What changed in this filing

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Item 1. Financial Statements

2025-05-12 compared with 2024-11-12 · 195 added, 241 removed, 422 unchanged (51% of the section changed)

4 unchanged sentences

(In thousands, except share data)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

CURRENT ASSETS:

40 unchanged sentences

100,000,000 shares authorized;

54,734,585 and 54,153,391 shares issued and 52,737,162 and 52,155,968 shares outstanding as of September 30, 2024 and December 31, 2023, respectively

54,735,073 and 54,735,073 shares issued and 52,737,650 and 52,737,650 shares outstanding as of March 31, 2025 and December 31, 2024, respectively

Treasury stock, at cost;

1,997,423 shares as of September 30, 2024 and December 31, 2023

1,997,423 shares as of March 31, 2025 and December 31, 2024

( 7,750 ) ( 7,750 )

9 unchanged sentences

and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

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

2024 2023 2024 2023

Three Months Ended March 31,

Net revenue - third parties $ 297,473 $ 294,836

8 unchanged sentences

Interest expense 2,609 2,834

Other (income) expense, net ( 332 ) ( 490 ) 3,040 ( 845 )

Other income, net ( 177 ) ( 94 )

Change in fair value of interest rate swap contracts 1,184 ( 1,970 )

Lease guarantee income — ( 115 )

(LOSS) INCOME BEFORE INCOME TAXES ( 5,091 ) 1,938 ( 3,997 ) ( 7,436 )

Income tax (benefit) expense ( 1,254 ) ( 36 ) 164 ( 2,053 )

NET (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME ( 3,837 ) 1,974 ( 4,161 ) ( 5,383 )

net income (loss) attributable to noncontrolling interests 103 90 456 ( 484 )

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

LOSS BEFORE INCOME TAXES ( 2,462 ) ( 740 )

Income tax benefit ( 932 ) ( 181 )

NET LOSS AND COMPREHENSIVE LOSS ( 1,530 ) ( 559 )

net income attributable to noncontrolling interests 115 135

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

$ ( 1,645 ) $ ( 694 )

(LOSS) EARNINGS PER COMMON SHARE - BASIC $ ( 0.07 ) $ 0.03 $ ( 0.09 ) $ ( 0.09 )

(LOSS) EARNINGS PER COMMON SHARE - DILUTED $ ( 0.07 ) $ 0.03 $ ( 0.09 ) $ ( 0.09 )

LOSS PER COMMON SHARE - BASIC $ ( 0.03 ) $ ( 0.01 )

LOSS PER COMMON SHARE - DILUTED $ ( 0.03 ) $ ( 0.01 )

WEIGHTED AVERAGE SHARES - BASIC 52,737,650 52,155,968

5 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net loss $ ( 1,530 ) $ ( 559 )

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

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization expense 6,758 6,676

Asset impairment charges — 1,200

Provision for credit losses ( 40 ) 56

Provision (credit) for expected credit losses 619 ( 40 )

Deferred tax benefit ( 1,084 ) ( 471 )

3 unchanged sentences

Lease guarantee income — ( 115 )

Other non-cash expense 522 168

Other non-cash (income) expense ( 129 ) 39

Changes in operating assets and liabilities:

4 unchanged sentences

Other long-term assets 283 368

Checks issued not presented for payment ( 696 ) 4,169

Accounts payable 11,653 6,074

2 unchanged sentences

Accrued expenses and other liabilities ( 2,118 ) 167

Net cash (used in) provided by operating activities ( 3,299 ) 20,624

Net cash provided by operating activities 6,948 11,224

Cash flows from investing activities:

3 unchanged sentences

Cash flows from financing activities:

Payments for tax withholding related to vested stock awards ( 173 ) —

Checks issued not presented for payment 7,524 ( 15,058 )

Proceeds from line of credit 315,008 345,697

1 unchanged sentence

Repayment of long-term debt ( 1,366 ) ( 1,414 )

Payment of debt financing costs ( 213 ) —

Repayment of obligations under finance leases ( 1,467 ) ( 857 )

Cash distribution to shareholders — ( 884 )

Net cash provided by (used in) financing activities 8,935 ( 28,018 )

Net decrease in cash ( 3,787 ) ( 9,989 )

Net cash used in financing activities ( 1,752 ) ( 5,656 )

Net increase in cash 1,632 2,983

Cash at beginning of the period 14,467 15,232

3 unchanged sentences

Property acquired in exchange for finance leases 10,154 4,867

Dissolution of noncontrolling interests 772 —

Capital expenditures included in accounts payable 607 —

Note receivable related to property and equipment sales — 300

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

1 unchanged sentence

and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders' Equity

Consolidated Statements of Changes in Shareholders' Equity

(In thousands, except share data)

10 unchanged sentences

Net (loss) income — — — — — ( 694 ) ( 694 ) 135 ( 559 )

Issuance of common stock pursuant to equity compensation plan 37,847 — — — — — — — —

Shares withheld for tax withholdings on vested awards ( 7,132 ) — — — ( 34 ) — ( 34 ) — ( 34 )

Stock-based compensation — — — — 738 — 738 — 738

Balance at March 31, 2024 54,153,391 $ 5 1,997,423 $ ( 7,750 ) $ 603,832 $ ( 309,382 ) $ 286,705 $ 1,457 $ 288,162

Net loss — — — — ( 850 ) ( 850 ) ( 710 ) ( 1,560 )

Issuance of common stock pursuant to equity compensation plan 269,113 — — — — — — — —

Shares withheld for tax withholdings on vested awards ( 27,441 ) — — — ( 106 ) — ( 106 ) — ( 106 )

Stock-based compensation — — — — 752 — 752 — 752

Balance at June 30, 2023 54,086,164 $ 5 — $ — $ 600,030 $ ( 313,297 ) $ 286,738 $ 3,862 $ 290,600

Net income — — — — — 1,884 1,884 90 1,974

Issuance of common stock pursuant to equity compensation plan 84,196 — — — — — — — —

Shares withheld for tax withholdings on vested awards ( 17,457 ) — — — ( 91 ) — ( 91 ) — ( 91 )

Distribution to shareholders — — — — — — — ( 884 ) ( 884 )

Stock-based compensation — — — — 757 — 757 — 757

Balance at September 30, 2023 54,152,903 $ 5 — — $ 600,696 $ ( 311,413 ) $ 289,288 $ 3,068 $ 292,356

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

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Total Shareholders’

Equity Attributable to

HF Foods Group Inc.

Noncontrolling

Interests Total

Shareholders’

Shares Amount

Balance at January 1, 2025 54,735,073 $ 5 1,997,423 $ ( 7,750 ) $ 604,235 $ ( 357,199 ) $ 239,291 $ 2,003 $ 241,294

2 unchanged sentences

Balance at March 31, 2025 54,735,073 $ 5 1,997,423 $ ( 7,750 ) $ 604,609 $ ( 358,844 ) $ 238,020 $ 2,118 $ 240,138

Net income — — — — — 17 17 218 235

Issuance of common stock pursuant to equity compensation plan 555,181 — — — — — — — —

Shares withheld for tax withholdings on vested awards ( 40,403 ) — — — ( 128 ) — ( 128 ) — ( 128 )

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

Stock-based compensation — — — — 522 — 522 — 522

Balance at June 30, 2024 54,668,169 $ 5 1,997,423 $ ( 7,750 ) $ 603,454 $ ( 309,365 ) $ 286,344 $ 2,447 $ 288,791

Net (loss) income — — — — — ( 3,940 ) ( 3,940 ) 103 ( 3,837 )

Issuance of common stock pursuant to equity compensation plan 82,713 — — — — — — — —

Shares withheld for tax withholdings on vested awards ( 16,297 ) — — — ( 45 ) — ( 45 ) — ( 45 )

Stock-based compensation — — — — 701 — 701 — 701

Balance at September 30, 2024 54,734,585 $ 5 1,997,423 $ ( 7,750 ) $ 604,110 $ ( 313,305 ) $ 283,060 $ 2,550 $ 285,610

The accompanying notes are an integral part of these unaudited condensed 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 Asian restaurants, and it provides sales and service support to customers who mainly converse in Mandarin or Chinese dialects.

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

3 unchanged sentences

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

The condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 26, 2024 (the “2023 Annual Report”).

There have been no material changes to the Company’s significant accounting policies as compared to the significant accounting policies described in the 2023 Annual Report.

The condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 17, 2025 (our “2024 Annual Report”).

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our 2024 Annual Report.

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 condensed consolidated statements of operations and comprehensive loss equal to the percentage of the economic or ownership interest retained in such entity by the respective noncontrolling party.

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 interests in its condensed consolidated statements of operations and comprehensive 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 condensed consolidated statement of cash flows.

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

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

Variable Interest Entities

3 unchanged sentences

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

The Company previously disclosed one VIE, AnHeart, Inc.

For the quarter ended March 31, 2025, the Company had no VIEs.

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 September 30, 2024.

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.

See Note 14 - Commitments and Contingencies for additional information on AnHeart.

2 unchanged sentences

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

As of September 30, 2024 and December 31, 2023, noncontrolling interest equity consisted of the following:

As of March 31, 2025 and December 31, 2024, noncontrolling interest equity consisted of the following:

($ in thousands) Ownership of

noncontrolling interest at September 30, 2024

September 30, 2024 December 31, 2023

HF Foods Industrial, LLC ("HFFI") (a)

N/A $ — $ ( 759 )

noncontrolling interest at March 31, 2025

March 31, 2025 December 31, 2024

Min Food, Inc.

2 unchanged sentences

Total $ 2,118 $ 2,003

_______________

(a) During the nine months ended September 30, 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 interest of $( 0.8 ) million was reclassified to additional paid-in capital on the condensed consolidated balance sheets.

Uses of Estimates

1 unchanged sentence

Actual results could differ from those estimates.

Significant accounting estimates reflected in the Company’s condensed 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 Accounting Pronouncements

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

Recently 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.

2 unchanged sentences

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):

1 unchanged sentence

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 (Topic 740):

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, and requires prospective application with the option to apply it retrospectively.

Early adoption is permitted.

The Company is currently evaluating the impact of this guidance on the consolidated financial statements and disclosures.

See Note 13 - Segment Information in the accompanying notes to the condensed consolidated financial statements for further detail.

Note 3 - Revenue

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

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

Three Months Ended March 31,

($ in thousands) 2025 2024

8 unchanged sentences

Accounts receivable, net consisted of the following:

(In thousands) September 30, 2024 December 31, 2023

(In thousands) March 31, 2025 December 31, 2024

Accounts receivable $ 59,976 $ 55,664

2 unchanged sentences

Movement of allowance for expected credit losses was as follows:

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands) 2025 2024

Beginning balance $ 1,557 $ 2,119

(Decrease) increase in provision for expected credit losses ( 40 ) 56

Provision (credit) for expected credit losses 619 ( 40 )

Bad debt write-offs ( 2 ) ( 2 )

1 unchanged sentence

Prepaid expenses and other current assets consisted of the following:

(In thousands) September 30, 2024 December 31, 2023

(In thousands) March 31, 2025 December 31, 2024

Prepaid expenses $ 3,353 $ 4,443

3 unchanged sentences

Property and equipment, net consisted of the following:

(In thousands) September 30, 2024 December 31, 2023

(In thousands) March 31, 2025 December 31, 2024

Automobiles (1)

1 unchanged sentence

Buildings 63,045 63,045

63,045 63,045

Building improvements (1)

23,135 22,709

Furniture and fixtures 422 398

1 unchanged sentence

Machinery and equipment (1)

13,721 13,216

Construction in progress 12,531 10,370

3 unchanged sentences

_________________

(1) The cost and accumulated depreciation of property and equipment related to finance leases was $ 32.4 million and $ 13.1 million at September 30, 2024 and $ 22.2 million and $ 10.3 million at December 31, 2023, which primarily relates to Automobiles.

During the nine months ended September 30, 2024, the Company entered into finance leases for automobiles which mature in 4 to 6 years and have a weighted average discount rate of 6.6 %.

The total future minimum lease payments under finance leases as of September 30, 2024 is $ 31.5 million.

As of September 30, 2024, the Company had additional automobile leases that had not yet commenced which totaled $ 16.2 million in future minimum lease payments.

(2) The Company entered into a finance lease on September 30, 2024 for a new Atlanta, GA based distribution center which will commence during 2025 and totaled $ 15.8 million in future minimum lease payments over 10 years.

Depreciation expense was $ 2.6 million and $ 2.4 million for the three months ended September 30, 2024 and 2023, respectively.

Depreciation expense was $ 7.7 million and $ 7.3 million for the nine months ended September 30, 2024 and 2023, respectively.

During the nine months ended September 30, 2023, the Company impaired machinery and recognized impairment expense of $ 1.2 million in distribution, selling and administrative expense in the condensed consolidated statements of operations and comprehensive income.

(1) The cost and accumulated depreciation of property and equipment related to finance leases was $ 46.1 million and $ 15.6 million, respectively, at March 31, 2025 and $ 36.1 million and $ 14.3 million, respectively, at December 31, 2024.

The total future minimum lease payments under all finance leases as of March 31, 2025 is $ 47.9 million.

Depreciation expense was $ 2.9 million and $ 2.6 million for the three months ended March 31, 2025 and 2024, respectively.

Long-term investments consisted of the following:

(In thousands) Ownership as of September 30,

2024 September 30, 2024 December 31, 2023

(In thousands) Ownership as of March 31,

2025 March 31, 2025 December 31, 2024

Asahi Food, Inc.

4 unchanged sentences

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

The Company determined there was no impairment as of September 30, 2024 for these investments.

The Company determined there was no impairment for the three months ended March 31, 2025 and 2024 for these investments.

Accrued expenses and other liabilities consisted of the following:

(In thousands) September 30, 2024 December 31, 2023

(In thousands) March 31, 2025 December 31, 2024

Accrued compensation $ 8,684 $ 7,497

2 unchanged sentences

Self-insurance liability 1,500 1,671

Advance from customers 1,912 3,081

Other 2,419 4,261

2 unchanged sentences

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of the dates indicated:

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

14 unchanged sentences

(In thousands) Level 1 Level 2 Level 3 Carrying Value

September 30, 2024

March 31, 2025

Fixed rate debt:

17 unchanged sentences

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.

No adjustments to fair value from the write-down of asset values due to impairment were made during the three and nine months ended September 30, 2024 and 2023.

There were no assets carried at nonrecurring fair value at September 30, 2024 and December 31, 2023.

No adjustments to fair value from the write-down of asset values due to impairment were made during the three months ended March 31, 2025 and 2024.

As further disclosed in Note 6 - 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 fourth quarter of the year ended December 31, 2024.

The calculation of the fair value of our reporting unit was determined using Level 3 fair value measurements due to its use of internal projections and unobservable measurement inputs.

There were no assets that were carried at nonrecurring fair value at March 31, 2025.

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

Note 6 - Goodwill and Acquired Intangible Assets

There is only one reporting unit at September 30, 2024 and December, 31, 2023.

There is only one reporting unit at March 31, 2025 and December 31, 2024.

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

The annual goodwill impairment test in 2023 resulted in an estimated fair value that exceeded carrying value by approximately 10 % 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 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 by approximately 1 %, and therefore the Company concluded no impairment was required to be recorded during the period.

In calculating the fair value of the reporting unit, the Company considered the resulting implied enterprise value control premium compared to recent control premiums paid in the industry, and also considered the lack of liquidity in its common stock.

The Company’s common stock is fairly thinly traded, with a higher level of internal stockholders than its peers, and no major analyst coverage.

As a result, the implied value from the traded stock price is based on limited investment public interest.

The Company determined that the implied control premium was reasonable in light of these recent comparable transactions and considering the lack of liquidity in its common stock, which corroborates the Company’s fair value estimate.

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, distribution, selling and administrative expense levels, 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 further sustained decline in the Company’s stock price could result in potential goodwill impairment in the future, and such impairment could be material.

Goodwill was $ 85.1 million as of September 30, 2024 and December 31, 2023.

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 fourth quarter during the year ended December 31, 2024.

For the December 31, 2024 impairment test, 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.

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 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.

The Company determined that there were no events or circumstances during the three months ended March 31, 2025 that would more likely than not reduce the fair value of the reporting unit below its carrying value.

Goodwill was $ 38.8 million as of March 31, 2025 and December 31, 2024.

Acquired Intangible Assets

The components of the intangible assets are as follows:

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

(In thousands) Gross

7 unchanged sentences

Total $ 233,365 $ ( 75,709 ) $ 157,656 $ 233,365 $ ( 71,839 ) $ 161,526

Amortization expense for acquired intangible assets was $ 4.1 million for the three months ended September 30, 2024 and 2023.

Amortization expense for acquired intangible assets was $ 12.2 million for the nine months ended September 30, 2024 and 2023.

Amortization expense for acquired intangible assets was $ 3.9 million and $ 4.1 million for the three months ended March 31, 2025 and 2024, respectively.

Note 7 - Derivative Financial Instruments

12 unchanged sentences

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

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 condensed consolidated statements of operations and comprehensive income (loss).

As of September 30, 2024, the Company determined that the fair values of the IRS contracts were $ 0.3 million in an asset position and $ 2.5 million 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.

As of March 31, 2025, the Company determined that the fair values of the IRS contracts were $ 0.4 million in an asset position and $ 1.0 million in a liability position.

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

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

Note 8 - Debt

Long-term debt at September 30, 2024 and December 31, 2023 is summarized as follows:

Long-term debt at March 31, 2025 and December 31, 2024 is summarized as follows:

($ in thousands)

Bank Name Maturity Interest Rate at September 30, 2024

September 30, 2024 December 31, 2023

Bank Name Maturity Interest Rate at March 31, 2025

March 31, 2025 December 31, 2024

Bank of America (a)

6 unchanged sentences

99,991 101,255

Other finance institutions (d)

July 2024 N/A

Total debt, principal amount 107,583 108,949

8 unchanged sentences

Balloon payments of $ 2.2 million and $ 3.3 million are due at maturity in 2027 and 2029, respectively.

(c) Real estate term loan with a principal balance of $ 102.5 million as of September 30, 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.

(d) Secured by vehicles.

(c) Real estate term loan with a principal balance of $ 100.0 million as of March 31, 2025 and $ 101.3 million as of December 31, 2024 is secured by assets held by the Company and has a maturity date of January 2030.

The terms of the various loan agreements related to long-term bank borrowings require the Company to comply with certain financial covenants, including, but not limited to, a fixed charge coverage ratio and effective tangible net worth.

As of September 30, 2024, the Company was in compliance with its covenants.

As of March 31, 2025, the Company was in compliance with its covenants.

Credit Facility

The outstanding principal balance on the line of credit as of September 30, 2024 was $ 66.9 million and outstanding letters of credit amounted to $ 5.8 million leaving access to approximately $ 27.3 million in additional funds through our $ 100.0 million line of credit, subject to a borrowing base calculation.

On March 31, 2022, the Company amended the $ 100.0 million asset-secured revolving credit facility agreement with JPMorgan Chase (the “JPM Credit Agreement”), extending it for five years , with a maturity date of November 4, 2027.

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;

(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 JPM Credit Agreement and;

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;

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

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

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.

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.

As of March 31, 2025, the Company was in compliance with its covenants.

The outstanding principal balance on the line of credit as of March 31, 2025 was $ 58.6 million and outstanding letters of credit amounted to $ 6.4 million leaving access to approximately $ 60.0 million in additional funds through our $ 125.0 million line of credit, subject to a borrowing base calculation.

Note 9 - Earnings (Loss) Per Share

1 unchanged sentence

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 601,719 and 1,102,972 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 three months ended September 30, 2024 and 2023, respectively, because their effect could have been anti-dilutive.

There were 1,542,412 and 797,860 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 nine months ended September 30, 2024 and 2023, respectively, because their effect could have been anti-dilutive.

There were 1,446,582 and 1,470,541 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 three months ended March 31, 2025 and 2024, respectively, because their effect could have been anti-dilutive.

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

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

Three Months Ended March 31,

($ in thousands, except share and per share data) 2025 2024

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

Net loss attributable to HF Foods Group Inc.

$ ( 1,645 ) $ ( 694 )

2 unchanged sentences

Weighted-average dilutive shares outstanding 52,737,650 52,155,968

Earnings (loss) per common share:

Loss per common share:

Basic $ ( 0.03 ) $ ( 0.01 )

5 unchanged sentences

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.

As of September 30, 2024, the Company had no subsidiaries outside the U.S., as such, no foreign income tax was recorded.

For the three and nine months ended September 30, 2024, the Company's effective income tax rate of 24.6 % and ( 4.1 )%, respectively, differed from the federal statutory tax rate primarily as a result of permanent differences and state income taxes.

The Company’s tax provision for the nine months ended September 30, 2024 includes a discrete tax expense of $ 1.0 million related to the Company’s SEC settlement.

Additionally, the Company’s tax provision for the three and nine months ended September 30, 2024 includes a discrete tax expense of $ 0.1 million and $ 0.2 million, respectively, related to stock-based compensation shortfalls.

For the three and nine months ended September 30, 2023, the Company's effective income tax rate of ( 1.9 )% and 27.6 %, respectively, differed from the federal statutory tax rate primarily as a result of permanent differences and state income taxes.

As of March 31, 2025, the Company had one subsidiary outside the U.S.

However, the foreign subsidiary did not record any activity as of March 31, 2025.

As such, no foreign income tax was recorded.

For the three months ended March 31, 2025 and 2024, the Company’s effective income tax rate of 37.9 % and 24.5 %, respectively, differed from the federal statutory tax rate primarily as a result of permanent differences and state income taxes, partially offset by tax credits.

Note 11 - Related Party Transactions

2 unchanged sentences

Xiao Mou Zhang (“Mr.

Zhang”), the Chief Executive Officer through October 24, 2024 and current member of the Board of Directors of the Company (see Note 14 - Subsequent Events to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional information), 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”), 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.

3 unchanged sentences

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.

The related party transactions as of September 30, 2024 and December 31, 2023 and for the three and nine months ended September 30, 2024 and 2023 are identified as follows:

The related party transactions as of March 31, 2025 and December 31, 2024 and for the three months ended March 31, 2025, and 2024, are identified as follows:

Related Party Sales, Purchases, and Lease Agreements

Below is a summary of purchases of goods and services from related parties recorded for the three and nine months ended September 30, 2024 and 2023:

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

Below is a summary of purchases of goods and services from related parties recorded for the three months ended March 31, 2025 and 2024, respectively:

Three Months Ended March 31,

(In thousands) Nature 2025 2024

2 unchanged sentences

(b) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) Trade 1,024 1,150

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

Trade 49 73 189 315

5 unchanged sentences

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.

Below is a summary of sales to related parties recorded for the three and nine months ended September 30, 2024 and 2023:

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

Below is a summary of sales to related parties recorded for the three months ended March 31, 2025 and 2024, respectively:

Three Months Ended March 31,

(In thousands) 2025 2024

1 unchanged sentence

(b) Asahi Food, Inc.

152 275 439 661

(a) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) 342 253

(d) First Choice Seafood, Inc.

(d) Fortune One Foods, Inc.

(e) N&F Logistics, Inc.

(f) Union Food LLC — — — 27

Total $ 955 $ 818

3 unchanged sentences

(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 indirectly through its parent company.

Zhou Min Ni owns an equity interest in this entity.

(f) Tina Ni, one of Mr.

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

Lease Agreements

3 unchanged sentences

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

Rent expense, which is included in distribution, selling and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss), was $ 0.1 million and $ 0.1 million for the three months ended September 30, 2024 and 2023, respectively and $ 0.2 million and $ 0.3 million for the nine months ended September 30, 2024 and 2023, respectively.

Rent expense was $ 0.1 million for the three months ended March 31, 2025 and 2024, respectively, which is included in distribution, selling and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.

Beginning 2014, the Company leased a warehouse to Asahi Food, Inc.

1 unchanged sentence

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 $ 0.04 million and $ 0.04 million for the three months ended September 30, 2024 and 2023, respectively and $ 0.1 million and $ 0.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Rental income is included in other income in the condensed 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 $ 36 thousand for the three months ended March 31, 2025 and 2024, respectively, which is included in other expense (income), net in the condensed consolidated statements of operations and comprehensive loss.

Related Party Balances

Accounts Receivable - Related Parties, Net

Below is a summary of accounts receivable with related parties recorded as of September 30, 2024 and December 31, 2023, respectively:

(In thousands) September 30, 2024 December 31, 2023

Below is a summary of accounts receivable with related parties recorded as of March 31, 2025 and December 31, 2024, respectively:

(In thousands) March 31, 2025 December 31, 2024

(a) ABC Food Trading, LLC $ 189 $ 155

(b) Asahi Food, Inc.

(a) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) 7 84

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

(d) Fortune One Foods, Inc.

(e) Union Food LLC — 2

Total $ 335 $ 239

3 unchanged sentences

(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.

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

(e) 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 due from Enson Seafood GA, Inc.

as of December 31, 2023.

During the nine months ended September 30, 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 September 30, 2024 and December 31, 2023.

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

No additional allowance is deemed necessary as of March 31, 2025 and December 31, 2024.

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 March 31, 2025 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 $ 1,233 for the three months ended March 31, 2025, which is included in other income, net in the condensed consolidated statements of operations and comprehensive loss.

Accounts Payable - Related Parties

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

Below is a summary of accounts payable with related parties recorded as of September 30, 2024 and December 31, 2023, respectively:

(In thousands) September 30, 2024 December 31, 2023

Below is a summary of accounts payable with related parties recorded as of March 31, 2025 and December 31, 2024, respectively:

(In thousands) March 31, 2025 December 31, 2024

(a) Conexus Food Solutions LLC (formerly known as Best Food Services, LLC) $ 360 $ 35

7 unchanged sentences

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.

As of September 30, 2024, the Company had 878,890 time-based vesting restricted stock units unvested, 843,588 performance-based restricted stock units unvested, 1,169,116 shares of common stock vested and 4,108,406 shares remaining available for future awards under the 2018 Incentive Plan.

Stock-based compensation expense was $ 0.7 million and $ 0.8 million for the three months ended September 30, 2024 and 2023, respectively.

Stock-based compensation expense was $ 2.0 million and $ 2.6 million for the nine months ended September 30, 2024 and 2023, respectively.

Stock-based compensation expense was included in distribution, selling and administrative expenses in the Company's condensed consolidated statements of operations and comprehensive income (loss).

As of September 30, 2024, there was $ 5.2 million of total unrecognized compensation cost related to all non-vested outstanding RSUs and PSUs outstanding under the 2018 Incentive Plan, with a weighted average remaining service period of 2.12 years.

As of March 31, 2025, the Company had 585,472 time-based vesting restricted stock units unvested, 854,574 performance-based restricted stock units unvested, 1,169,943 shares of common stock vested and 4,390,011 shares remaining available for future awards under the 2018 Incentive Plan.

Stock-based compensation expense was $ 0.4 million and $ 0.7 million for the three months ended March 31, 2025 and 2024, respectively.

Stock-based compensation expense was included in distribution, selling and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive loss.

As of March 31, 2025, there was $ 2.9 million of total unrecognized compensation cost related to all non-vested outstanding RSUs and PSUs outstanding under the 2018 Incentive Plan, with a weighted average remaining service period of 1.98 years.

Note 13 - 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 (loss) income to assess financial performance and allocate resources.

The Company’s measure of segment assets is total assets, as reported on the condensed 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 three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(In thousands) 2025 2024

Net Revenue $ 298,428 $ 295,654

Cost of Revenue 247,469 245,243

Payroll and related labor costs 24,778 24,867

Professional fees 2,590 4,210

Depreciation 2,888 2,606

Amortization 3,870 4,070

Other segment expenses (a)

15,679 14,743

Distribution, selling and administrative expenses 49,805 50,496

Interest expense 2,609 2,834

Other income, net ( 177 ) ( 94 )

Change in fair value of interest rate swap contracts 1,184 ( 1,970 )

Lease guarantee income — ( 115 )

Income tax benefit ( 932 ) ( 181 )

net income attributable to noncontrolling interests 115 135

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

$ ( 1,645 ) $ ( 694 )

_______________

(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 14 - Commitments and Contingencies

8 unchanged sentences

Legal costs associated with loss contingencies are expensed as incurred.

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 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.

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 income (expense), net in the Company’s condensed 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.

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 previously determined that AnHeart was a VIE as a result of the guarantee.

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.

During the quarter ended June 30, 2024, the Company assumed the lease for 275 Fifth Avenue and no longer recognized AnHeart as a VIE.

As a result of the lease assumption, the 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 on the condensed consolidated balance sheets.

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

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”).

5 unchanged sentences

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 incurred $ 3.8 million in construction costs which was recorded in construction in progress within property and equipment, net in the Company’s condensed consolidated balance sheet as of September 30, 2024.

The Company has incurred $ 6.3 million in construction costs which was recorded in construction in progress within property and equipment, net in the Company’s condensed consolidated balance sheet as of March 31, 2025.

The Company expects to complete construction in June 2025.

1 unchanged sentence

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.

3 unchanged sentences

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

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 and commence regular monthly rental payments in accordance with the lease for 275 Fifth Avenue.

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, New York, New York.

The Company was the guarantor of this lease under a lease guarantee agreement dated July 2018, and in February 2022, upon receiving notice of default, the Company undertook its lease guarantee obligations.

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 lever, and second floor of the building.

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.

On September 30, 2024, the Company entered into the lease of a new distribution center located on the premises of 4795 Innovative Way, Powder Springs, Georgia.

The lease term commences 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.

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 the second quarter of 2024.

Other Commitments

On September 30, 2024, the Company entered into an operating 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 is reasonably likely to exercise the first of the three five-year renewal options due to the investment the Company is making to the leased property infrastructure.

The Company shall pay rent of approximately $ 120,000 per month with provisions for yearly increases totaling $ 29.0 million in future minimum lease payments over 15 years.

As of March 31, 2025, the current portion and non-current portion of obligations under all operating leases was $ 4.3 million and $ 25.6 million, respectively.

As of March 31, 2025, the Company had additional automobile leases that had not yet commenced which total $ 3.3 million in future minimum lease payments.

Note 15 - Subsequent Events

Termination of Xiao Mou (Peter) Zhang as Chief Executive Officer

On October 24, 2024, the Board of Directors (the “Board”) of the Company terminated Xiao Mou (Peter) Zhang as Chief Executive Officer of the Company, without cause, effective as of October 24, 2024.

Appointment of Xi (Felix) Lin as Interim Chief Executive Officer

On October 24, 2024, Xi (Felix) Lin was appointed to serve as Interim Chief Executive Officer, effective as of October 24, 2024.

Lin continues to serve as the Company’s Chief Operating Officer and President.

No subsequent events have occurred that would require recognition in the unaudited condensed consolidated financial statements or disclosure in the accompanying notes.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements