liability 1,671 1,723

Accrued other 4,994 6,616

Advance from customers 3,081 1,390

Other 4,261 3,604

Total accrued expenses and other liabilities $ 18,001 $ 17,287

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The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, other current assets, accounts payable, checks issued not presented for payment and accrued expenses and other liabilities approximate their fair value based on the short-term maturity of these instruments.

Please refer to Note 9 - Derivative Financial Instruments for additional information regarding the Company’s interest rate swaps.

Carrying Value and Estimated Fair Value of Outstanding Debt - The following table presents the carrying value and estimated fair value of the Company’s outstanding debt as described in Note 10 - Debt of the Notes to the Consolidated Financial Statements, including the current portion, as of the dates indicated:

See Note 9 - Derivative Financial Instruments for additional information regarding the Company’s interest rate swaps.

Carrying Value and Estimated Fair Value of Outstanding Debt - The following table presents the carrying value and estimated fair value of the Company’s outstanding debt as described in Note 10 - Debt , including the current portion, as of the dates indicated:

Fair Value Measurements

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Bank of America $ — $ — $ 104 $ 113

Other finance institutions — — 43 45

Variable rate debt:

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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.

Please refer to Note 10 - Debt for additional information regarding the Company's debt.

See Note 10 - Debt for additional information regarding the Company’s debt.

Nonrecurring Fair Values

The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

Adjustments to fair value resulted from the write-down of asset values due to impairment.

As further disclosed in Note 8 - Goodwill and Acquired Intangible Assets, we performed a quantitative goodwill impairment analysis as of December 31, 2024.

The results of testing as of December 31, 2024 concluded that the estimated fair value of our one reporting unit fell short of carrying value, and therefore impairment existed as of that date.

Goodwill impairment charges of $ 46.3 million were recorded in the consolidated statements of operations during the year ended December 31, 2024.

The calculation of the fair value of our reporting unit was determined using Level 3 fair value measurements.

No other adjustments to fair value from the write-down of asset values due to impairment were made during the year ended December 31, 2024.

During the year ended December 31, 2023, the Company partially impaired machinery related to the operations of HFFI and recognized impairment expense of $ 1.2 million in distribution, selling and administrative expense in the consolidated statements of operations and comprehensive income (loss).

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joint venture and recognized impairment expense of $ 0.4 million in distribution, selling and administrative expenses in the consolidated statements of operations and comprehensive income (loss) during the year ended December 31, 2022.

There were no assets other than goodwill that were carried at nonrecurring fair value at December 31, 2024.

There were no assets carried at nonrecurring fair value at December 31, 2023.

Note 6 - Leases

The Company leases office space, warehouses and vacant land under non-cancelable operating leases, with terms typically ranging from one to thirty years , as well as operating and finance leases for vehicles and delivery trucks, forklifts and computer equipment with various expiration dates through 2051.

The Company leases office space, warehouses and vacant land that is currently being developed under non-cancelable operating leases, with terms typically ranging from one to thirty years , as well as operating and finance leases for vehicles and delivery trucks, forklifts and computer equipment with various expiration dates through 2051.

The Company determines whether an arrangement is or includes an embedded lease at contract inception.

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Variable lease costs were insignificant in the years ended December 31, 2024, 2023 and 2022.

As of December 31, 2023, the balances for operating lease right-of-use ("ROU") assets and liabilities were $ 12.7 million and $ 13.1 million, respectively.

As of December 31, 2022, the balances for operating lease ROU assets and liabilities were $ 14.2 million and $ 14.3 million, respectively.

Operating Leases

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Operating Leases

(In thousands) Related Party (1)

(In thousands) Related

Third Party Total Finance

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(1) See Note 13 - Related Party Transactions

As of December 31, 2023, the Company had additional leases that had not yet commenced which totaled $ 7.0 million in future minimum lease payments and were excluded from the table above.

These leases comprise vehicle leases expected to commence during the year ended December 31, 2024 with lease terms of 4 to 7 years.

Subsequent to December 31, 2023, the Company entered into additional vehicle leases which total $ 15.5 million in future minimum lease payments, with lease terms of 4 to 6 years and were excluded from the table above.

As of December 31, 2024, the Company had additional leases for vehicles that had not yet commenced which total $ 15.4 million in future minimum lease payments and were excluded from the table above.

These vehicle leases are expected to commence during the year ended December 31, 2025 with lease terms of 4 to 7 years.

Also excluded from the table above, the Company entered into a lease on September 30, 2024 for a new Atlanta, Georgia based distribution center which commenced February 1, 2025 and total $ 15.8 million in future minimum lease payments over 10 years.

Note 7 - Acquisitions

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The associated goodwill is deductible for tax purposes.

Acquisition of Great Wall Group

On December 30, 2021, the Company executed an Asset Purchase Agreement with Great Wall Group to purchase substantially all of the operating assets of the Great Wall Group’s seafood and restaurant products sales, marketing, and distribution businesses.

The acquisition was completed as part of the Company’s strategy to develop a national footprint through expansion into the Midwest, Southwest and Southern regions of the United States.

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 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.

As such, the total acquisition price for all operating assets and inventory was approximately $ 68.2 million.

The Company accounted for this transaction under ASC 805, Business Combinations, by applying the acquisition method of accounting and established a new basis of accounting on the date of acquisition.

The assets acquired by the Company were measured at their estimated fair values as of the date of acquisition.

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.

For the year ended December 31, 2021, transaction costs for the acquisition totaled $ 0.9 million and were reflected in distribution, selling and administrative expenses in the consolidated statement of operations and comprehensive income (loss).

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 flow, and other estimates made by management.

Purchase Price Allocation

The following table presents the allocation of the total consideration paid to acquire the assets and liabilities of the Great Wall Group:

(In thousands) Amount

Inventory $ 24,728

Property plant, and equipment 1,537

Intangible assets 30,145

Total assets acquired 56,410

Goodwill 11,745

Total consideration $ 68,155

The Company recorded acquired intangible assets of $ 30.1 million, which included tradenames and trademarks of $ 10.5 million, customer relationships of $ 17.2 million and non-competition agreements of $ 2.4 million.

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 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 %.

The useful lives of the tradenames and trademarks are ten years , customer relationships are ten years and non-compete agreements are three years , with a weighted average amortization period of approximately nine years .

The associated goodwill is deductible for tax purposes.

See Note 8 - Goodwill and Acquired Intangible Assets for additional information on acquired intangibles in the Great Wall Acquisition.

Since the Great Wall Acquisition occurred on December 30, 2021, the amounts of revenue and earnings of the Great Wall Group included in the Company’s consolidated statement of operations and comprehensive income (loss) from the acquisition date to December 31, 2021 were immaterial.

Unaudited Supplemental Pro Forma Financial Information

The following table presents the Company’s unaudited pro forma results for the years ended December 31, 2022, as if the Great Wall Acquisition and the Sealand Acquisition had been consummated on January 1, 2021.

The following table presents the Company’s unaudited pro forma results for the year ended December 31, 2022, as if the 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 other non-recurring transaction costs directly associated with the acquisition such as legal and other professional service fees.

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Pro forma weighted average shares — basic

53,757,199 53,706,392

Pro forma weighted average shares — diluted

53,757,199 53,809,020

Note 8 - Goodwill and Acquired Intangible Assets

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Balance at December 31, 2022 $ 85,118

Acquisition of Sealand Food, Inc.

Balance at December 31, 2022 85,118

No Goodwill activity —

Balance at December 31, 2023 $ 85,118

Accumulated impairment for goodwill is $ 338.2 million as of December 31, 2023, 2022 and 2021.

The accumulated impairment resulted from an impairment during the year ended December 31, 2020.

Goodwill impairment charges ( 46,303 )

Balance at December 31, 2024 $ 38,815

Accumulated impairment for goodwill is $ 384.5 million as of December 31, 2024 and $ 338.2 million as of December 31, 2023 and 2022.

Prior to the goodwill impairment charge in the current year, the accumulated impairment resulted from an impairment during the year ended December 31, 2020.

There is only one reporting unit at December 31, 2024 and 2023.

As a result of the Company’s results of operations compared to previous forecasts, combined with the level of the Company’s stock price, the Company performed a quantitative goodwill impairment assessment as of December 31, 2023 and 2022.

The fair value was determined using an average of the income approach, comparable public company analysis, and comparable acquisitions analysis.

The fair value of the reporting unit exceeded the carrying value, and therefore the Company concluded no impairment was required to be recorded during the year ended December 31, 2023 and December 31, 2022.

For the year ended December 31, 2021, the Company performed a qualitative goodwill impairment assessment and concluded no impairment was required to be recorded during the year ended December 31, 2021.

The 2023 impairment test resulted in an estimated fair value that exceeded carrying value by approximately 10% at December 31, 2023.

The most critical assumptions in determining fair value using the income approach were projections of future cash flows such as forecasted revenue growth rates, gross profit margins, and the discount rate.

The market approaches were primarily impacted by an enterprise value multiple of EBITDA.

A significant change in these assumptions or a sustained decline in the Company’s stock price could result in an interim impairment test and/or potential goodwill impairment in the future.

The Company tests goodwill for impairment at least annually, as of December 31, or whenever events or changes in circumstances indicated goodwill might be impaired.

The Company performed a quantitative goodwill impairment assessment as of December 31, 2023, as a result of the Company’s results of operations during 2023 compared to previous forecasts, combined with the level of the Company’s stock price.

The annual goodwill impairment test in 2023 resulted in an estimated fair value that exceeded carrying value at December 31, 2023, and therefore, the Company concluded no impairment was required to be recorded during the year ended December 31, 2023.

As of September 30, 2024, the Company concluded that a triggering event occurred due to a sustained decline in the Company’s stock price since December 31, 2023, which required interim testing for goodwill impairment in accordance with ASC 350.

Accordingly, the Company performed a quantitative assessment as of September 30, 2024.

The fair value of the reporting unit exceeded the carrying value, and therefore the Company concluded no impairment was required to be recorded during the period ended September 30, 2024.

As a result of continued declines in the level of stock price, the Company performed a quantitative impairment assessment as of December 31, 2024.

The results of the testing as of December 31, 2024, concluded that the estimated fair value of the reporting unit fell short of carrying value, and therefore impairment existed as of that date.

A goodwill impairment charge of $ 46.3 million was recorded in the consolidated statements of operations during the year ended December 31, 2024.

For the December 31, 2024, September 30, 2024 and December 31, 2023 impairment tests, the Company used a combination of discounted cash flow (“DCF”) model and market approaches, such as public company comparable analysis and comparable acquisitions analysis to determine fair value of the reporting unit.

The income approach and market approaches were weighted equally to estimate fair value.

The income approach requires detailed forecasts of cash flows, including assumptions such as revenue growth rates, gross profit margins, distribution, selling and administrative expenses, among other assumptions, and an estimate of weighted-average cost of capital which the Company believes approximate the assumptions from a market participant’s perspective.

The market approaches are primarily impacted by an enterprise value multiple of EBITDA.

These estimates incorporate many uncertain factors which could be impacted by changes in market conditions, interest rates, growth rate, tax rates, costs, customer behavior, regulatory environment and other macroeconomic changes.

In addition, the Company considered the reasonableness of the fair value of the reporting unit by assessing the implied enterprise value control premium based on the Company’s market capitalization.

The Company determined that the implied control premium was reasonable which corroborates the Company’s fair value estimates.

The Company categorized the fair value determination as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.

Assumptions used in impairment testing are made at a point in time and require significant judgment;

therefore, they are subject to change based on the facts and circumstances present at each impairment test date.

Additionally, these assumptions are generally interdependent and do not change in isolation.

If, in future periods, the financial performance of the reporting unit does not meet forecasted expectations, or a prolonged further decline occurs in the market price of the Company’s common stock, it may cause a change in the results of the impairment assessment and, as such, could result in further impairment of goodwill.

Acquired Intangible Assets

In connection with the Sealand acquisition, the Company acquired $ 14.7 million of intangible assets, primarily representing trademarks and trade names of $ 4.4 million, customer relationships of $ 8.9 million and non-compete agreements of $ 1.4 million.

In connection with the Sealand acquisition in 2022, the Company acquired $ 14.7 million of intangible assets, primarily representing trademarks and trade names of $ 4.4 million, customer relationships of $ 8.9 million and non-compete agreements of $ 1.4 million.

The useful lives of trademarks and trade names are ten years , customer relationships are ten years and non-compete agreements are three years , with a weighted average amortization period of approximately nine years .

The associated goodwill is deductible for tax purposes.

In connection with the Great Wall Group acquisition, HF Foods acquired $ 30.1 million of intangible assets, primarily representing a non-competition agreement, trademarks and trade names and customer relationships, which have an estimated amortization period of approximately 3 years, 10 years, and 10 years, respectively.

In connection with the Great Wall Group acquisition in 2021, HF Foods acquired $ 30.1 million of intangible assets, primarily representing a non-competition agreement, trademarks and trade names and customer relationships, which have an estimated amortization period of approximately 3 years, 10 years, and 10 years, respectively.

In connection with the acquisition of B&R Global in 2019, HF Foods acquired $ 188.5 million of intangible assets, primarily representing trademarks and trade names and customer relationships which have an estimated amortization period of 10 and 20 years, respectively .

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Amortization Net

Non-competition agreement $ 3,892 $ ( 2,429 ) $ 1,463 $ 3,892 $ ( 1,132 ) $ 2,760

Non-competition agreements $ 3,892 $ ( 3,723 ) $ 169 $ 3,892 $ ( 2,429 ) $ 1,463

Trademarks and trade names 44,207 ( 19,465 ) 24,742 44,207 ( 15,045 ) 29,162

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The Company evaluated possible triggering events that would indicate long-lived asset impairment assessment.

The Company impaired its acquired developed technology and recognized impairment expense of $ 0.4 million in distribution, selling and administrative expenses in the consolidated statements of operations during the year ended December 31, 2022 .

The Company impaired its acquired developed technology associated with the former Syncglobal, Inc.

joint venture and recognized impairment expense of $ 0.4 million in distribution, selling and administrative expenses in the consolidated statements of operations during the year ended December 31, 2022 .

There were no triggering events identified for the remaining acquired intangible assets at December 31, 2022.

No impairment was recorded against acquired intangible assets for the years ended December 31, 2024 and 2023.

HF Foods’ amortization expense for acquired intangible assets was $ 16.3 million, $ 15.7 million and $ 10.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Amortization expense for acquired intangible assets was $ 16.3 million, $ 16.3 million and $ 15.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The estimated future amortization expense for intangible assets is presented below:

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The Company evaluated the aforementioned IRS contracts currently in place and did not designate those as cash flow hedges.

Hence, the fair value change on these IRS contracts are accounted for and recognized as a change in fair value of IRS contracts in the consolidated statements of operations and comprehensive income (loss).

As of December 31, 2023, the Company determined that the fair values of the IRS contracts were $ 0.4 million in an asset position and $ 1.6 million in a liability position.

As of December 31, 2022, the fair values of the IRS contracts were $ 0.5 million in an asset position.

Hence, the fair value changes of these IRS contracts are accounted for and recognized as a change in fair value of interest rate swap contracts in the consolidated statements of operations and comprehensive income (loss).

As of December 31, 2024, the Company determined that the fair values of the IRS contracts were $ 0.5 million in an asset position and none in a liability position.

As of December 31, 2023, the fair values of the IRS contracts were $ 0.4 million in an asset position and $ 1.6 million in a liability position.

The Company includes these in other long-term assets and other long-term liabilities , respectively, on the consolidated balance sheets.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in its assessment of fair value.

The inputs used to determine the fair value of the IRS are classified as Level 2 on the fair value hierarchy.

Note 10 - Debt

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Other finance institutions (d)

January 2024 - July 2024 5.99 % - 6.17 %

July 2024 N/A

Total debt, principal amount 108,949 114,419

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(c) Real estate term loan with a principal balance of $ 101.3 million as of December 31, 2024 and $ 106.3 million as of December 31, 2023 is secured by assets held by the Company and has a maturity date of January 2030.

Equipment term loan with a principal balance of $ 0.02 million as of December 31, 2023 and $ 0.3 million as of December 31, 2022 is secured by specific vehicles and equipment as defined in loan agreements.

Equipment term loan matured in December 2023 and retired after December 31, 2023 with the final payment of remaining outstanding principal.

(d) Secured by vehicles.

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On March 31, 2022, the Company amended the JPM Credit Agreement, defined below, extending the Real Estate Term Loan for five years .

The amendment provides for an increase in the Real Estate Term Loan from $ 69.0 million to $ 115.0 million with a 1-month SOFR plus a credit adjustment of 0.1 % plus 1.875 % per annum.

The amendment provided for an increase in the Real Estate Term Loan from $ 69.0 million to $ 115.0 million with a 1-month SOFR plus a credit adjustment of 0.1 % plus 1.875 % per annum.

The future maturities of long-term debt as of December 31, 2024 are as follows:

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The JPM Credit Agreement provided for a $ 100.0 million asset-secured revolving credit facility maturing on November 4, 2022, with an option to renew at the bank’s discretion.

On January 17, 2020, the Company and certain of the wholly-owned subsidiaries and affiliates of the Company as borrowers, and certain material subsidiaries of the Company as guarantors, entered into the Second Amended Credit Agreement (“Second Amended Credit Agreement”).

On December 30, 2021, the Company entered into the Consent, Waiver, Joinder and Amendment No.

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The Second Amended Credit Agreement, as amended, contains certain financial covenants, including, but not limited to, a fixed charge coverage ratio.

On March 31, 2022, the Company amended the JPM Credit Agreement extending the Revolver Facility for five years , with a maturity date of November 4, 2027.

The amendment provides for a $ 100.0 million asset-secured revolving credit facility with a one-month SOFR plus a credit adjustment of 0.1 % plus 1.375 % per annum.

On March 31, 2022, the Company entered into the Third Amended Credit Agreement extending the Revolving Facility for five years , with a maturity date of March 31, 2027.

The Third Amended Credit Agreement provides for a $ 100.0 million asset-secured revolving credit facility with a one-month SOFR plus a credit adjustment of 0.1 % plus 1.375 % per annum.

On February 6, 2024, the Company amended the Third Amended Credit Agreement to (i) remove a cap on permitted indebtedness in respect of capital lease obligations, subject to certain enumerated conditions;

(ii) create a reserve on the borrowing base, which will be reduced on a dollar-for-dollar basis once the Company has made expenditures in excess of such amount relating to the development and construction of certain real property, and which amounts shall be excluded from certain financial covenants under the Third Amended Credit Agreement and;

(iii) remove certain sublease income from various financial covenants.

On July 15, 2024, the Company again amended the Third Amended Credit Agreement to (i) increase the issuing bank sublimit to $ 10.0 million and;

(ii) modify the due date for a borrowing base certificate based on availability under the revolving credit facility.

As of December 31, 2024, the Company was in compliance with its covenants.

The outstanding principal balance on the line of credit as of December 31, 2024 was $ 57.5 million and outstanding letters of credit amounted to $ 6.4 million leaving access to approximately $ 36.1 million in additional funds through our $ 100.0 million line of credit, subject to a borrowing base calculation.

Subsequent to December 31, 2023, on February 6, 2024, the Company amended the JPM Credit Agreement to (i) remove a cap on permitted indebtedness in respect of capital lease obligations, subject to certain enumerated conditions;

(iii) remove certain sublease income from various financial covenants.

On February 12, 2025, the Company amended certain terms and conditions of the Third Amended Credit Agreement, by, among other things, (i) increasing the Revolving Commitment (as defined in the Credit Agreement) from $ 100.0 million to $ 125.0 million, (ii) joining three new subsidiaries of the Company to the Credit Agreement, each as a “Borrower” thereunder, (iii) joining Wells Fargo Bank, N.A.

to the credit agreement as a “Lender” thereunder, (iv) amending certain affirmative covenants commensurate with the increase in the Revolving Facility, and (v) amending certain restrictions regarding incurring obligations under real property leases and equipment financings in the ordinary course of business.

Note 11 - Earnings (Loss) Per Share

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ASC 260 requires companies with complex capital structures to present basic and diluted EPS.

Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period.

Basic EPS is measured as net (loss) income divided by the weighted average common shares outstanding for the period.

Diluted EPS is similar to basic EPS, but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, warrants and restricted stock) as if they had been converted at the beginning of the periods presented, or issuance date, if later.

Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

There were 862,182 , 348,610 and 130,668 potential common shares related to performance-based restricted stock units and restricted stock units that were excluded from the calculation of diluted EPS for the years ended December 31, 2023, 2022 and 2021, respectively, because their effect would have been anti-dilutive.

There were 1,482,062 , 862,182 and 348,610 , potential common shares related to performance-based restricted stock units and restricted stock units that were excluded from the calculation of diluted EPS for the years ended December 31, 2024, 2023 and 2022, respectively, because their effect could have been anti-dilutive.

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

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Weighted-average dilutive shares outstanding 52,552,490 53,878,237 53,863,448

Earnings (Loss) per common share:

(Loss) earnings per common share:

Basic $ ( 0.92 ) $ ( 0.04 ) $ 0.01

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State 1,120 ( 865 ) ( 691 )

Deferred income benefit:

Deferred income taxes (benefit):

364 ( 5,415 ) ( 5,012 )

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The effective income tax rate reflects the income earned and taxed in U.S.

federal and various state jurisdictions based on enacted tax law, permanent differences between book and tax items, change in valuation allowance, tax credits and the Company’s change in relative income in each jurisdiction.

federal and various state jurisdictions based on enacted tax law, permanent differences between book and tax items, tax credits and the Company’s change in relative income in each jurisdiction.

Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s effective income tax rate in the future.

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Payable adjustments — % 6.0 % — %

Dissolution of HFFI ( 1.6 ) % — % — %

SEC Settlement ( 1.8 ) % — % — %

Goodwill impairment charges ( 21.1 ) % — % — %

Other — % 0.3 % 634.7 %

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Right of use assets ( 2,646 ) ( 3,069 )

Equity investments — ( 649 )

Fair value change in interest rate swap contracts ( 170 ) —

Other ( 430 ) —

Total deferred tax liabilities ( 40,606 ) ( 40,616 )

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Net deferred tax liabilities $ ( 29,392 ) $ ( 29,028 )

As of December 31, 2023 and 2022, the Company had $ 3.0 million and no federal net operating loss ("NOL") carryovers, respectively, with an indefinite carryforward period.

As of December 31, 2023 and 2022, the Company had state NOL carryovers of $ 2.2 million and $ 0.8 million, which will begin to expire in 2038.

As of December 31, 2023, the Company has established a full valuation allowance against the NOL carryovers related to the Company’s subsidiary, HFFI which was recorded through income tax expense.

As of December 31, 2024 and 2023, the Company had no federal net operating loss (“NOL”) carryovers and $ 3.0 million, respectively.

As of December 31, 2024 and 2023, the Company had no state NOL carryovers and $ 2.2 million, respectively.

The Company previously recorded a full valuation allowance against the NOL carryovers related to the Company’s subsidiary, HFFI.

In 2024, the Company dissolved its subsidiary, HFFI, and as such, the NOL balances and valuation allowance associated with this entity were written off during the year.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

During the year ended December 31, 2023, management concluded that with the exception of certain deferred taxes attributable to the Company’s subsidiary, HFFI, it was more likely than not that the Company would be able to realize the benefit of the deferred tax assets in the future.

During the year ended December 31, 2024, management concluded that it was more likely than not that the Company would be able to realize the benefit of the deferred tax assets in the future.

We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets.

Management has established a valuation allowance against certain deferred taxes attributable to the Company's subsidiary, HFFI.

Management believes the realization of these deferred tax assets will be limited as the Company exited HFFI operations during the year ended December 31, 2023.

As such, the Company has recorded a valuation allowance of $ 0.7 million on the deferred tax assets of HFFI.

As of December 31, 2023, management established a valuation allowance of $ 0.7 million against certain deferred taxes attributable to the assets of the Company’s subsidiary, HFFI.

In 2024, the Company dissolved its subsidiary, HFFI.

As such, the deferred tax balances and corresponding valuation allowance associated with this entity were written off during the year.

The Company will continue to assess the need for a valuation allowance in the future by evaluating both positive and negative evidence that may exist.

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Total unrecognized tax benefits on December 31, $ — $ 106 $ 350

It is reasonably possible that $ 0.1 million of the total uncertain tax benefits will reverse within the next 12 months and would affect the effective tax rate if recognized.

Due to the statute of limitations expiring, the unrecognized tax liability for the tax year ended December 31, 2019 was reversed, which was recorded in income tax (benefit) expense on the consolidated financial statements, in the amount of $ 0.2 million during the year ended December 31, 2023.

As of December 31, 2023 and 2022, the Company had accrued penalties of $ 17,000 and $ 50,000 , respectively and accrued interest of $ 10,000 and $ 34,000 , respectively.

The Company has no unrecognized tax benefits as of December 31, 2024.

Due to the statute of limitations expiring, the unrecognized tax liability for the tax year ended December 31, 2020, was reversed, which was recorded as an income tax benefit on the consolidated statements of operations and comprehensive income (loss), in the amount of $ 0.1 million as of December 31, 2024.

As of December 31, 2024 and 2023, the Company had no accrued penalties and $ 17,000 , respectively, and no accrued interest and $ 10,000 , respectively.

During the year ended December 31, 2024, the Company reversed accrued penalties and accrued interest of $ 17,000 and $ 10,000 , respectively.

The Company recognized the reversal of interest accrued related to unrecognized tax benefits and penalties as income tax benefit.

The Company recognized the reversal of accrued interest and penalties related to unrecognized tax benefits as income tax benefit.

The Company is subject to taxation in the United States and various states.

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Xiao Mou Zhang (“Mr.

Zhang”), the Chief Executive Officer of the Company, and certain of his immediate family (collectively greater than 10% shareholders) have ownership interests in various related parties involved in (i) the distribution of food and related products to restaurants and other retailers and (ii) the supply of fresh food, frozen food, and packaging supplies to distributors.

Zhang”), the former Chief Executive Officer through October 24, 2024 and current Director on the board of directors of the Company, and certain of his immediate family members have ownership interests in various related parties involved in (i) the distribution of food and related products to restaurants and other retailers and (ii) the supply of fresh food, frozen food, and packaging supplies to distributors.

Zhang does not have any involvement in negotiations with any of the above-mentioned related parties.

Effective October 24, 2024, Mr.

Zhang departed from his role as Chief Executive Officer of the Company.

In connection with Mr.

Zhang’s departure, the Company entered into a Severance Agreement and General Release (the “Severance Agreement”) with Mr.

Zhang on November 21, 2024.

Pursuant to the Severance Agreement, which includes a general release of claims by Mr.

Zhang against the Company, Mr.

Zhang will be entitled to receive standard severance benefits provided to a Chief Executive Officer under the Company’s Amended and Restated Severance Plan, which consists of payment of base salary multiplied by two , totaling $ 1.35 million, and payment of COBRA premiums, for up to 12 months.

The severance expenses were recorded in distribution, selling, and administrative expense in the consolidated statement of operations and both accrued expenses and other liabilities and other long-term liabilities in the consolidated balance sheet.

The Company believes that Mr.

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Ni’s four children, are collectively beneficial owners of more than 10 % of the outstanding shares of the Company’s common stock, and he and certain of his immediate family members have ownership interests in related parties involved in (i) the distribution of food and related products to restaurants and other retailers and (ii) the supply of fresh food, frozen food, and packaging supplies to distributors.

For the years ended December 31, 2022 and 2021, North Carolina Good Taste Noodle, Inc.

(“NC Noodle”) was disclosed as a related party due to Mr.

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

As of January 1, 2023, NC Noodle is no longer considered a related party since it has been three years since Mr.

Jian Ming Ni resigned from the Company.

The related party transactions as of December 31, 2024 and December 31, 2023 and for the years ended December 31, 2024, 2023 and 2022, are identified as follows:

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(In thousands) Nature 2024 2023 2022

(a) Conexus Food Solutions (formerly as Best Food Services, LLC) Trade $ 8,581 $ 10,514 8,341

(b) Eagle Food Services, LLC Trade — — 4

(a) Asahi Food, Inc.

Trade $ 97 $ 71 120

(b) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) Trade 5,055 8,581 10,514

(formerly “GA-GW Seafood, Inc.”) Trade 37 — 128

(formerly “GA-GW Seafood, Inc.”) Trade N/A 37 52

(d) First Choice Seafood, Inc.

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(d) Fujian RongFeng Plastic Co., Ltd Trade — — 372

Service — — 122

(e) North Carolina Good Taste Noodle, Inc.

Trade N/A 7,227 5,520

Trade N/A N/A 7,227

Trade 257 381 589

(f) Revolution Industry, LLC Trade — — 190

Trade — — 212

Others Trade — — 13

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_______________

(a) An equity interest is held by three Irrevocable Trusts for the benefit of Mr.

(a) The Company, through its subsidiary Mountain Food, LLC, owns an equity interest in this entity.

(b) An equity interest is held by three Irrevocable Trusts for the benefit of Mr.

Zhang’s children.

(b) Tina Ni, one of Mr.

Zhou Min Ni’s family members, owns an equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns an equity interest in this entity.

Enson Seafood GA, Inc.

is no longer considered a related party as of January 1, 2024 since Mr.

Zhou Min Ni disposed his equity interest in this entity.

Zhou Min Ni owns an equity interest in this entity indirectly through its parent company.

(e) No longer considered a related party as of January 1, 2023 since it has been three years since Mr.

Jian Ming Ni resigned from the Company .

As a result, 2023 amounts have not been disclosed.

(f) Raymond Ni, one of Mr.

Zhou Min Ni’s family members, owned an equity interest in this entity.

On February 25, 2021, the Company executed an asset purchase agreement to acquire the machinery and equipment of Revolution Industry, LLC ("RIL").

The Company acquired substantially all of the operating assets used or held for use in such business operation for the amount of $ 250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of RIL.

Advances due from RIL at the time of transaction were an offset to the purchase price paid to RIL.

Going forward, the Company has taken the egg roll production business in house and ceased its vendor relationship with RIL.

Jian Ming Ni, a former executive, resigned from the Company.

As a result, amounts have not been disclosed for the years ended December 31, 2024 and 2023, respectively..

Below is a summary of sales to related parties recorded for the years ended December 31, 2024, 2023 and 2022, respectively:

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(b) Asahi Food, Inc.

(a) Conexus Food Solutions (formerly as Best Food Services, LLC) 928 1,285 792

(a) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) 1,016 928 1,285

(d) Eastern Fresh NJ, LLC — — 155

(d) Enson Group, Inc.

(formerly as Enson Group, LLC) — — 101

(d) Enson Seafood GA, Inc.

(formerly as GA-GW Seafood, Inc.) — — 573

(e) First Choice Seafood, Inc.

(e) Fortune One Foods, Inc.

(d) Heng Feng Food Services, Inc.

(d) N&F Logistics, Inc.

(d) First Choice Seafood, Inc.

(d) Fortune One Foods, Inc.

(e) N&F Logistics, Inc.

(f) Union Food LLC — 27 —

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Zhang’s children.

(b) The Company, through its subsidiary MF, owns an equity interest in this entity.

(b) The Company, through its subsidiary Mountain Food, LLC, owns an equity interest in this entity.

Zhou Min Ni’s family members, owns an equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns an equity interest in this entity.

Zhou Min Ni owns an equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns an equity interest in this entity.

(f) Tina Ni, one of Mr.

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The Company leases various facilities to related parties.

The Company leased a facility to NC Noodle under an operating lease agreement originally expiring in 2024.

The lease agreement was terminated in connection with the sale of the facility on November 3, 2021.

The building and related land were sold to NC Noodle for $ 0.8 million and a gain of $ 0.5 million.

Rental income for the year ended December 31, 2021 was $ 42,000 , which is included in other income in the consolidated statements of operations and comprehensive income (loss).

The Company leased a facility to UGO USA Inc.

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

Rental income for the year ended December 31, 2021 was $ 7,000 , which is included in other income in the consolidated statements of operations and comprehensive income (loss).

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

Jian Ming Ni, the Company's former Chief Financial Officer.

The lease agreement was terminated in connection with the sale of the facility on November 3, 2021.

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

Rental income for the year ended December 31, 2021 was $ 50,000 , which is included in other income in the consolidated statements of operations and comprehensive income (loss).

The Company leased a warehouse to Enson Seafood GA Inc.

(formerly GA-GW Seafood, Inc.) under an operating lease agreement originally expiring on September 21, 2027.

On May 18, 2022, the Company sold the warehouse to Enson Seafood GA Inc.

for approximately $ 7.2 million, recognized a gain of $ 1.5 million and used a portion of the proceeds to pay the outstanding balance of the Company's $ 4.5 million loan with First Horizon Bank.

Rental income for the years ended December 31, 2022 and 2021 was $ 0.2 million and $ 0.5 million, respectively, which is included in other income in the consolidated statements of operations and comprehensive income (loss).

The Company leased a production area to Revolution Industry, LLC under a $ 3,000 month-to-month lease agreement.

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

Rental income recorded for the year ended December 31, 2021 was $ 6,000 , which is included in other income in the consolidated statements of operations and comprehensive income (loss).

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

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A new commercial lease agreement for a period of one year was entered into, expiring February 28, 2021, with a total of four renewal periods with each term being one year .

Rental income was $ 0.1 million, $ 0.1 million and $ 0.1 million for the years ended December 31, 2023, 2022 and 2021, respectively, which is included in other income in the consolidated statements of operations and comprehensive income (loss).

The lease term was extended by an addendum dated September 1, 2023 which extended the lease through September 1, 2025.

Rental income was $ 0.1 million, $ 0.1 million and $ 0.1 million for the years ended December 31, 2024, 2023 and 2022, respectively, which is included in other expense (income), net in the consolidated statements of operations and comprehensive income (loss).

Related Party Balances

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(b) Asahi Food, Inc.

(a) Conexus Food Solutions (formerly as Best Food Services, LLC) 84 —

(d) Enson Seafood GA, Inc.

(formerly as GA-GW Seafood, Inc.) 59 59

(e) Fortune One Foods, Inc.

(f) Union Food LLC 2 —

(a) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) — 84

(formerly known as GA-GW Seafood, Inc.) N/A 59

(d) Union Food LLC — 2

Total $ 239 $ 308

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Zhang’s children.

(b) The Company, through its subsidiary MF, owns an equity interest in this entity.

Zhou Min Ni’s family members, owns an equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns an equity interest in this entity.

Zhou Min Ni owns an equity interest in this entity indirectly through its parent company.

(f) Tina Ni, one of Mr.

(b) The Company, through its subsidiary Mountain Food, LLC, owns an equity interest in this entity.

Zhou Min Ni disposed his equity interest in this entity.

(d) Tina Ni, one of Mr.

Zhou Min Ni’s family members, owns an equity interest in this entity.

The Company has reserved for 100 % of the accounts receivable for Union Food LLC as of December 31, 2023.

The Company has reserved for 100 % of the accounts receivable for Enson Seafood GA, Inc.

The Company has reserved for 100 % of the accounts receivable due from Enson Seafood GA, Inc.

as of December 31, 2023.

This outstanding balance was reserved for 80 % as of December 31, 2022.

During the year ended December 31, 2024 it was determined that Enson Seafood GA, Inc.

is no longer a related party due to Mr.

Ni having sold all of his equity interest to a third party.

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

No additional allowance is deemed necessary as of December 31, 2024 and December 31, 2023.

Line of Credit Note - Related Parties

The Company issued a $ 51,000 line of credit note to Asahi Food, Inc.

on November 1, 2024, which is outstanding at December 31, 2024 and included in other current assets in the consolidated balance sheet.

Interest shall accrue at a rate of 7.25 % per annum with monthly payments of interest only due beginning December 1, 2024 and continuing through the first day of each calendar month until the maturity date of October 31, 2025.

Interest income was $ 308 for the year ended December 31, 2024, which is included in interest expense in the consolidated statements of operations and comprehensive income (loss).

Accounts Payable - Related Parties

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(In thousands) December 31, 2024 December 31, 2023

(a) Conexus Food Solutions (formerly as Best Food Services, LLC) $ 379 $ 729

(b) North Carolina Good Taste Noodle, Inc.

(a) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) $ 35 $ 379

Total $ 52 $ 397

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Zhang’s children.

(b) No longer considered a related party as of January 1, 2023 since it has been three years since Mr.

Jian Ming Ni resigned from the Company .

As a result, 2023 amounts have not been disclosed.

Promissory Note Payable - Related Party

The Company issued a $ 7.0 million unsecured subordinated promissory note to B&R Group Realty Holding, LLC (“BRGR”) in January 2020.

BRGR was established to hold real estate that is leased primarily to the Company and is owned partially by Mr.

During the year ended December 31, 2022, the Company paid the remaining $ 4.5 million principal balance of this related party promissory note payable.

Interest payments paid were $ 0.1 million for the year ended December 31, 2022.

Note 14 - Stock-Based Compensation

The Company has a stock-based employee compensation plan, known as the HF Foods Group Inc.

2018 Omnibus Equity Incentive Plan (the “2018 Incentive Plan”).

The 2018 Incentive Plan allows for up to 3,000,000 shares of common stock reserved for issuance of awards to employees, non-employee directors, and consultants.

In 2021, the Company began issuing awards under the HF Foods Group Inc.

2018 Omnibus Equity Incentive Plan (the “2018 Incentive Plan”), which reserved up to 3,000,000 shares of the Company’s common stock for issuance of awards to employees and non-employee directors.

On June 3, 2024, the Company’s shareholders approved an amendment to the 2018 Incentive Plan which increased the number of shares of the Company’s common stock available for issuance under the 2018 Incentive Plan to 7,000,000 , an increase of 4,000,000 shares.

The 2018 Incentive Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, other stock awards, and performance awards that may be settled in stock, or other property.

The Company began issuing awards under the 2018 Incentive Plan in February 2021.

As of December 31, 2023, the Company had 810,944 time-based vesting restricted stock units (“RSUs”) unvested, 665,932 performance-based restricted stock units (“PSUs”) unvested, 531,222 shares of common stock vested and 991,902 shares remaining available for future awards under the 2018 Incentive Plan.

As of December 31, 2024, the Company had 619,932 time-based vesting restricted stock units (“RSUs”) unvested, 579,075 performance-based restricted stock units (“PSUs”) unvested, and 1,169,943 shares of common stock vested leaving 4,631,050 shares remaining available for future awards under the 2018 Incentive Plan.

RSUs granted to employees vest over time based on continued service (vesting over a period between one to three years in equal installments).

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Shares Weighted Average Grant Date Fair Value

Unvested RSUs at December 31, 2022 598,325 $ 5.39

Unvested RSUs at January 1, 2024 810,944 $ 4.43

Granted 665,427 3.52

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Shares Weighted Average Grant Date Fair Value

Unvested PSUs at December 31, 2022 382,662 $ 4.95

Unvested PSUs at January 1, 2024 665,932 $ 4.23

Granted 626,591 3.55

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The weighted-average grant date fair value per share of PSUs granted during the years ended December 31, 2024, 2023 and 2022 was $ 3.55 , $ 3.86 and $ 4.76 , respectively.

The total fair value of equity based awards that vested during the years ended December 31, 2023, 2022 and 2021 was $ 1.5 million, $ 0.8 million and zero , respectively.

The total fair value of equity based awards that vested during the years ended December 31, 2024, 2023 and 2022 was $ 2.0 million, $ 1.5 million and $ 0.8 million, respectively.

The Company accounts for stock-based compensation in accordance with ASC Topic 718 Compensation - Stock Compensation (“ASC 718”).

ASC 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans and stock incentive shares.

The fair value of the RSUs and Financial PSUs are measured using the closing price of the Company’s common stock on NASDAQ Global Capital Market on the date preceding grant date.

The fair value of the TSR PSUs are determined using a Monte Carlo simulation model.

The fair value of the RSUs and Financial PSUs are measured using the closing price of the Company’s common stock on NASDAQ Global Capital Market on the grant date.

The fair value of TSR PSUs are determined using a Monte Carlo simulation model.

No TSR PSUs were granted during the years ended December 31, 2024, 2023 and 2022.

The assumptions used to estimate the fair value of the TSR PSUs granted during the year ended December 31, 2021 and valued under the Monte Carlo simulation model were as follows:

2021 PSU Grants

Risk-free interest rate 0.20 % - 0.34 %

Expected dividend yield 0.00 %

Expected term (years) 2.56 - 3.15

Expected volatility (1)

62.08 % - 65.74 %

_______________

(1) Expected volatility is based on a 50/50 blending of (i) the average historical volatility of a select group of industry peers with a look-back period equal to the expected term, and (ii) the historical volatility of the Company with a look-back period of 0.75 years - 1.17 years, the time from the valuation date to the date six months after the completion of the merger with B&R Global, using daily stock prices.

The expected volatility of peer companies was 54.96 % – 63.45 %.

The expected volatility of the Company's common stock was 66.10 % – 69.19 %.

The fair value of RSUs are amortized on a straight-line basis over the requisite service period for each award.

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As of December 31, 2024, there was $ 3.1 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 1.96 years.

Of the total unrecognized compensation cost, $ 2.3 million is related to RSUs with time-based vesting provisions and $ 1.9 million is related to PSUs with performance and market-based vesting provisions.

Of the total unrecognized compensation cost, $ 1.6 million is related to RSUs with time-based vesting provisions and $ 1.5 million is related to PSUs with performance-based vesting provisions.

Note 15 - Employee Benefit Plan

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401(k) Plan participants are immediately 100% vested in the Company’s non-discretionary contributions to the plan.

For the years ended December 31, 2023, 2022 and 2021, the Company recognized expense of $ 831,000 , $ 432,000 and $ 240,000 , respectively, in distribution, selling and administrative expenses in the consolidated statements of operations and comprehensive income (loss).

For the years ended December 31, 2024, 2023 and 2022, the Company recognized expense of $ 1.2 million, $ 0.8 million and $ 0.4 million, respectively, in distribution, selling and administrative expenses in the consolidated statements of operations and comprehensive income (loss).

Note 16 - Segment Information

The Company’s business consists of one operating segment, which is also its one reportable segment.

The Company operates solely in the United States and derives revenues by providing sales of food and non-food to customers.

The segment’s customer base consists primarily of Asian restaurants located throughout the United States.

The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews financial information presented on a consolidated basis.

The CODM uses consolidated net income to assess financial performance and allocate resources.

The Company’s measure of segment assets is total assets, as reported on the consolidated balance sheets.

Accounting policies for the company’s single operating segment are the same as those described in Note 2 - Summary of Significant Accounting Policies .

The following table presents selected financial information with respect to the Company’s single operating segment for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

(In thousands) 2024 2023 2022

Net Revenue $ 1,201,667 $ 1,148,493 $ 1,170,467

Cost of Revenue 996,473 944,462 964,955

Payroll and related labor costs 98,991 94,680 87,394

Professional fees 11,066 13,878 26,776

Depreciation 10,397 9,633 9,192

Amortization 16,280 16,285 15,744

Other segment expenses (a)

61,292 60,586 55,847

Distribution, selling and administrative expenses 198,026 195,062 194,953

Goodwill impairment charges 46,303 — —

Interest expense 11,425 11,478 7,457

Other expense (income), net 2,818 ( 1,091 ) ( 1,829 )

Change in fair value of interest rate swap contracts ( 1,693 ) 1,580 ( 817 )

Lease guarantee (income) expense ( 5,548 ) ( 377 ) 5,744

Income tax expense (benefit) 1,965 41 ( 231 )

net income (loss) attributable to noncontrolling interests 409 ( 488 ) ( 225 )

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

$ ( 48,511 ) $ ( 2,174 ) $ 460

_______________

(a) Other segment expenses include distribution, selling and administrative expenses which are not provided to the chief operating decision maker on a regular basis.

These expenses include primarily auto & truck expense, insurance, occupancy expense and utilities.

Note 17 - Commitments and Contingencies

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If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material.

The Company continuously assesses the potential liability related to its pending litigation and revise its estimates when additional information becomes available.

The Company continuously assesses the potential liability related to its pending litigation and revises its estimates when additional information becomes available.

Adverse outcomes in some or all of these matters may result in significant monetary damages or injunctive relief against the Company that could adversely affect its ability to conduct business.

1 unchanged sentence

Legal costs associated with loss contingencies are expensed as incurred.

As previously disclosed, in March 2020, an analyst report suggested certain improprieties in the Company’s operations, and in response to those allegations, the Company’s Board of Directors appointed a Special Committee of Independent Directors (the “Special Investigation Committee”) to conduct an internal independent investigation with the assistance of counsel.

These allegations became the subject of two putative stockholder class actions filed on or after March 29, 2020 in the United States District Court for the Central District of California generally alleging the Company and certain of its current and former directors and officers violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements (the “Class Actions”).

These Class Actions have since been dismissed and are now closed.

In addition, the SEC initiated a formal, non-public investigation of the Company, and the SEC informally requested, and later issued a subpoena for, documents and other information.

The subpoena relates to but is not necessarily limited to the matters identified in the Class Actions.

The Special Investigation Committee and the Company have been cooperating with the SEC.

Certain factual findings were made based on evidence adduced by the Special Investigation Committee during its internal investigation.

After the conclusion of its internal investigation, the Special Investigation Committee also made recommendations to management regarding improvements to Company operations and structure, including but not limited to its dealings with related parties.

The Company has implemented numerous improvements and continues to improve its compliance program.

The Company has also instituted structural changes including the appointment of an independent Chairman of the Board to replace the former Co-Chief Executive Officer and Chairman of the Board.

In addition, as of January 31, 2023, three other independent directors serve on the Company’s Board of Directors.

The Company’s senior executive team now includes a General Counsel and Chief Compliance Officer, a Chief Operations Officer who was hired in May 2022, and a new Chief Financial Officer who joined the Company in August 2022.

We also hired a Vice President and Head of Internal Audit in April 2022 who reports directly to the Chief Financial Officer and to the Audit Committee Chair.

In November 2022, we hired a Vice President of Compliance and Associate General Counsel, who reports directly to the General Counsel and Chief Compliance Officer.

On June 6, 2024, the SEC announced that it had accepted an Offer of Settlement submitted by the Company in order to resolve the previously disclosed formal, non-public SEC investigation of allegations that the Company and certain of its former directors and officers violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements.

Under the settlement, without admitting or denying the SEC’s findings in this matter, the Company consented to the entry of an administrative civil cease-and-desist order by the SEC (the “Order”) with respect to violations of Sections 17(a) of the Securities Act, and of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934, as amended, and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13a-15(a), and 14a-9 thereunder, resulting from the materially false and misleading disclosures and other fraudulent conduct implemented by its former Chairman and CEO Zhou Min Ni and former CFO Jian Ming “Jonathan” Ni.

During the quarter ended June 30, 2024 the

Company agreed to and paid a civil monetary penalty of $ 3.9 million, which was recorded in other expense (income), net in the Company’s consolidated statements of operations and comprehensive income (loss).

The Order states that, in determining to accept the Company’s Offer of Settlement, the SEC considered the numerous remedial actions promptly undertaken by the Company and its cooperation during the investigation.

The Company’s resolution follows charges brought by the SEC against the two former executives in a District Court action filed on June 3, 2024.

As a result of the SEC’s district court complaint against them, the two former executives agreed to pay civil fines and disgorgement, and agreed to be subject to officer and director bars.

Zhou Min Ni also agreed to a conduct-based injunction which enjoins him from directly or indirectly participating in the management of, or otherwise exercising any control of influence over the Company.

The Special Litigation Committee of the Board of Directors previously obtained a monetary settlement from the former executives that was ratified by the Delaware Chancery Court.

The Company also created a Special Litigation Committee which determined to pursue claims against certain former officers and directors.

As a result, pursuant to the previously disclosed settlement agreement (as amended on November 1, 2023, the “Settlement Agreement”) between the Company and certain parties to the verified stockholder derivative complaint filed by James Bishop in the Court of Chancery of the State of Delaware, on October 16, 2023, the Company received $ 1.5 million on behalf of Zhou Min Ni, a former Chairman and Chief Executive Officer of the Company, and Chan Sin Wong, a former President and Chief Operating Officer of the Company (together, the “Ni Defendants”).

Subsequently, on December 1, 2023, the Company received 1,997,423 shares (valued at $ 7.75 million) of the Company’s common stock, based on the closing price of $ 3.88 on October 13, 2023, plus a cash payment of approximately $ 0.1 million of accrued interest through the date of payment, in satisfaction of the Ni Defendant’s payment obligations totaling $ 9.25 million under the Settlement Agreement.

The receipt of the settlement proceeds were recorded in distribution, selling, and administrative expense in the consolidated statement of operations (as a recovery of previously recorded expenses related to the litigation) and cash and treasury stock in the consolidated balance sheet.

As a result, pursuant to the previously disclosed settlement agreement (as amended on November 1, 2023, the “Settlement Agreement”) between the Company and certain parties to the verified stockholder derivative complaint filed by James Bishop in the Court of Chancery of the State of Delaware, on October 16, 2023, the Company received $ 1.5 million on behalf of Zhou Min Ni and Chan Sin Wong, a former President and Chief Operating Officer of the Company (together, the “Ni Defendants”).

Subsequently, on December 1, 2023, the Company received 1,997,423 shares (valued at $ 7.75 million) of the Company’s common stock, based on the closing price of $ 3.88 on October 13, 2023, plus a cash payment of approximately $ 0.1 million of accrued interest through the date of payment, in satisfaction of the Ni Defendants’ payment obligations totaling $ 9.25 million under the Settlement Agreement.

Additionally, the Company received a related D&O insurance payout settlement in the amount of $ 1.7 million, of which we paid $ 0.9 million, resulting in total net settlements in 2023 of approximately $ 10.0 million.

The receipt of the settlement proceeds were recorded in 2023 in distribution, selling, and administrative expense in the consolidated statement of operations (as a recovery of previously recorded expenses related to the litigation) and cash and treasury stock in the consolidated balance sheet.

Pursuant to the terms of the Settlement Agreement, Mr.

Wong and Jonathan Ni, the former Chief Financial Officer of the Company, agreed to give up any rights to indemnification or the advancement of fees in connection with the SEC investigation and any actions the SEC might take against them relating to the SEC investigation.

On October 13, 2023, the Company received a “Wells Notice” from the staff of the SEC (the “Wells Notice”) relating to the previously disclosed formal, non-public SEC investigation of allegations that the Company and certain of its current and former directors and officers violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements.

A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law and invites recipients to submit a response if they wish.

The Company made a submission in response to the Wells Notice explaining why an enforcement action would not be appropriate.

Following that submission, the staff of the SEC determined that it would no longer be recommending that the SEC file an enforcement action against the Company at this time pending a potential agreed-upon resolution between the Company and the SEC.

The Company is in negotiations with the SEC over a potential resolution, which could include fines and penalties, but the terms of that settlement are not set.

The Company has made no formal offer of settlement to the SEC as of this filing, and therefore, a reasonable estimate of the contingency cannot be made.

AnHeart Lease Guarantee

The Company provided a guarantee for two separate leases for two properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively.

The Company has determined that AnHeart is a VIE as a result of the guarantee.

However, the Company concluded it is not the primary beneficiary of AnHeart and therefore does not consolidate, because it does not have the power to direct the activities of AnHeart that most significantly impact AnHeart's economic performance.

The Company previously determined that AnHeart was a VIE as a result of the guarantees.

However, the Company concluded it was not the primary beneficiary of AnHeart and therefore did not consolidate, because it did not have the power to direct the activities of AnHeart that most significantly impact AnHeart’s economic performance.

On February 10, 2021, the Company entered into an Assignment and Assumption of Lease Agreement (“Assignment”), dated effective as of January 21, 2021, with AnHeart and Premier 273 Fifth, LLC, pursuant to which it assumed the lease of the premises at 273 Fifth Avenue (the “273 Lease Agreement”).

4 unchanged sentences

The Lease Amendment permits subletting of the premises, and the Company intends to sublease the newly constructed premises to defray the rental expense undertaken pursuant to its guaranty obligations.

In March 2024, the Company began construction of a multi-use facility on 273 Fifth Avenue and committed $ 7.0 million for the completion of the construction project.

The Company has incurred $ 5.4 million in construction costs which was recorded in construction in progress within property and equipment, net in the Company’s consolidated balance sheet as of December 31, 2024.

The Company expects to complete construction in June 2025.

On January 17, 2022, the Company received notice that AnHeart had defaulted on its obligations as tenant under the lease for 275 Fifth Avenue.

On February 7, 2022, the Company undertook its guaranty obligations by assuming responsibility for payment of monthly rent and other tenant obligations, including past due rent as well as property tax obligations beginning with the January 2022 rent due.

As a result, during the year ended December 31, 2022, the Company recorded a lease guarantee liability of $ 5.9 million.

On February 25, 2022, the Company instituted a legal action to pursue legal remedies against AnHeart and Minsheng.

In March 2022, the Company agreed to stay that litigation against AnHeart in exchange for AnHeart’s payment of certain back rent from January to April 2022 and its continued partial payment of monthly rent.

AnHeart subsequently defaulted on these obligations.

On October 25, 2023, the Company commenced a new legal action by filing a complaint in New York County Supreme Court to pursue legal remedies against AnHeart and Minsheng.

AnHeart subsequently

defaulted on these obligations.

On October 25, 2023, the Company commenced a new legal action by filing a complaint in New York County Supreme Court to pursue legal remedies against AnHeart and Minsheng (the “2023 Action”).

As of the filing of the new summons and complaint, AnHeart and Minsheng are indebted to the Company in the amount of $ 474,000 .

In accordance with ASC Topic 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 10 years.

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

AnHeart is obligated to pay all costs associated with the properties, including taxes, insurance, utilities, maintenance and repairs.

During the year ended December 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 %.

As of December 31, 2023, the Company had a lease guarantee liability of $ 5.5 million.

The current portion of the lease guarantee liability of $ 0.3 million is recorded in accrued expenses and other liabilities, while the long-term portion is recorded in other long-term liabilities on the consolidated balance sheet.

The Company's monthly rental payments range from approximately $ 42,000 per month to $ 63,000 per month, with the final payment due in 2034.

The changes in the lease guarantee liability are presented below:

(In thousands) Amount

Balance at December 31, 2021 $ —

Lease guarantee liability recorded 5,942

Lease guarantee liability activity ( 182 )

Balance at December 31, 2022 5,760

Lease guarantee liability activity ( 288 )

Balance at December 31, 2023 $ 5,472

The estimated future minimum lease payments as of December 31, 2023 are presented below:

(In thousands) Amount

Year Ending December 31,

Thereafter 3,822

imputed interest ( 1,451 )

Total minimum lease payments $ 5,472

AnHeart and the Company have since reached a settlement agreement (the “Settlement Agreement”) for AnHeart to pay the Company $ 40,000 a month in rent through December 2024, $ 46,750 a month in rent from January 2025 through December 2025, and commence regular monthly rental payments in accordance with the lease for 275 Fifth Avenue.

The Settlement Agreement also provides that AnHeart will pay twenty-four monthly installments of $ 11,250 from January 2025 through December 2026 as payment for all back rent due.

Effective April 30, 2024, the Company through its subsidiary assumed the lease of a building located on the premises of 275 Fifth Avenue.

The assumption of the lease had no impact on the Company’s obligations as guarantor.

The lease covers certain portions of the ground floor, lower level, and second floor of the building.

The lease term ends on April 30, 2034 and is renewable at the option of the Company for up to two additional five-year terms.

The Company shall pay rent of approximately $ 45,000 per month with provisions for yearly increases.

With the assumption of the lease for 275 Fifth Avenue, the Company no longer recognized AnHeart as a VIE.

In addition, the remaining lease guarantee liability of $ 5.4 million was reversed and an operating lease right-of-use asset and liability of $ 4.9 million was recorded to the consolidated balance sheet.

As a result of the reversal, a gain of $ 5.4 million was recorded to other expense (income), net on the consolidated statements of operations and comprehensive income (loss) in 2024.

Other Commitments

On September 30, 2024, the Company entered into the lease of a new distribution center located in Georgia.

The lease term commenced February 1, 2025 for a period of 10 years and five months and is renewable at the option of the Company for up to three additional five-year terms.

The company shall pay rent of approximately $ 120,000 per month with provisions for yearly increases.

As of December 31, 2024, the Company had additional automobile leases that had not yet commenced which total $ 15.4 million in future minimum lease payments.

Note 18 - Subsequent Events

Other than as disclosed elsewhere in this report, no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the accompanying notes.

Appointment of Xi (Felix) Lin as Chief Executive Officer

Effective January 1, 2025, Xi (Felix) Lin was appointed to serve as Chief Executive Officer by the Board of Directors.

Lin continues to also serve as the Company’s President.

On January 3, 2025, according to the employment agreement entered into on December 16, 2024, Mr.

Lin received a market-based performance stock unit award of 310,559 shares of Class A Common Stock contingent upon satisfaction of the applicable vesting conditions.

The PSUs are scheduled to vest on the third anniversary of the grant date, if for at least a period of thirty consecutive trading days at any time prior to the vesting date, the closing per share price of the Issuer’s Class A Common Stock averages at least $ 7.00 over such thirty -day period.

Credit Facility Amended

On February 12, 2025, the Company amended certain terms and conditions of the JPM Credit Agreement.

See Note 10 - Debt for additional information regarding the terms of the amendment.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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 8. Financial Statements and Supplementary Data