HFFG US Equity☆

hffg-20211231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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For the fiscal year ended December 31, 2021

OR

Commission file number 001-38180

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HF Foods Group Inc.

(Exact name of registrant as specified in its charter)

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(888) 905-0988

(Registrant’s telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading symbol(s) Name of each exchange on which registered

Common Stock, par value $0.0001 per share HFFG Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☒

Non-accelerated filer ☐ Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐No ☒

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $266.9 million.

As of January 27, 2023, the registrant had 53,706,392 shares of common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

EXPLANATORY NOTE

Resolution of Certain Accounting Matters

As previously reported, we were unable to timely file our Annual Report on Form 10-K for our fiscal year ended December 31, 2021 (the “Form 10-K”) and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 (the “Q1 Form 10-Q”), June 30, 2022 (the “Q2 Form 10-Q”) and September 30, 2022 (the "Q3 Form 10-Q" and, together with the Q1 Form 10-Q and Q2 Form 10-Q, the “Periodic Reports”). In preparation of this Form 10-K, the Company determined that it required additional time to complete its analysis of complex technical and accounting issues relating to the previously disclosed independent investigation by the Special Investigation Committee of the Company’s Board of Directors and the previously disclosed concurrent, non-public SEC investigation. The Company delayed the filing of this Form 10-K and its Periodic Reports with the Securities and Exchange Commission in order to complete these reviews.

The Company is now filing this Form 10-K as a result of the completion of the aforementioned reviews.

Financial Information Included in this Form 10-K

This Form 10-K is the first periodic report that the Company has filed since January 31, 2023, when the Audit Committee of the Company’s Board of Directors, in consultation with management, concluded that the Company’s previously-filed consolidated financial statements as of December 31, 2020 and for the years ended December 31, 2019 and December 31, 2020, and the related interim financial statements periods within the years ended December 31, 2019, December 31, 2020, and December 31, 2021 (collectively, the “Non-Reliance Periods) should no longer be relied upon and would need to be restated due to material misstatements in the aggregate of one or more of the following categories in all or certain of these periods: the identification of and accounting for operating and finance leases, the incorrect identification and disclosure of certain related party relationships including the identification of variable interest entities (“VIEs”), the timing of revenue recognition for rental income received from a related party, the accounting for the self-insurance liability for automobile insurance beginning in 2020, classification errors in the financial statements, an error in the calculation of earnings per share, unrecorded executive compensation to the Company's major shareholder and former Chief Executive Officer, and related party disclosures. Accordingly, the Company has restated herein the consolidated financial statements for the Non-Reliance Periods and the related interim financial statement periods. Please refer to Part II, Item 8 Note 1 - Organization, Business Description and Restatement of Previously Issued Consolidated Financial Statements and Note 20 - Quarterly Financial Information (Unaudited) in this Annual Report on Form 10-K for additional information.

Except as specifically set forth herein, the information contained in this Form 10-K is presented as of December 31, 2021 and December 31, 2020 and for each of the three years in the period ended December 31, 2021, and these financial results do not reflect events or results of operations that have occurred subsequent to December 31, 2021. Previously filed Quarterly Reports on Form 10-Q for the prior period financial statements have not been amended. Accordingly, investors should no longer rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods, and, for these periods, investors should rely solely on the financial statements and other financial data for the relevant periods included in this Annual Report on Form 10-K. See Part II, Item 8 Note 20 - Quarterly Financial Information (Unaudited) in this Annual Report on Form 10-K for the impact of these adjustments on each of the first three quarters of fiscal 2021.

HF FOODS GROUP INC.

Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2021

TABLE OF CONTENTS

PART I Page No.

Item 1. Business 4

Item 1A. Risk Factors 10

Item 1B. Unresolved Staff Comments 24

Item 2. Properties 25

Item 3. Legal Proceedings 25

Item 4. Mine Safety Disclosures 26

PART II

Item 6. [Reserved] 27

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 38

Item 8. Financial Statements and Supplementary Data 40

Item 9A. Controls and Procedures 117

Item 9B. Other Information 118

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 118

PART III

Item 10. Directors, Executive Officers and Corporate Governance 120

Item 11. Executive Compensation 126

Item 14. Principal Accounting Fees and Services 134

PART IV

Item 15. Exhibits and Financial Statement Schedules 136

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY

This Annual Report on Form 10-K for HF Foods Group Inc. (“HF Group,” “HF Foods”, the “Company,” “we,” “us,” or “our”) contains forward-looking statements. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, include without limitation:

•The effects of the COVID-19 pandemic or other pandemics;

•Low margins in the foodservice distribution industry and periods of significant or prolonged inflation;

•Qualified labor shortages;

•Unfavorable macroeconomic conditions in the United States;

•Competition in the foodservice distribution industry particularly the entry of new competitors into the Chinese/Asian restaurant supply market niche;

•Increases in fuel costs;

•Disruption of relationships with vendors and increases in product prices;

•Dependency on the timely delivery of products from vendors, particularly the prolonged diminution of global supply chains;

•Our business has been affected and may in the future be affected by the COVID-19 pandemic and the steps taken by the Chinese government to address the pandemic;

•Disruption of relationships with or loss of customers;

•Changes in consumer eating and dining out habits;

•Related party transactions and possible conflicts of interests;

•Related parties and variable interest entities consolidation;

•Failure to protect our intellectual property rights;

•Our ability to renew or replace our current warehouse leases on favorable terms, or terminations prior to expiration of stated terms;

•Failure to retain our senior management and other key personnel, particularly our CEO, COO, CFO and CCO/General Counsel;

•Our ability to attract, train and retain employees;

•Changes in and enforcement of immigration laws;

•Failure to comply with various federal, state and local rules and regulations regarding food safety, sanitation, transportation, minimum wage, overtime and other health and safety laws;

•Product recalls, voluntary recalls or withdrawals if any of the products we distribute are alleged to have caused illness, been mislabeled, misbranded or adulterated or to otherwise have violated applicable government regulations;

•Costs to comply with environmental laws and regulations;

•Litigation;

•Increases in commodity prices;

•U.S. government tariffs on products imported into the United States, particularly from China;

•Severe weather, natural disasters and adverse climate change;

•Unfavorable geopolitical conditions;

•Any cyber security incident, other technology disruption or delay in implementing our information technology systems;

•Current indebtedness affecting our liquidity and ability of future financing;

•Failure to acquire other distributors or wholesalers and enlarge our customer base could negatively impact our results of operations and financial condition;

•Scarcity of and competition for acquisition opportunities;

•Our ability to obtain acquisition financing;

•The impact of non-cash charges relating to the amortization of intangible assets related to material acquisitions;

•Our ability to identify acquisition candidates;

•Increases in debt in order to successfully implement our acquisition strategy;

•Difficulties in integrating operations, personnel, and assets of acquired businesses that may disrupt our business, dilute stockholder value, and adversely affect our operating results;

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•Our ability to regain compliance with Securities Exchange Act of 1934 reporting requirements;

•The development of an active trading market for our common stock; and

•Other factors discussed in Item 1A. Risk Factors in this Annual Report on Form 10-K.

All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the Securities and Exchange Commission (the "SEC") and public communications. We caution you that the important factors referenced above may not contain all of the risks, uncertainties (some of which are beyond our control) or other assumptions that are important to you. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” beginning on page 10.

In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date hereof. Except as otherwise required by law, we undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise.

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PART I.

ITEM 1. BUSINESS.

Overview

HF Foods Group Inc., operating through its subsidiaries (“HF Group,” the “Company,” “we,” “us,” or “our”), is a leading foodservice distributor to Asian restaurants, primarily Chinese restaurants located throughout the United States. HF Group was formed through a merger between two complementary market leaders, HF Group and B&R Global Holdings, Inc. ("B&R Global") on November 4, 2019.

With 18 distribution centers and a fleet of close to 400 refrigerated vehicles, our distribution network now spans 46 states covering approximately 95% of the contiguous United States. Capitalizing on our deep understanding of the Chinese culture, with over 1,000 employees and subcontractors, and supported by two outsourced call centers in China, we have become a trusted partner serving approximately 15,000 Asian restaurants in over 46 states, providing sales and service support to customers who mainly converse in Mandarin or Chinese dialects.

We are committed to providing excellent customer service by delivering a distinctive product portfolio built from an indelible partnership with both foreign and domestic suppliers. These relationships ensure that we deliver an outstanding array of products at competitive prices. Our relationships with suppliers and knowledge of the market are the cornerstones of our negotiating power with suppliers and enable us to better manage potential supply chain disruptions and stockouts, gain price concessions and increase delivery schedules.

Corporate History

HF Group was originally incorporated in the State of Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp. (“Atlantic”), in order to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with, one or more businesses or entities.

On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in the shareholders of HF Group Holding Corporation (“HF Holding”) becoming the majority shareholders of Atlantic, and changed its name to HF Foods Group Inc. On November 4, 2019, we consummated a merger transaction, resulting in B&R Global becoming a wholly-owned subsidiary of HF Group.

On January 17, 2020, we acquired 100% equity membership interest in nine subsidiaries under B&R Group Realty Holding, LLC ("BRGR"), which owned warehouse facilities that were being leased to B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.

On December 30, 2021, HF Group acquired substantially all of the assets of leading seafood suppliers Great Wall Seafood Supply, Inc., a Texas corporation, Great Wall Restaurant Supplier, Inc., an Ohio corporation, and First Mart Inc., an Illinois corporation (collectively the "Great Wall Group").

On April 29, 2022, HF Group acquired substantially all of the assets of Sealand Food, Inc., one of the largest frozen seafood suppliers servicing the Asian/Chinese restaurant market along the eastern seaboard, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.

Our Business and Products

As of December 31, 2021, our business featured 16 strategically positioned distribution centers with over one million square feet of warehouse space and a fleet of over 380 vehicles to provide a wide variety of products with a strong focus on Asian specialty food ingredients essential for Asian cooking. Supported by an extensive supplier network, we aim to provide a one-stop service with on-time delivery and high fulfillment rates, at competitive pricing.

We offer over 2,000 different products to our clients, which include virtually all items needed to operate their restaurant business. Product offerings range from meat and poultry, perishable fresh produce, frozen seafood, general commodities and takeout food packaging materials to meet our customers’ demands. The majority of our procurement currently consists of goods purchased domestically and imported good purchased through domestic brokers, such as frozen meat, seafood and fresh vegetables, which are procured through large suppliers or directly from producers.

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The following table sets forth our broad range of products and sales percentage by category for the year ended December 31, 2021:

Category Description Percentage

Meat and Poultry Beef, pork, chicken and duck 27%

Commodity General commodities including oil, flour, salt and sugar 6%

We have an extensive supplier network and established long-term relationships with our major suppliers. Our long-term relationships and vast distribution network enable our increased negotiating power given the large quantities, thereby improving our inventory turnover and accounts payable, and reducing our operating costs. Instead of going to fragmented direct store distributors to source their products, customers are consolidating their vendors into our full service, one-stop-shop for most of their purchasing needs.

This initiative is made possible from order placement to delivery due to our warehouse operations, optimized fleet management, material handling equipment and techniques, and efficient administrative and operating staffs. This is further complemented by our two outsourced sales call centers located in China which take customers' inbound calls during non-office hours in the U.S. (inbound calls in the U.S. are redirected to China) for order taking, customer relationship management and after-sales service, offering customers a warm and friendly human interaction channel who speaks and understands their language and needs.

We have an extensive reach to our customers through localized, high frequency deliveries which allows them to reduce their inventory through higher inventory turnover and just-in-time inventory, and to reduce waste, especially in fresh products. Our temperature-controlled trucks deliver both short and medium distance routes daily to ensure on-time delivery and to achieve high fill rates to our customers.

Our Strategy

We are differentiated from mainstream food distribution companies, such as Sysco Corporation ("Sysco"), US Foods Holding Corp. ("US Foods") and Performance Food Group Company ("PFGC"), through our strong understanding of Asian culture and cooking essentials, distinctive product portfolio and resourceful supply chains. We believe our wide range of Asian centric product offerings is unmatched, as many of the items we offer are unique and specific to the Chinese restaurant industry.

We believe that the following strategic initiatives provide us with a competitive advantage over our direct competitors and have contributed greatly to our success:

•Wide array of Asian specialty products: These are not commonly provided by large distributors serving the mainstream market.

•Deep understanding of Chinese culture: As our customers are primarily Chinese and Asian restaurants, most of our employees can speak Mandarin as well as the native dialects of our customers. This is extremely crucial as many of the restaurants' owners/chefs are migrants who feel less comfortable conversing in English.

•Lower sales and administrative expenses: We outsource our telephone-based sales and customer service to two call centers located in China with Mandarin and Chinese dialect (Fuzhounese) speaking agents to better serve our customers.

•Purchasing power: We capitalize on economies of scale and have strong relationships with both our domestic and foreign suppliers over our direct competitors.

•Warehouse location: We have strategically located distribution centers and cross-docks, supported by our fleet of delivery vehicles with most routes limited to 3 to 5 hours driving time, ensuring on-time delivery and order fill-rate.

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•Technology: With our customized inventory management system, we are able to manage our customer relationships and inventory efficiently and reduce operating expenses.

•Customer-specific marketing: Our employees’ bilingual capabilities provide a competitive advantage against other major providers in the industry.

We aim to further expand into new key markets, as well as to strategically consolidate our market leadership position in existing markets through acquisitions. We will also explore potential vertical expansion, both upstream and downstream of the foodservice value chain, including providing value-added items such as semi-prepared food products to help our customers upgrade their service, as well as exploring adjacent markets. We continue to invest in technological advancements to develop state-of-the-art management information and operating systems, to further improve our operational efficiency, accuracy and customer satisfaction, and to cement our foothold as a leading foodservice distributor to Asian restaurants in the U.S.

Features of Chinese Restaurants

Set forth below are the principal characteristics of the Asian/Chinese restaurants we serve.

Primarily Serving Non-Chinese Americans. There are tens of thousands of Chinese restaurants spread throughout the U.S., primarily serving non-Chinese American customers. Although the dishes they serve cater to the preferences of American mainstream customers and are more simply and quickly prepared as compared to traditional full-service Chinese restaurant cuisine, they still require specialized and distinctive Chinese ingredients with traditional Chinese cooking styles.

Operated by Chinese Individual Families. Most Chinese restaurants serviced by HF Group are generally family-owned with very few workers, who are usually immigrants from China or second generation Chinese Americans. These restaurant owners, especially the founders are generally less sophisticated, with limited education and resources and appreciate value-added services from suppliers to help them improve their operational efficiency. The owners and workers in these Chinese restaurants usually speak Mandarin or other regional dialects of the Chinese language. Understanding their culture and language is paramount to facilitating efficient communications and building trust with customers.

Close-Knit Chinese American Community. Second or third generation Chinese Americans living in the U.S. inherit their traditional cultural values, and ethnic languages, and our experience has been that people in these communities prefer to do business with Chinese Americans that speak their language and share their values.

Unique Cooking Style and Ingredients for Chinese Cuisines. Chinese cuisine requires unique cooking techniques such as steaming and stir-frying in a Chinese wok, and requires specialty ingredients and vegetables such as bitter melons, Chinese yams, vine spinach, Chinese cabbage and winter melon. It also requires Chinese and Asian seasonings and spices, including peanut oil, Chinese cooking wine, vinegar, dark soy source, black bean sauce, pepper oil and chili oil. Most of the unique ingredients for Chinese cuisine are staple supplies of HF Group that are not widely available from mainstream U.S. suppliers.

Current Industry Landscape and Opportunities

Growing Demand in Asian Cuisines. The demand for Chinese and Asian cuisines continues to grow in the U.S. In addition, according to the Pew Research Center, the Asian population in the U.S. is the fastest growing population group in the country. We believe that these powerful trends will continue and result in expanded opportunities for Asian/Chinese restaurants. As a leading foodservice distributor to Asian/Chinese restaurants in the U.S., these trends represent a significant growth opportunity for HF Group.

Cultural Barriers to Entry. Understanding Chinese cooking culture is important to run a Chinese restaurant and, therefore, most Chinese restaurants are operated by Chinese Americans. It is very difficult for mainstream food distributors to serve these restaurants because of various cultural and language barriers.

Highly Fragmented Market. The Asian foodservice market is currently highly fragmented with many small and unsophisticated direct store distributors, such as small-scale wholesaler redistributors, specialty import brokers, farmers markets, and local produce retailers, operating without the financial support or a sophisticated logistics infrastructure. We believe we are the leading Chinese food distributor in the U.S. with a well-developed logistics infrastructure, strong financial means, and experienced management team that provides the market place with an avenue for consolidated purchasing, high fill rate, and efficient delivery frequency at a competitive price.

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Infrastructure Barriers for New Entrants. Each distribution center requires a large amount of invested capital to support the full temperature-controlled logistics and warehouse operations to help customers grow their sales and profit. Consolidated purchasing allows us to pass on cost savings to our customers and provide competitive pricing. We believe our continued investment in technology will lead to long term expense reduction and further administrative efficiency. These competitive advantages result in economies of scale which are unparalleled and unmatched by smaller and fragmented suppliers.

Demand for Value-Added Services. Our customers are Asian/Chinese restaurants, primarily takeout restaurants. These customers are price and quality sensitive with a high demand for great service and mutual trust. Our employees speak their language, understand their culture and build a bond with our customers. Our 24-hour after sale service call domestically and in China eradicates any doubt of a supportive and dependable business partner. Through vendor partnerships, we help our large customers source distinct products from their choice of vendors, either domestically or internationally. These are the value added services that we are able to add to our customers in our one-stop shopping offering.

Continued Consumer Spending on Food Away From Home. Prior to the onset of the COVID-19 pandemic, according to the U.S. Department of Agriculture ("USDA"), the food away from home market grew to surpass spending on the food at home market. The foodservice industry declined sharply when COVID-19 restrictions adversely impacted restaurants' operations and foot traffic. As COVID-19 restrictions eased in 2021 and into 2022, both full service and fast food/take out restaurants have rebounded. We believe the long term trend of increasing food away from home market consumption will resume and continue to be a key driver of demand for Asian/Chinese restaurants.

We believe we have numerous advantages to address the current market imperfections and become a national leader in this unique market. With our economies of scale, we can provide high quality products at competitive prices in an efficient way.

Customer Service

We employ a two-pronged approach for a complete and cohesive support to both existing and prospective customers; namely, the two outsourced call centers located in Fuzhou, China, and the domestic sales team in the U.S. Utilizing these outsourced call centers in China, customers embrace and appreciate our personal customer service conducted in their native Mandarin and other regional dialects such as Fuzhounese and Cantonese.

Full sales support from the beginning of a sales order to post-sales service is offered through these call centers. These services are complemented by our domestic sales teams who make frequent and periodic on-site visits to customers’ restaurants. With cultural understanding coupled with a distinct and diverse cultural bonding, the entire sales team is adept at forging better customer rapport and retention with better ability to understand customers’ needs and operations as compared to the mainstream foodservice distributors attempting to serve this channel. Utilizing our customized information system to share valuable and pertinent information with our customers is imperative to help them grow their business. This information includes, but is not limited to, purchasing history, order tracking, item availability, items on promotion, and best-selling or trending items.

We formulate strategies and implement action plans to ensure cohesive sales and marketing efforts to our existing and prospective customers. The domestic sales team works closely with the sales staff in China to ensure our cohesive strategies are implemented effectively and our action plans are carried out swiftly. Distribution centers are decentralized and empowered to cater to local and regional customers’ needs by customizing their specific product portfolio. Where customer care and satisfaction are concerned, we offer a refund policy without penalty, which many of our small competitors in the market segment and the direct store distributors are unable to provide. Our 100% satisfaction guarantee permits our customers to reject part of the order or the entire order within 24 hours of receipt without any penalty. This refund policy further cements the trust and loyalty of our customers toward our brand and company.

Suppliers

We consolidate procurement on bulk and frequently sold items. Our distribution centers send their inventory procurement requests to regional buyers who are responsible for consolidation and fulfillment in the most cost-effective way. The consolidated procurement process allows HF Group to establish a meaningful vendor relationship under one brand.

We maintain a large supplier network through a vendor pool with a carefully selected group of suppliers to ensure product quality, availability and competitive pricing. To minimize costs, the procurement team directly manages our major vendors for large and frequent purchases and engages brokers for our smaller suppliers of specialty goods. Utilizing brokers allows us to maintain lower costs due to the brokers’ volume.

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The key procurement team members closely monitor the supply market for seasonal products, such as vegetables, and makes procurement adjustments according to market conditions. In addition, they use a dual-sourcing method for their suppliers and can negotiate lower prices for comparable products.

Each distribution center reviews the inventory level in the information system daily and submits purchase requests as needed to the procurement team at headquarters and regional offices. The procurement teams at headquarters and our regional offices can alter or adjust purchasing decisions based on an analysis of the inventory data in the system. Upon receipt of ordered products, the delivery schedule is determined based on the needs of each location. The lead-time for products is dependent on the product category and need. For perishable goods, products are usually delivered by suppliers within 72 hours of placing the order. Products that are ordered through import brokers have lead times of up to seven days.

None of our suppliers accounted for more than 10% of our aggregate purchases during the years ended December 31, 2021 and December 31, 2020.

Trademarks

Except for the trademarks for HF black and white/color logos, Rong, Rong GREEN LEAF, Great Wall logos, <333>, SEA333, and SEA888, we do not own or have the right to use any patent, trademark, trade name, license, franchise or concession, the loss of which would have a material adverse effect on our business, financial condition or results of operations.

Employees

As of December 31, 2021, we had a workforce of over 900 personnel, which includes approximately 650 employees and approximately 250 workers engaged through agency placements. Over 99% are full-time associates and over 10% of our employees have worked for us for ten or more years. Our workforce is not unionized and we are not aware of any plans for them to unionize. We have never experienced a strike or significant work stoppage.

Government Regulation

Legal compliance is important to our operations. We are required to comply, and it is our policy to comply, with all applicable laws in the numerous jurisdictions in which we do business.

As a marketer and distributor of food products in the U.S., we are subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug Administration (the "FDA"). The FDA regulates food safety and quality through various statutory and regulatory mandates, including manufacturing and holding requirements for foods through good manufacturing practice regulations, hazard analysis and critical control point requirements for certain foods, and the food and color additive approval process. The agency also specifies the standards of identity for certain foods, prescribes the format and content of information required to appear on food product labels, regulates food contact packaging and materials, and maintains a Reportable Food Registry for the industry to report when there is a reasonable probability that an article of food will cause serious adverse health consequences. For certain product lines, we are also subject to the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable Agricultural Commodities Act, the Packers and Stockyard Act and regulations promulgated by the USDA to interpret and implement these statutory provisions. The USDA imposes standards for product safety, quality and sanitation through the federal meat and poultry inspection program. The USDA reviews and approves the labeling of these products and also establishes standards for the grading and commercial acceptance of produce shipments from our suppliers. We are also subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, which imposes certain registration and record keeping requirements on facilities that manufacture, process, pack or hold food for human or animal consumption.

The recently published and pending rules under the Food Safety Modernization Act ("FSMA") will significantly expand food safety requirements, including those of HF Group. Among other things, FDA regulations implementing the FSMA require us to establish and maintain comprehensive, prevention-based controls across the food supply chain that are both verified and validated. The FSMA also imposes new requirements for food products imported into the U.S. and provides the FDA with mandatory recall authority.

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HF Group and our products are also subject to state and local regulation through such measures as the licensing of our facilities; enforcement by state and local health agencies of state and local standards for our products; and regulation of our trade practices in connection with the sale of our products. Our facilities are subject to regulations issued pursuant to the U.S. Occupational Safety and Health Act by the U.S. Department of Labor. These regulations require us to comply with certain manufacturing, health and safety standards to protect employees from accidents and to establish hazard communication programs to transmit information on the hazards of certain chemicals which may be present in products that we distribute.

Our distribution facilities must be registered with the FDA biennially and are subject to periodic government agency inspections by the FDA and USDA. Our facilities are generally inspected at least annually by federal and/or state authorities. Further, we are required to establish communication programs to transmit information about the hazards of certain chemicals present in some of the products we distribute.

Our business and employment practices are also subject to regulation by numerous federal, state and local regulatory agencies, including, but not limited to, the U.S. Department of Labor, which sets employment practice standards for workers, and the U.S. Department of Transportation, as well as its agencies, the Surface Transportation Board, the Federal Highway Administration, the Federal Motor Carrier Safety Administration, and the National Highway Traffic Safety Administration, which collectively regulate our trucking business through the regulation of operations, safety, insurance and hazardous materials. We must comply with the safety and fitness regulations promulgated by the Federal Motor Carrier Safety Administration, including those relating to drug and alcohol testing and hours-of service. Such matters as weight and dimension of equipment also fall under federal and state regulations. In addition, we are subject to the U.S. False Claims Act, and similar state statutes, which prohibit the submission of claims for payment to the government that are false and the knowing retention of overpayments.

Our operations are also subject to a broad range of U.S. federal, state, and local environmental laws and regulations, as well as zoning and building regulations. Environmental laws and regulations cover a variety of procedures, including appropriately managing wastewater and stormwater; complying with clean air laws, including those governing vehicle emissions; proper handling and disposal of solid and hazardous wastes; protecting against and appropriately investigating and remediating spills and releases; and monitoring and maintaining underground and above ground storage tanks for diesel fuel and other petroleum products. For the year ended December 31, 2021, the costs of managing our compliance with environmental laws and regulations was nominal.

The U.S. Foreign Corrupt Practices Act ("FCPA") prohibits bribery of public officials to obtain or retain business in foreign jurisdictions. The FCPA also requires us to keep accurate books and records and to maintain internal accounting controls to detect and prevent bribery and to ensure that transactions are properly authorized. We have implemented appropriate policy and will continue to maintain a robust anti-corruption compliance program applicable to our operations.

For the purchase of items produced, harvested or manufactured outside of the U.S., we are subject to applicable customs laws regarding the import and export of various products. Certain activities, including working with customs brokers and freight forwarders, are subject to applicable regulation by U.S. Customs and Border Protection, which is a part of the Department of Homeland Security.

Website and Availability of Information

Our corporate website is located at hffoodsgroup.com. We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov. Those filings are also available to the public on, or accessible through, our corporate website for free via the “Investor Relations” section at hffoodsgroup.com/investor-relations/. The information contained on or accessible through our corporate website or any other website that we may maintain is not incorporated by reference into and is not part of this Annual Report on Form 10-K.

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ITEM 1A. RISK FACTORS.

The following are significant factors known to us that could materially adversely affect our business, reputation, operating results, industry, financial position and/or future financial performance. The risks set forth in this Section 1A are presented as of December 31, 2021 and the periods the ended.

Risk Factors Relating to Our Business and Industry

Global health developments and economic uncertainty resulting from the COVID-19 pandemic and governmental action related thereto have adversely affected, and are expected to continue to adversely affect, our business, financial condition and results of operations.

In 2020 and through early 2021, we saw the impact of COVID-19 in our operations, including significant decreases in sales. The impact of COVID-19 may continue to have an adverse impact on numerous aspects of our business, financial condition and results of operations including, our growth, product costs, supply chain disruptions, labor shortages, logistics constraints, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, and the global economy and financial markets generally. We cannot predict the duration of the COVID-19 pandemic or future governmental regulations or legislation that may be passed as a result of ongoing or future COVID-19 outbreaks. The continued impact of COVID-19 and the enactment of additional governmental regulations and restrictions may further adversely impact the global economy, the restaurant industry, and our business specifically, despite prior or future actions taken by us.

Our industry is characterized by low margins, and periods of significant or prolonged inflation affect our product and operational costs, which may negatively impact our profitability.

The foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins. Volatile food costs have a direct impact on our industry. Periods of significant product cost inflation may adversely affect our results of operations if we are unable to pass on all or a portion of such product cost increases to our customers in a timely manner. In addition, periods of rapidly increasing inflation may adversely affect our business due to the impact of such inflation on discretionary spending by consumers and our limited ability to increase prices in the current, highly competitive environment.

A shortage of qualified labor could negatively affect our business and materially reduce earnings.

The future success of our operations, including the achievement of our strategic objectives, depends on our ability, and the ability of third parties on which we rely to supply and to deliver our products, to identify, recruit, develop and retain qualified and talented individuals. As a result, any shortage of qualified labor could significantly and adversely affect our business. Employee recruitment, development and retention efforts that we or such third parties undertake may not be successful, which could result in a shortage of qualified individuals in future periods. Any such shortage could decrease our ability to effectively serve our customers and achieve our strategic objectives. Such a shortage would also likely lead to higher wages for employees (or higher costs to purchase the services of such third parties) and a corresponding reduction in our results of operations.

Unfavorable macroeconomic conditions in the U.S. may adversely affect our business, financial condition and results of operations.

Our operating results are substantially affected by the operating and economic conditions in the regions in which we operate. Economic conditions can affect us in the following ways:

•A reduction in discretionary spending by consumers could adversely impact sales of Chinese/Asian restaurants, and their purchases from us. Future economic conditions affecting disposable consumer income, such as employment levels, business conditions, changes in housing market conditions, the availability of consumer credit, inflation, interest rates, tax rates and fuel and energy costs, could reduce overall consumer spending.

•Food cost and fuel cost inflation experienced by consumers can lead to reductions in the frequency of and the amount spent by consumers for food away from home purchases, which could negatively impact our business by reducing demand for our products.

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•Heightened uncertainty in the financial markets negatively affects consumer confidence and discretionary spending, which can cause disruptions with our customers and suppliers.

•Liquidity issues and the inability of our customers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to conduct day-to-day transactions involving the collection of funds from such customers.

•Liquidity issues and the inability of suppliers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to obtain the foodservice products and supplies needed by us in the quantities and at the prices requested.

In addition, our existing operations are solely in the United States. The geographic concentration of our operations creates an exposure to economic conditions in the United States and any financial downturn in the United States could materially adversely affect our financial condition and results of operations.

Competition may increase intensively in the future, which may adversely impact our margins and ability to retain customers, and make it difficult to maintain our market share, growth rate and profitability.

The foodservice distribution industry in the United States is fragmented and highly competitive, with local, regional, multi-regional distributors, and specialty competitors. However, we believe that the market participants serving Chinese restaurants are highly fragmented. Currently, we face competition from smaller and/or dispersed competitors focusing on the niche market serving Chinese/Asian restaurants, especially Chinese takeout restaurants. However, with the growing demand for Chinese cuisines, others are operating, or may begin operating in this niche market in the future. Those potential competitors include: (i) national and regional foodservice distributors, (ii) local wholesalers and brokers, (iii) food retailers, and (iv) farmers’ markets. The national and regional distributors are experienced in operating multiple distribution locations and expanding management, and they have greater marketing and financial resources than we do. Even though they currently offer only a limited selection of Chinese and Asian specialty foods, they may be able to devote greater resources to sourcing, promoting and selling their products if they choose to do so. Conversely, the local wholesalers and brokers are small in size with a deep understanding of local preferences, but their lack of scale results in high risk and limited growth potential.

If more competitors enter this market segment aiming to serve Chinese/Asian restaurants in the future, our operating results may be negatively impacted through a loss of sales, reduction in margins from competitive price changes, and/or greater operating costs, such as marketing costs, due to the increase of competition.

We may not be able to fully compensate for increases in fuel costs when fuel prices experience high volatility, and our operating results would be adversely affected.

Volatile fuel prices have a direct impact on the industry served by us. We require significant quantities of fuel for delivery vehicles and are exposed to the risk associated with fluctuations in the market price for fuel. The price and supply of fuel can fluctuate significantly based on international, political and economic circumstances, as well as other factors outside our control, such as actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, regional production patterns, weather conditions and environmental concerns. The cost of fuel affects the price paid by us for products, as well as the costs we incur to deliver products to the customers. There is no guarantee that we will be able to pass along a portion of increased fuel costs to our customers in the future. The conflict in Ukraine led to a significant increase in fuel prices. If fuel costs remain elevated or increase further in the future, we may experience difficulties in passing all or a portion of these costs along to our customers, which may have a negative impact on our results of operations.

Disruption of relationships with vendors could negatively affect our business. Suppliers may increase product prices, which could increase our product costs.

We purchase our food items and related products primarily from third-party suppliers. Although our purchasing volume can provide benefits when dealing with suppliers, suppliers may not provide the products and supplies needed by us in the quantities and at the prices requested. The cancellation of our supply arrangement with any of our suppliers or the disruption, delay and/or inability to supply the requested products by our suppliers could adversely affect our sales. If our suppliers fail to comply with food safety or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted. We cannot assure you that we would be able to find replacement suppliers on commercially reasonable terms.

In addition, we purchase seasonal Chinese vegetables and fruits from farms and other vendors. Increased frequency or duration of extreme weather conditions could impair production capabilities, disrupt our supply chain or impact demand for our

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products. Input costs could increase at any point in time for a large portion of the products that we sell for a prolonged period. Our inability to obtain adequate supplies of food items and related products as a result of any of the foregoing factors or otherwise could mean that we are unable to fulfill our obligations to customers, and customers may turn to other distributors.

The purchase prices of our products vary from time to time, which is subject to market conditions and negotiation with our suppliers. The prices of some of our products, especially seasonal products, such as vegetables and fruits, have significant fluctuation. We may not always be able to mitigate the impact of these price fluctuations, and our performance results could be adversely affected by such fluctuations.

As a foodservice distributor, it is necessary for us to maintain an inventory of products that may have declines in product pricing levels between the time we purchase the product from suppliers and the time we sell the product to customers, which could reduce the margin on that inventory, adversely affecting our results of operations.

We are dependent upon the timely delivery of products from our vendors. Prolonged diminution of global supply chains may impact the availability and price stability of future food supplies, which may in turn adversely impact our business.

The global supply chain, ranging from consumer goods, electronics, and industrial raw materials to food supplies, has been negatively impacted by the ongoing COVID-19 pandemic, shipping bottlenecks, and rapidly rising freight costs. We procure the majority of our food supply domestically, which includes certain imported products we purchase from domestic brokers, and have not been materially impacted to date. Food production is widely dispersed throughout the U.S. and there are currently no widespread disruptions reported in the domestic food supply chain. However, we depend on producers of food and restaurant supply products to timely deliver these components of our inventory in quantities sufficient to meet customer demand. Any disruptions or delays in our supply chains as a result of labor shortages, commodity shortages, or inefficiencies in distribution or logistical services could cause delays in the shipment or delivery of our products to our customers. Any prolonged diminution of global supply chains may impact the availability and price stability of future food supplies, which may in turn adversely impact our business.

Our business has been affected and may in the future be affected by steps taken by the Chinese government to address the COVID-19 pandemic.

We purchase a portion of our inventory directly or indirectly from Chinese suppliers. In addition, our two outsourced call centers are located in China. Beginning with the outbreak of the COVID-19 pandemic in 2020, quarantines, travel restrictions, and the closure of stores and business facilities have been imposed in China as part of the government’s “zero-COVID” policy to limit the impact of the pandemic, and these measures were not relaxed until the beginning of 2023.

As a result of the COVID-19 pandemic and the Chinese government’s responses to the pandemic, certain of our suppliers’ and service providers' operations in China were temporarily disrupted. If the government in China reinstitutes policies that have been relaxed, or institutes new restrictive policies, we may not be able to procure certain inventory items from our suppliers, we may experience further supply chain bottlenecks and price increases, or we could have temporary disruptions in the function of our call centers, any of which could adversely impact our business.

Our relationships with customers may be materially diminished or terminated. The loss of customers could adversely affect our business, financial condition, and results of operations.

We have maintained long-standing relationships with a number of our customers. However, those customers could unilaterally terminate their relationship with us or materially reduce the amount of business they conduct with us at any time. Our customers may shift their purchase orders from us to other competitors due to market competition, change of customer requirements and preferences, or because of the customer’s financial condition. There is no guarantee that we will be able to maintain relationships with any of our customers on acceptable terms, or at all. The loss of a number of customers could adversely affect our business, financial condition, and results of operations.

We may fail to increase or maintain the highest margin portions of our business, including sales to restaurant customers.

Our most profitable customers are independent restaurants. Our ability to continue to gain market share of independent restaurant customers is critical to achieving increased operating profits. Changes in the buying practices of independent restaurant customers, including their ability to require us to sell to them at discounted rates, or decreases in our sales to this type of customer could have a material negative impact on our profitability.

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Changes in consumer eating habits could materially and adversely affect our business, financial condition, and results of operations.

We provide foodservice distribution to Chinese/Asian restaurants, primarily Chinese takeout restaurants, which focus on serving Chinese food to non-Chinese Americans. Changes in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes, or a shift in preferences toward western foods) could reduce demand for our products. Consumer eating habits could be affected by a number of factors, including attitudes regarding diet and health or new information regarding the health effects of consuming certain foods. If consumer eating habits change significantly, we may be required to modify or discontinue sales of certain items in our product portfolio, and we may experience higher costs and/or supply shortages associated with our efforts to accommodate those changes as our suppliers adapt to new eating preferences. Additionally, changes in consumer eating habits may result in the enactment or amendment of laws and regulations that impact the ingredients and nutritional content of our food products, or laws and regulations requiring us to disclose the nutritional content of our food products. Compliance with these laws and regulations, as well as others regarding the ingredients and nutritional content of food products, may be costly and time-consuming. We cannot make any assurances regarding our ability to effectively respond to changes in consumer culture preference, health perceptions or resulting new laws or regulations or to adapt our product offerings to trends in eating habits.

We engage in transactions with related parties and such transactions present possible conflicts of interest that could have an adverse effect on us.

We purchase goods and services from related parties of our management team and sell products to related parties of our management team. These related-party transactions create the possibility of conflicts of interest with regard to our management, including that:

•we may enter into contracts between us, on the one hand, and related parties, on the other, that are not as a result of arm’s-length transactions;

•our executive officers and directors that hold positions of responsibility with related parties may be aware of certain business opportunities that are appropriate for presentation to us as well as to such other related parties and may present such business opportunities to such other parties;

•our executive officers and directors that hold positions of responsibility with related parties may have significant duties with, and spend significant time serving, other entities and may have conflicts of interest in allocating time.; and

•such conflicts could cause an individual in our management to seek to advance his or her economic interests or the economic interests of certain related parties above ours. Further, the appearance of conflicts of interest created by related-party transactions could impair the confidence of our investors. Our Special Transactions Review Committee regularly reviews these transactions. Notwithstanding this, it is possible that a conflict of interest could have an adverse effect on our business, financial condition and results of operations.

For more information on our related party transactions, see Note 15 - Related Party Transactions in our consolidated financial statements in our Annual Report on Form 10-K.

We may in the future be required to consolidate the assets, liabilities, and results of operations of certain existing and future related party entities, which could have an adverse impact on our results of operations, financial position, and gross margin.

The Financial Accounting Standards Board has issued accounting guidance regarding variable interest entities (“VIEs”) that affects our accounting treatment of our existing and future related party entities. To ascertain whether we are required to consolidate an entity, we are required to determine whether it is a VIE and if we are the primary beneficiary in accordance with the accounting guidance. Factors we consider in determining whether we are the VIE’s primary beneficiary include evaluating the decision-making authority and management of the day-to-day operations of the related party entity and the obligation to absorb losses or right to receive benefits from the related party in relation to others. Changes in the financial accounting guidance, or changes in circumstances at each of these related party entities, could lead us to determine that we have to consolidate the assets, liabilities, and results of operations of such related party entities. We have determined to consolidate certain related parties as VIEs, see Note 3 - Variable Interest Entities in our consolidated financial statements in our Annual Report on Form 10-K for additional information. The consolidation of other related parties as VIEs could significantly increase our indebtedness and may have a material adverse impact on our results of operations, financial position, and gross margin. In addition, we may enter into future affiliations with related parties or make other equity investments, which could have an adverse impact on us because of the financial accounting guidance regarding VIEs.

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We may be unable to protect or maintain our intellectual property, which could result in customer confusion, a negative perception of our brand and adversely affect our business.

We believe that our intellectual property has substantial value and has contributed significantly to the success of our business. In particular, our “HF” logo trademarks and our trade names including “Han Feng,” "Rong Cheng" and "Great Wall," are valuable assets that reinforce our customers’ favorable perception of our products. Our trademark rights and related registrations may be challenged in the future and could be canceled or narrowed. Failure to protect our trademark rights could cause customer confusion or negatively affect customers’ perception of our brand and products, and eventually adversely affect our sales and profitability. Moreover, intellectual property disputes and proceedings and infringement claims may result in a significant distraction for management and significant expense, which may not be recoverable regardless of whether we are successful. Such proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liability, force us to cease use of certain trademarks or other intellectual property or force us to enter into licenses with others. Any one of these occurrences may have a material adverse effect on our business, results of operations and financial condition.

If we are unable to renew or replace our current leases on favorable terms, or any of our current leases are terminated prior to expiration of their stated terms, and we cannot find suitable alternate locations, our operations and profitability could be negatively impacted.

We currently have leases for some of our warehouses. Our ability to re-negotiate favorable terms on an expiring lease or to negotiate favorable terms for a suitable alternate location, and our ability to negotiate favorable lease terms for additional locations, could depend on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords, and/or other factors that are not within our control. Any or all of these factors and conditions could negatively impact our growth and profitability.

Failure to retain our senior management and other key personnel may adversely affect our operations.

Our success is substantially dependent on the continued service of our senior management and other key personnel. These executives have been primarily responsible for determining the strategic direction of our business and for executing our growth strategy and are integral to our brand and culture, and our reputation with suppliers and consumers. The loss of the services of any of these executives and other key personnel could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause our stock price to decline. The loss of key employees could negatively affect our business.

If we are unable to attract, train and retain employees, we may not be able to grow or successfully operate our business.

The foodservice distribution industry is labor intensive. Our success depends in part upon our ability to attract, train and retain a sufficient number of employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers. Our ability to meet our labor needs, while controlling wage and labor-related costs, is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force of the regions in which we are located, unemployment levels within those regions, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation. In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer service to suffer, while increasing our wages could cause our profits to decrease. If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business, results of operations and financial condition.

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Changes in and enforcement of immigration laws could increase our costs and adversely affect our ability to attract and retain qualified employees.

Federal and state governments from time to time implement immigration laws, regulations or programs that regulate our ability to attract or retain qualified foreign employees. Some of these changes may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome or reduce the availability of potential employees. Although we have implemented, and are in the process of enhancing, procedures to ensure our compliance with the employment eligibility verification requirements, there can be no assurance that these procedures are adequate and some of our employees may, without our knowledge, be unauthorized workers. The employment of unauthorized workers may subject us to fines or civil or criminal penalties, and if any of our workers are found to be unauthorized, we could experience adverse publicity that negatively impacts our brand and makes it more difficult to hire and keep qualified employees. We may be required to terminate the employment of certain of our employees who are determined to be unauthorized workers. The termination of a significant number of employees may disrupt our operations, cause temporary increases in our labor costs as we train new employees and result in adverse publicity. Our financial performance could be materially harmed as a result of any of these factors.

Potential labor disputes with employees and increases in labor costs could adversely affect our business.

A considerable amount of our operating costs are attributable to labor costs and, therefore, our financial performance is greatly influenced by increases in wage and benefit costs. As a result, we are exposed to risks associated with a competitive labor market. Rising health care costs and the nature and structure of work rules will always be important issues. Any work stoppages or labor disturbances as a result of employee dissatisfaction with their current employment terms could have a material adverse effect on our financial condition, results of operations and cash flows. We also expect that in the event of a work stoppage or labor disturbance, we could incur additional costs and face increased competition.

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

We are subject to regulation by various federal, state, and local governments, applicable to food safety and sanitation, ethical business practices, transportation, minimum wage, overtime, other wage payment requirements, employment discrimination, immigration, and human health and safety. While we attempt to comply with all applicable laws and regulations, we cannot represent that we are in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or that we will be able to comply with any future laws, regulations or interpretations of these laws and regulations. If we fail to comply with applicable laws and regulations, we may be subject to investigations, criminal sanctions or civil remedies, including fines, injunctions, and prohibitions on exporting. The cost of compliance or the consequences of non-compliance, including debarments, could have an adverse effect on our results of operations. In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require us to incur substantial increases in costs in order to comply with such laws and regulations.

If the products distributed by us are alleged to have caused injury or illness, or to have failed to comply with governmental regulations, we may need to recall our products and may experience product liability claims.

We, like any other foodservice distributor, may be subject to product recalls, including voluntary recalls or withdrawals, if the products we distribute are alleged to have caused injury or illness, to have been mislabeled, misbranded, or adulterated or to otherwise have violated applicable governmental regulations. We may also choose to voluntarily recall or withdraw products that we determine do not satisfy our quality standards, whether for taste, appearance, or otherwise, in order to protect our brand and reputation. Any future product recall or withdrawal that results in substantial and unexpected expenditures, destruction of product inventory, damage to our reputation, and/or lost sales due to the unavailability of the product for a period of time, could materially adversely affect our results of operations and financial condition.

We also face the risk of exposure to product liability claims in the event that the use of products sold by us are alleged to have caused injury or illness. We cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Further, even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image.

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Our product liability insurance plans may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities. We generally seek contractual indemnification and insurance coverage from parties supplying products to us, but this indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by such suppliers. If we do not have adequate insurance or contractual indemnification available, product liability relating to defective products could materially adversely affect our results of operations and financial condition.

We may incur significant costs to comply with environmental laws and regulations, and we may be subject to substantial fines, penalties and/or third-party claims for non-compliance.

Our operations are subject to various federal, state, and local laws, rules and regulations relating to the protection of the environment, including those governing:

•the discharge of pollutants into the air, soil, and water;

•the management and disposal of solid and hazardous materials and wastes;

•employee exposure to hazards in the workplace; and

•the investigation and remediation of contamination resulting from releases of petroleum products and other regulated materials.

In the course of business, we operate, maintain, and fuel vehicles; store fuel in on-site above ground containers; operate refrigeration systems; and use and dispose of hazardous substances and food waste. We could incur substantial costs, including fines or penalties and third-party claims for property damage or personal injury, as a result of any violations of environmental or workplace safety laws and regulations or releases of regulated materials into the environment. In addition, we could incur investigation, remediation and/or other costs related to environmental conditions at our currently or formerly owned or operated properties.

Litigation may materially adversely affect our business, financial condition and results of operations.

Our operations carry an exposure to litigation risk from consumers, customers, our labor force, shareholders and others, and may be a party to individual personal injury, product liability and/or other legal actions in the ordinary course of our business, including litigation arising from food-related illness. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that may decrease consumer confidence in our businesses, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may materially adversely affect our businesses, financial condition, results of operations and cash flows.

Increased commodity prices and availability may impact profitability.

Many of our products include ingredients such as wheat, corn, oils, sugar, and other commodities. Commodity prices worldwide have been increasing. While commodity price inputs do not typically represent the substantial majority of our product costs, any increase in commodity prices may cause our vendors to seek price increases from us. We may not be able to mitigate vendor efforts to increase our costs, either in whole or in part. In the event we are unable to mitigate potential vendor price increases, we may in turn consider raising our prices, and our customers may be deterred by any such price increases. Our

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profitability may be impacted through increased costs to us which may affect our gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

The U.S. government is currently imposing increased tariffs on certain products imported into the U.S., including products imported from China, which may have an adverse impact on our future operating results.

We sell our products based on the cost of such products plus a percent markup. The U.S. government is currently imposing and proposing increased tariffs on certain products imported into the U.S., including products imported from China. Some of our imported products and imported products purchased from domestic brokers may be subject to these increased tariffs and accordingly, our purchase costs will be increased. We may determine to increase our sales prices in order to pass these increased costs to our customers. In the event we determine to take such action, our customers may reduce their orders from us, which could negatively affect our profitability and operating results.

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

Severe weather conditions and other natural disasters in areas where our distribution network covers or from which we obtain the products we sell may materially adversely affect our operations and our product offerings and, therefore, our results of operations. Such conditions may result in physical damage to, or temporary or permanent closure of, one or more of our distribution centers, an insufficient work force in our market regions and/or temporary disruption in the supply of products, including delays in the delivery of goods to our warehouses and/or a reduction in the availability of products in our offerings. In addition, adverse climate conditions and adverse weather patterns, such as drought or flood, that impact growing conditions and the quantity and quality of crops may materially adversely affect the availability or cost of certain products within our supply chain. Any of these factors may disrupt our businesses and materially adversely affect our financial condition, results of operations and cash flows.

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

Our net sales, profit, cash flows and future growth may be affected by negative local, regional, national or international political or economic trends or developments that reduce consumers’ ability or willingness to spend, including the effects of national and international security concerns such as war, terrorism or the threat thereof. The Russian invasion of Ukraine in February 2022 and the financial and economic sanctions and other measures imposed by the European Union, the United States, and other countries and organizations in response thereto is creating, and may continue to create, market disruption and volatility and instability in the geopolitical environment. The extent to which this conflict escalates to other countries and the resulting impact on the global market remains uncertain. We are monitoring the conflict, but do not, and cannot, know if this situation will result in broader economic and security concerns or in material implications for our business. These events could have a material adverse effect on our customers, our business partners and our third-party suppliers.

We rely on technology in our business and any cybersecurity incident, other technology disruption or delay in implementing new technology could negatively affect our business and our relationships with customers.

We use technology in our business operations, and our ability to serve customers most effectively depends on the reliability of our technology systems. We use software and other technology systems, among other things, to generate and select orders, to make purchases, to manage warehouses and to monitor and manage our business on a day-to-day basis. Further, our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ and suppliers’ personal information, private information about employees, and financial and strategic information about us and our business partners.

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These technology systems are vulnerable to disruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, espionage, cyber-attacks, viruses, theft and inadvertent releases of information. Any such disruption to these software and other technology systems, or the technology systems of third parties on which we rely, the failure of these systems to otherwise perform as anticipated, or the theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential liability and competitive disadvantage, any or all of which could potentially adversely affect our customer service, decrease the volume of our business and/or result in increased costs and lower profits.

A significant breach of our cybersecurity infrastructure may result from actions by our employees, suppliers, third-party administrators, or unknown third parties or through cyber-attacks. The risk of a breach can exist whether software services are in our technology systems or are in cloud-based software services. Breaches have occurred, may occur again, in our systems and in the systems of our suppliers and third-party administrators. Any such breach could result in operational impairments, significant harm to our reputation and financial losses.

A significant breach could affect our data framework or cause a failure to protect the personal information of our customers, suppliers or employees, or sensitive and confidential information regarding our business and could give rise to legal liability and regulatory action under data protection and privacy laws. Any such breach of our or our suppliers’ cybersecurity infrastructure could have a material adverse effect on our business, results of operations and financial condition.

Further, as we pursue our strategy to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, we are also expanding and improving our information technology, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. If we fail to assess and identify cybersecurity risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks. Information technology systems continue to evolve and, in order to remain competitive, we need to implement new technologies in a timely and efficient manner. Investments will continue to be made in attracting, retaining, and training our human capital to remain current on the ever-changing industry best practices related to information security. If our competitors implement new technologies more quickly or successfully than we do, such competitors may be able to provide lower cost or enhanced services of superior quality compared to those we provide, which could have an adverse effect on our results of operations.

Our current indebtedness may adversely affect our liquidity position and ability of future financing.

As of December 31, 2021, we utilized $55.3 million of the $100 million asset-secured revolving credit facility and $87.4 million of long-term mortgage and equipment loans, which could adversely affect our cash flow, our ability to raise additional capital or obtain financing in the future, or react to changes in business and repay other debts. These bank loans contain covenants that restrict our ability to incur additional debt and operate our business. We may not be able to generate a sufficient amount of cash needed to pay interest and principal on our debt facilities or refinance all or a portion of our indebtedness, due to a number of factors, including significant change of economic conditions, market competition, weather conditions, natural disaster, and failure to execute our business plan.

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An increase in interest rates could adversely affect our cash flow and financial condition.

We are subject to market risks relating to changes in the London Interbank Offered Rate ("LIBOR"). On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out the use of LIBOR by the end of 2021. In the U.S., the Alternative Reference Rates Committee, a committee convened by the Federal Reserve Board and the Federal Reserve Bank of New York, recommended the Secured Overnight Financing Rate ("SOFR") plus a recommended spread adjustment as LIBOR's replacement. LIBOR and SOFR have significant differences, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities. Our LIBOR-based borrowings were converted to SOFR. The differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in higher interest costs than if LIBOR remained available, which may have an adverse effect our business, financial condition and results of operations. Furthermore, at this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement. Additionally, it is uncertain if LIBOR will cease to exist in the future, or whether additional reforms to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for LIBOR. Alternative benchmark rates may replace LIBOR and could affect our debt securities, debt payments, and receipts. At this time, it is not possible to predict the effect of any changes to LIBOR, any phase out of LIBOR, or any establishment of alternative benchmark rates. Any other new benchmark rate will likely not replicate LIBOR exactly, which could impact our contracts that terminate after 2023. There is uncertainty about how applicable law and the courts will address the replacement of LIBOR with alternative rates on variable rate retail loan contracts and other contracts that do not include alternative rate fallback provisions. If LIBOR ceases to exist, the interest rates on our variable-rate debts will be based on base rates or an alternative benchmark rate, which may result in higher interest rates. In addition, any changes to benchmark rates may have an uncertain impact on our cost of funds and our access to the capital markets, which could impact our results of operations and cash flows.

Impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets could adversely affect our financial condition and results of operation.

We review our amortizable intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. We test goodwill and other indefinite-lived intangible assets for impairment at least annually, or more frequently if events or changes in circumstances indicate an asset may be impaired. Relevant factors, events and circumstances that affect the fair value of goodwill and indefinite-lived intangible assets may include external factors such as macroeconomic, industry, and market conditions, as well as cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit, or sustained decrease in share price. We may be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined, which would negatively affect our results of operations. For example, towards the end of first quarter of fiscal year 2020, we experienced significant decline in business volume due to mandatory stay-at-home orders issued by governmental authorities in response to the intensification of the COVID-19 pandemic. We determined that the B&R Global reporting unit was very sensitive to these declines and that it was more likely than not that an impairment may exist. We performed an analysis of the fair value of the B&R Global reporting unit as of March 31, 2020 using a discounted cash flow method for goodwill impairment testing purposes. Based upon the analysis, we concluded that the carrying value of its B&R Global reporting unit exceeded its fair value by approximately $338.2 million. As a result, we recorded the amount as impairment loss during the first quarter of fiscal year 2020. Due to structural changes at the Company during 2021, there is only one reporting unit as of December 31, 2021. No impairment charge was recorded during fiscal year 2021.

Impairment analysis requires significant judgment by management and the fair value of goodwill, indefinite-lived intangible assets or other long-lived assets are sensitive to changes in key assumptions used in the projected cash flows, which include forecasted revenues and perpetual growth rates, among others, as well as current market conditions in both the United States and globally, all of which were unfavorably impacted by the COVID-19 pandemic. To the extent that business conditions deteriorate further, or if changes in key assumptions and estimates differ significantly from management’s expectations, it may be necessary to record additional future impairment charges, which could be material. For more information on our goodwill impairment assessment and related impairment charge, see Note 8 - Goodwill and Acquired Intangible Assets in our consolidated financial statements of this Annual Report on Form 10-K.

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Risk Factors Relating to our Acquisition Strategy

Our continued growth depends on future acquisitions of other distributors or wholesalers and enlarging our customer base. The failure to achieve these goals could negatively impact our results of operations and financial condition.

Historically, a portion of our growth has come through acquisitions, and our growth strategy depends, in large part, on acquiring other distributors or wholesalers to access untapped market regions and enlarge our customer base. Successful implementation of this strategy is dependent on sufficient capital support from financing, finding suitable targets to acquire, identifying suitable locations and negotiating acceptable acquisition prices and terms. There can be no assurance that we will continue to grow through acquisitions. We may not be able to obtain sufficient capital support for our expansion plan, or successfully implement the plan to acquire other competitors timely or within budget or operate those businesses successfully.

If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our earnings may be materially adversely affected. A significant expansion of our business and operations, in terms of geography or magnitude (such as with the Business Combination), could strain our administrative and operational resources. Significant acquisitions may also require the issuance of material additional amounts of debt or equity, which could materially alter our debt-to-equity ratio, increase our interest expense and decrease net income, and make it difficult for us to obtain favorable financing for other acquisitions or capital investments.

Our operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful.

There is a scarcity of and competition for acquisition opportunities.

There are a limited number of operating companies available for acquisition that we deem to be desirable targets. In addition, there is a very high level of competition among companies seeking to acquire these operating companies. Many established and well-financed entities are active in acquiring interests in companies that we may find to be desirable acquisition candidates. Many of these entities have significantly greater financial resources, technical expertise and managerial capabilities than we do. Consequently, we will be at a competitive disadvantage in negotiating and executing possible acquisitions of such businesses. Even if we are able to successfully compete with these larger entities, this competition may affect the terms of the transactions we are able to negotiate and, as a result, we may pay more or receive less favorable terms than we expected for potential acquisitions. We may not be able to identify operating companies that complement our strategy, and even if we identify a company that does so, we may be unable to complete an acquisition of such a company for many reasons, including:

•failure to agree on necessary terms, such as the purchase price;

•incompatibility between our operational strategies and management philosophies with those of the potential acquiree;

•competition from other acquirers of operating companies;

•lack of sufficient capital to acquire a profitable company; and

•unwillingness of a potential acquiree to work with our management.

Risks related to acquisition financing.

We have a limited amount of financial resources and our ability to make additional acquisitions without securing additional financing from outside sources is limited. In order to continue to pursue our acquisition strategy, we may be required to obtain additional financing. We may obtain such financing through a combination of traditional debt financing and/or the placement of debt and equity securities. We may finance some portion of our future acquisitions by either issuing equity or by using shares of our common stock for all or a portion of the purchase price for such businesses. In the event that our common stock does not attain or maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept our common stock as part of the purchase price for the sale of their businesses, we may be required to use more of our cash resources, if available, in order to maintain our acquisition program. If we do not have sufficient cash resources, we will not be able to complete acquisitions and our growth could be limited unless we are able to obtain additional capital through debt or equity financings. The terms of our credit facility require that we obtain the consent of our lenders prior to securing additional debt financing. There could be circumstances in which our ability to obtain additional debt financing could be constrained if we are unable to secure such consent.

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To the extent we make any material acquisitions, our earnings may be adversely affected by non-cash charges relating to the amortization of intangible assets.

Under applicable accounting standards, purchasers are required to allocate the total consideration paid in a business combination to the identified acquired assets and liabilities based on their fair values at the time of acquisition. The excess of the consideration paid to acquire a business over the fair value of the identifiable tangible assets acquired must be allocated among identifiable intangible assets including goodwill. The amount allocated to goodwill is not subject to amortization. However, it is tested at least annually for impairment. The amount allocated to identifiable intangible assets, such as customer relationships and the like, is amortized over the life of these intangible assets. We expect that this will subject us to periodic charges against our earnings to the extent of the amortization incurred for that period. Because our business strategy focuses, in part, on growth through acquisitions, our future earnings may be subject to greater non-cash amortization charges than a company whose earnings are derived solely from organic growth. As a result, we may experience an increase in non-cash charges related to the amortization of intangible assets acquired in our acquisitions. Our financial statements will show that our intangible assets are diminishing in value, even if the acquired businesses are increasing (or not diminishing) in value.

We are not obligated to follow any particular criteria or standards for identifying acquisition candidates.

We are not obligated to follow any particular operating, financial, geographic or other criteria in evaluating candidates for potential acquisitions or business combinations. We will determine the purchase price and other terms and conditions of acquisitions. Our shareholders will not have the opportunity to evaluate the relevant economic, financial and other information that our management team will use and consider in deciding whether or not to enter into a particular transaction.

We may be required to incur a significant amount of indebtedness in order to successfully implement our acquisition strategy.

Subject to the restrictions contained under our current credit facilities, we may be required to incur a significant amount of indebtedness in order to complete future acquisitions. If we are not able to generate sufficient cash flow from the operations of acquired businesses to make scheduled payments of principal and interest on the indebtedness, then we will be required to use our capital for such payments. This will restrict our ability to make additional acquisitions. We may also be forced to sell an acquired business in order to satisfy indebtedness. We cannot be certain that we will be able to operate profitably once we incur this indebtedness or that we will be able to generate a sufficient amount of proceeds from the ultimate disposition of such acquired businesses to repay the indebtedness incurred to make these acquisitions.

We may experience difficulties in integrating the operations, personnel and assets of acquired businesses that may disrupt our business, dilute stockholder value and adversely affect our operating results.

A core component of our business plan is to acquire businesses and assets in the food distribution industry. There can be no assurance that we will be able to identify, acquire or profitably manage businesses or successfully integrate our acquired businesses without substantial costs, delays or other operational or financial problems. Such acquisitions also involve numerous operational risks, including:

•difficulties in integrating operations, technologies, services and personnel;

•the diversion of financial and management resources from existing operations;

•the risk of entering new markets;

•the potential loss of existing or acquired strategic operating partners following an acquisition;

•the potential loss of key employees following an acquisition and the associated risk of competitive efforts from such departed personnel;

•possible legal disputes with the acquired company following an acquisition; and

•the inability to generate sufficient revenue to offset acquisition or investment costs.

As a result, if we fail to properly evaluate and execute any acquisitions or investments, our business and prospects may be seriously harmed.

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Risk Factors Relating to our Common Stock

A trading market for our common stock may not be sustained and our common stock prices could decline.

Although our common stock is listed on the Nasdaq Capital Market ("NASDAQ") under the symbol “HFFG”, an active trading market for the shares of our common stock may not be sustained. Accordingly, no assurance can be given as to the following:

•the likelihood that an active trading market for shares of our common stock will be sustained;

•the liquidity of any such market;

•the ability of our shareholders to sell their shares of common stock; or

•the price that our shareholders may obtain for their common stock.

In addition, our common stock has historically experienced price and volume volatility. The market price and volume of our common stock may continue to experience fluctuations not only due to volatile stock market conditions but also due to government regulatory action, tax laws update, interest rates, the condition of the U.S. economy and a change in sentiment in the market regarding our industry, operations or business prospects. In addition to other factors, the price and volume volatility of our common stock may be affected by:

•factors influencing consumer food choices;

•the operating and securities price performance of companies that investors consider comparable to us;

•announcements of strategic developments, acquisitions and other material events by us or our competitors;

•changes in global financial markets and global economies and general market conditions, such as tariffs, interest rates, commodity and equity prices and the value of financial assets;

•additions or departures of key personnel;

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

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

•actions by shareholders;

•actions by the SEC or NASDAQ relating to investigations; and

•passage of legislation or other regulatory developments that adversely affect us or our industry.

If an active market is not maintained, or if our common stock continues to experience price and volume volatility, the market price of our common stock may decline.

Furthermore, our ability to raise funds through the issuance of equity securities or otherwise by using our common stock as consideration is impacted by the price of our common stock. A low stock price may adversely impact our ability to reduce our financial leverage, as measured by the ratio of total debt to total capital. Continued high levels of leverage or significant increases may adversely affect our credit ratings and make it more difficult for us to access additional capital. These factors may limit our ability to implement our operating and growth plans.

Our current management does not have extensive corporate governance experience, and we may need to recruit expertise on corporate governance to comply with the regulations and effectively communicate with the capital markets, which may increase our operating expenses.

We have built up and will continue to expand our corporate management team from all areas of expertise. Lack of in-house talent could also have an adverse impact on both the effectiveness of our operations and the full compliance with all applicable laws and regulations. In addition, recruiting talent for our management team may increase operational costs substantially and may require longer hiring periods than ordinary employees.

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We have identified material weaknesses in our internal control over financial reporting, which could affect our ability to ensure timely and reliable financial reports, affect the ability of our auditors to attest to the effectiveness of our internal controls, and weaken investor confidence in our financial reporting.

The Sarbanes-Oxley Act of 2002 requires, among other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. Our management has concluded that (1) our internal controls over financial reporting were not effective as of December 31, 2021, (2) there existed material weaknesses in our internal control over financial reporting as of December 31, 2021, and (3) our disclosure controls and procedures were not effective as of December 31, 2021. Please see the discussion of these conclusions below under Item 9A. “Controls and Procedures” of this Annual Report on Form 10-K.

We have taken and will continue to take appropriate actions to remediate such material weakness and inadequate disclosure controls and procedures; however, such continuous measures are still work-in-progress and may not be sufficient to address the material weaknesses identified or ensure that our disclosure controls and procedures are effective. We may also discover other material weaknesses in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in the implementation of such controls, could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements and affect the ability of our auditors to attest to the effectiveness of our internal controls over financing reporting. In addition, substantial costs and resources may be required to rectify any internal control deficiencies. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the market price of our common stock could decline significantly, and our business and financial condition could be adversely affected.

We are not required to obtain an attestation report on our assessment of our internal control over financial reporting from an independent registered public accounting firm, which may cause investors to lose confidence in us and cause the price of our common stock to be negatively impacted.

Under rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are not required to obtain from our independent registered public accounting firm an attestation report on our assessment of our internal control over financial reporting until we provide our annual report for the year ended December 31, 2022 and we have not voluntarily sought such a report in the past. Because, as an emerging growth company, we are not required to and did not voluntarily obtain an unqualified attestation report on our assessment of our internal control over financial reporting from our independent registered public accounting firm, investors may have less confidence in us and the price of our common stock may be negatively impacted. Our management assessed the effectiveness of our internal control over financial reporting for the year ended December 31, 2021 and identified material weaknesses in our operating effectiveness. See Item 9A. Controls and Procedures.

We will no longer qualify as an emerging growth company for the year ended December 31, 2022, which may lead us to incur additional expenses to comply with applicable regulations.

We have been an “emerging growth company”, as defined in the JOBS Act, and we have taken advantage of certain exemptions from various reporting requirements that are applicable to other public companies which do not meet the definition of an “emerging growth company”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we had relied on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We elected to avail ourselves of this exemption and, therefore, we were not subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

As of December 31, 2022, we will no longer qualify an emerging growth company. As a result, we will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for the year ending December 31, 2022, and we will no longer be able to take advantage of the exemptions from reporting available to emerging growth companies absent other exemptions or relief available from the SEC. We will incur additional expenses in connection with compliance to these regulations and our management will need to devote additional time and effort to implement and comply with such requirements.

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We have not been in compliance with NASDAQ's requirements for continued listing. As a result, our common stock may be delisted from trading on NASDAQ, which would have a material effect on us and our shareholders.

We were delinquent in the filing of our periodic reports with the SEC initially as a result of additional review and procedures relating to our merger with B&R Global. After the resolution of certain merger-related issues in September 2022, our ability to timely file periodic reports continued to be delayed due to additional review and procedures of complex technical and accounting issues relating to the previously disclosed independent investigation by the Special Investigation Committee of the Company’s Board of Directors and the previously disclosed concurrent, non-public SEC investigation.

As a result of these ongoing matters, we were not in compliance with the listing requirements of NASDAQ Listing Rule 5250(c)(1), which requires timely filing of periodic financial reports with the SEC. Under NASDAQ's listing rules, we were permitted to submit to NASDAQ a plan to regain compliance. Subsequently, we participated in a hearing before the Nasdaq Hearings Panel (the "Hearings Panel") on November 3, 2022, after which we were granted a stay of delisting procedures subject to our meeting certain conditions, including filing our delinquent periodic reports with the SEC by January 31, 2023. On January 17, 2023, we received an additional delisting notice from Nasdaq relating to our failure to hold an annual shareholder meeting by December 31, 2022. We intend to hold our annual shareholder meeting no later than June 2023 in order to establish compliance with NASDAQ listing standards. If we are unable to re-establish compliance with these standards, our common stock would be subject to delisting by NASDAQ. If our common stock is delisted, there can no assurance whether or when it would again be listed for trading on NASDAQ or on any other exchange.

Due to the delayed filing with the Commission of our Form 10-K for the year ended December 31, 2021, and Form 10-Q for the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022, we are not currently eligible to use a registration statement on Form S-3 to register the offer and sale of securities and may be delisted by NASDAQ), which may adversely affect our ability to raise future capital or complete acquisitions.

As a result of the delayed filing with the Commission of this Form 10-K for the year ended December 31, 2021 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until we have timely filed all periodic reports required under the Securities Exchange Act of 1934 for one year, and there can be no assurance that we will be able to file all such reports in a timely manner in the future. Should we wish to register the offer and sale of additional securities to the public, our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our business, strategic plan and financial condition. Furthermore, if we were subjected to the delisting of our common stock from trading on NASDAQ, this could adversely affect the market price of and hinder our shareholders' ability to trade in our common stock, and could also affect our ability to access the capital markets or complete acquisitions. If our shares of common stock are delisted, there could be no assurance of it again being listed for trading on NASDAQ or any other exchange.

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

As of January 27, 2023, there were 53,813,316 shares of our common stock outstanding. Of this number, approximately 53.8 million shares of common stock were freely tradable without restriction, unless the shares were held by our affiliates. The remaining shares of common stock were “restricted securities” as that term is defined under Rule 144 of the Securities Act. None of our directors, executive officers or employees are subject to lock-up agreements or market stand-off provisions that limit their ability to sell shares of our common stock. The sale of a large number of shares of our common stock, or the belief that such sales may occur, could cause a drop in the market price of our common stock.

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

We have not declared nor paid dividends on our common stock and we do not intend to do so in the near term. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock in the near term, and capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

ITEM 1B UNRESOLVED STAFF COMMENTS.

None.

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ITEM 2 PROPERTIES.

We utilize a mix of leased (19%) and owned (81%) distribution centers for distribution, warehousing inventory, service and administrative functions. Below is a summary of distribution centers by geographical location, number of facilities, total square feet, and trucks servicing the site as of December 31, 2021.

Location Number of Facilities Total Square Feet Number of Trucks

We lease our corporate headquarters, in Las Vegas, Nevada, consisting of approximately 5,000 square feet with a term of 6.5 years beginning March 17, 2021.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When we become aware of a claim or potential claim, we assess the likelihood of any loss or exposure. In accordance with authoritative guidance, we record loss contingencies in our financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, we record the minimum estimated liability. If the loss is not probable or the amount of the loss cannot be reasonably estimated, we disclose the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. We continuously assess the potential liability related to our pending litigation and revise 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 us that could adversely affect our ability to conduct our business. There also exists the possibility of a material adverse effect on our financial statements for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.

As previously disclosed, in March 2020, an analyst report suggested certain improprieties in the Company’s operations. 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”). After the second putative stockholder class action was filed, the Class Actions were consolidated. On January 19, 2021, the Company and the director and officer defendants filed a Motion to Dismiss the consolidated Class Actions. On August 25, 2021, the Court granted the Motion to Dismiss with leave to amend the complaint. The Plaintiff elected not to amend his complaint, and the Court entered Judgment in favor of the Company and the director and officer defendants on September 20, 2021. The Court’s decision was not appealed, and the Class Actions are now closed.

The Company was likewise named a nominal defendant and certain of the Company's current and former directors and officers were named as defendants in a shareholder derivative lawsuit filed on June 15, 2020, in the United States District Court for the Central District of California. The complaint made similar allegations as the Class Actions and alleged violations of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. A second virtually identical shareholder derivative lawsuit was filed on

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August 21, 2020 in the United States District Court for the District of Delaware. On November 19, 2020, the District Court for the District of Delaware transferred the second-filed derivative lawsuit to the District Court for the Central District of California. The shareholder derivative lawsuits were stayed pending the deadline to file a notice of appeal in the Class Actions. On November 5, 2021, the first of the two shareholder derivative lawsuits was dismissed voluntarily without prejudice by the plaintiff. On November 23, 2021, the second shareholder derivative lawsuit was dismissed by the Court on the basis of the parties’ stipulation of voluntary dismissal without prejudice.

In response to the allegations in the March 2020 analyst report, 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.

On May 20, 2022, the Board of Directors of HF Group received a letter from a purported stockholder, James Bishop (the “Bishop Demand”). The Bishop Demand alleges that certain current and former officers and directors of HF Group engaged in misconduct and breached their fiduciary duties, and demands that HF Group investigate the allegations and, if warranted, assert claims against those current or former officers and directors. Many of the allegations contained in the Bishop Demand were the subject of a shareholder derivative action that Bishop filed in August 2020, captioned Bishop v. Zhou Min Ni, et al., No. 2:20-cv-10657 (C.D. Cal.) (the “Bishop Derivative Action”). On November 24, 2021, after the United States District Court for the Central District of California dismissed with prejudice a related securities class action, captioned Mendoza v. HF Foods Group Inc. et al., No. 2:20-cv-02929 (C.D. Cal.), the Bishop Derivative Action was voluntarily dismissed without prejudice.

On June 30, 2022, the Board of Directors of HF Group resolved to form a special committee (the “Special Litigation Committee”) comprised of independent directors and advised by counsel to analyze and evaluate the allegations in the Bishop Demand in order to determine whether the Company should assert any claims against the current or former officers and directors.

On August 19, 2022, James Bishop filed a verified stockholder derivative complaint in the Court of Chancery of the State of Delaware (the “Delaware Action”), which asserts similar allegations to those set forth in the Bishop Demand. On September 21, 2022, Bishop and the Company filed a stipulation to stay the Delaware Action for 90 days, which the court granted on September 22, 2022. On December 20, 2022, Bishop and the Company filed a stipulation to extend the stay of the Delaware Action for an additional 60 days, which the court granted on December 21, 2022.

The Special Litigation Committee is in the process of analyzing and evaluating the claims alleged in the Bishop Demand and Delaware Action, and has not determined whether any claims should be asserted or the probability of recovery for such claims.

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 are cooperating with the SEC. While the SEC investigation is ongoing, the Special Investigation Committee has made certain factual findings based on evidence adduced during its investigation, and made recommendations to management regarding improvements to Company operations and structure, including but not limited to its dealings with related parties. The Company is working to implement those improvements. Refer to the Independent Investigation Update in Part II, Item 7 "Independent Investigation Update" to the consolidated financial statements of this Annual Report on Form 10-K.

We have also instituted structural changes including the retirement of the former Co-Chief Executive Officer and Chairman of the Board. We now have an independent Chairman of the Board and, as of January 31, 2023, three other independent directors on the Board. Our 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, and 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.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Shares of our common stock are listed for trading on NASDAQ under the symbol “HFFG,” and have been publicly traded since September 7, 2017. Prior to that date, there was no public market for our stock.

Holders of Record

As of January 27, 2023, there were 53,813,316 shares of our common stock outstanding held by 41 shareholders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.

Dividends

We have not paid any cash dividends on our common stock to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and our general financial condition. The payment of any dividends will be within the discretion of our Board of Directors at such time. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our Board of Directors does not anticipate declaring any dividends in the foreseeable future. In addition, our Board of Directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.

Recent Sales of Unregistered Securities

On December 30, 2021, we issued 1,792,981 shares of our common stock as consideration pursuant to our acquisition of the Great Wall Group.

Issuer Purchases of Equity Securities

None.

ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT’S DISCUSSION ANDANALYSISOF FINANCIAL CONDITION ANDRESULTSOF OPERATIONS.

The following discussion and analysis provides information about our business, the results of operations, financial condition, liquidity and capital resources of HF Foods Group Inc. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our results of operations and financial condition. This discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes presented elsewhere in this Annual Report on Form 10-K.

During 2022, the Company identified certain errors impacting the financial statements, including disclosures, for the years ended December 31, 2020 and 2019 and each interim quarterly period for 2021, 2020 and 2019 related to the identification of and accounting for operating and finance leases, the incorrect identification and disclosure of certain related party relationships including the identification of VIEs, the timing of revenue recognition for rental income received from a related party, the accounting for the self-insurance liability for automobile insurance beginning in 2020, classification errors in the financial statements, and an error in the calculation of earnings per share. In addition, certain errors were identified based on the factual findings of the Special Investigation Committee such as unrecorded executive compensation to the Company's major shareholder and former Chief Executive Officer, Mr. Zhou Min Ni ("Mr. Ni"), and related party disclosures. These errors have been restated in the consolidated financial statements as of December 31, 2020 and for the years ended December 31, 2020 and 2019 in Note 1 - Organization, Business Description and Restatement of Previously Issued Consolidated Financial Statements to the consolidated financial statements in this Annual Report on Form 10-K and should be read in conjunction with the discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in "Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 16, 2021.

Independent Investigation Update

In March 2020, an analyst report suggested certain improprieties in the Company’s operations. These allegations became the subject of two putative stockholder class action lawsuits which have subsequently been dismissed.

In response to the allegations in the analyst report, the Company's Board of Directors appointed a Special Investigation Committee of Independent Directors (the “Special Investigation Committee”) to conduct an independent investigation with the assistance of independent legal counsel. As a result of the investigation, the SIC determined certain factual findings. Management evaluated the factual findings determined by the SIC, and analyzed them to determine their impact on the historical consolidated financial statements, including disclosures, of the Company. The following is a summary of the findings and the Company's analysis of how those findings impact the historical consolidated financial statements:

•Feilong Trading, Inc. (“Feilong”) Note Receivable - On September 30, 2018, the Company entered into a line of credit promissory note agreement with Feilong. The note was later amended in November 2018 whereby Feilong could borrow up to $4,000,000. These notes followed previous lines of credit granted to Feilong before the Company was an issuer. The outstanding balance of the note receivable at December 31, 2018 was $3,803,826. In or around October 2019, the Company’s major shareholder and former Chief Executive Officer, Mr. Ni agreed to personally guarantee the repayment of the note receivable. The Company previously stated that Feilong was a supplier to the Company. As previously disclosed, Mr. Ni purchased the outstanding balance in exchange for a certain number of his shares of common stock of the Company, and as a result at December 31, 2019, the outstanding balance from Feilong was $0. The SIC determined that 1) Feilong was not a supplier to the Company, 2) there is no evidence that funds from the line of credit were provided to Feilong, 3) the notes receivable were not in the ordinary course of business and may not have been fully realizable from Feilong, and 4) the notes receivable appears to have benefited Mr. Ni because the funds may have been used to pay off other debts for which Mr. Ni was responsible. It was not disclosed that the Feilong funds were used to satisfy Mr. Ni's debts. The investigation did not conclude that Feilong was a related party. The Company considered the factual findings as presented to the SIC and the impact such findings had on its historical accounting. While it was determined that the historical disclosures were inaccurate or incomplete the Company concluded there would be no change necessary to previous accounting. Although it was determined that the Feilong note might not have been fully realizable from Feilong, the Company considered the existence of Mr. Ni’s guarantee to support the realizability of the note receivable, which was ultimately realized in 2019 when Mr. Ni purchased the note receivable in exchange for certain of his shares of common stock in the Company.

•Promissory Notes to Related Parties – As disclosed in the previously filed financial statements, the Company had previously made loans to certain entities that were owned by Mr. Ni or his family members. At December 31, 2018, the total related party notes receivable balance was $8,540,949 which was due from Enson Seafood, GA, Inc., NSG

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International, Inc. and Revolution Automotive, LLC. The notes receivable were personally guaranteed by Mr. Ni. As disclosed in the 2019 financial statements, Mr. Ni purchased the outstanding balance of these notes receivable in exchange for a certain number of his shares of common stock of the Company, and as a result, at December 31 2019, the outstanding balance of the notes receivable was $0. The SIC determined that the loans were not in the ordinary course of business and may not have been fully realizable from the counterparties. The Company considered the SIC's factual findings and determined no adjustments were needed to its prior accounting as there was no conclusive evidence that the related party notes receivable were not enforceable with the counterparties. Although it was determined that the related party notes receivable might not have been fully realizable from the counterparties, the Company considered the existence of Mr. Ni’s guarantee to support the realizability of the notes receivable, which was ultimately realized in 2019 when Mr. Ni purchased the notes receivable in exchange for certain of his shares of common stock of the Company.

•Members of the Ni family received undisclosed compensation from transactions with related parties which was excluded from previously filed proxy statements.

•Revolution Industry was determined to be a variable interest entity (“VIE”).

•Certain advances to Revolution Industry, LLC (“Revolution Industry”), in particular, payments for luxury cars, did not occur in the normal course of business. The Company has determined that certain payments to Revolution Industry should be accounted for as compensation expense, including in the previously filed financial statements, as Revolution Industry and Revolution Automotive, LLC were used to obtain funds which paid for luxury cars to the benefit of the Ni family.

•The Company had previously disclosed in its 2019 proxy filing that the Board of Directors had analyzed the prices paid to related parties as well as the level of service, reliability, delivery terms, and historical performance, and concluded such prices and terms were substantially equivalent to, or more advantageous than, prices and terms the Company would receive from third parties. The SIC determined that such an analysis did not occur. This finding does not appear to have resulted in errors to the historical financial statements. Amounts recorded in the historical financial statements were recorded based on the amount transacted with the related parties.

•Monies owed to the Company’s related party call center were diverted to other persons, entities, or Zhou Min Ni. The SIC did not identify that the call center was paid amounts substantially different than the contractual terms, but concluded that payments for such services may have been diverted to other parties. The Company determined that the amounts recorded in the previously filed financial statements as expense was not inaccurate, and therefore, there were no adjustments needed to the historical financial statements.

In addition to the independent investigation, the Securities and Exchange Commission (“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 are cooperating with the SEC. The SEC Investigation is still ongoing.

As with any SEC investigation, there is also the possibility of potential fines and penalties. At this time, however, there has not been any demand made by the SEC nor is it possible to estimate the amount of any such fines and penalties, should they occur. See Note 18 - Commitments and Contingencies to the consolidated financial statements in this Annual Report on Form 10-K for additional information.

Overview

We market and distribute Asian specialty food products, fresh produce, frozen and dry food, and non-food products primarily to Asian restaurants and other foodservice customers throughout the United States. HF Group was formed through a merger between two complementary market leaders, HF Foods Group Inc. and B&R Global.

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On December 30, 2021, HF Group acquired a leading seafood supplier, the Great Wall Group, resulting in the addition of 3 distribution centers, located in Illinois and Texas (the “Great Wall Acquisition”). See Note 7 - Acquisitions to the consolidated financial statements in this Annual Report on Form 10-K for additional information regarding the Great Wall Acquisition.

Subsequent to December 30, 2021, on April 29, 2022, HF Group acquired substantially all of the assets of Sealand Food, Inc. (the "Sealand Acquisition"), one of the largest frozen seafood suppliers servicing the Asian/Chinese restaurant market along the eastern seaboard, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee, for cash consideration of $20.0 million plus approximately $14.4 million worth of inventory.

Including the Sealand Acquisition, we have grown our distribution network to 18 distribution centers servicing over 46 states and covering approximately 95% of the contiguous United States with a fleet of close to 400 refrigerated vehicles. Capitalizing on our deep understanding of the Chinese culture, with over 1,000 employees and subcontractors and supported by two call centers in China, we have become a trusted partner serving over 15,000 Asian restaurants, providing sales and service support to customers who mainly converse in Mandarin or other Chinese dialects. We are dedicated to serving the vast array of Asian and Chinese restaurants in need of high-quality and specialized food ingredients at competitive prices.

COVID-19 Impact

The impact of the COVID-19 pandemic had an adverse effect on our business, financial condition and operational results in 2020. All states across the country issued some form of stay-at-home orders, shutdowns, voluntary containment measures, and social distancing. The operations of our restaurant customers were also severely disrupted due to the “cliff-like” decline in consumer demand for food away from home. The government mandates forced many of our restaurant customers to temporarily close or convert to take-out or delivery-only operations. As a result, there was a significant decline in net revenue beginning from the last two weeks of March 2020 through September 2020, negatively impacting our overall financial results in 2020. Since the third quarter of 2020, we've experienced a quarter-on-quarter recovery in net revenue.

The impact of COVID-19 seen in 2020 has generally subsided. Our net revenue for 2021 strongly recovered to 96% of pre-COVID-19 pandemic levels. Based on current sales volumes and adjusted cost structures, we continue to generate positive operating cash flow on a weekly basis and do not have immediate liquidity concerns. We remain optimistic on the long-term prospects for our business although we may continue to face intermittent government restrictions on our restaurant customers' business operations.

As a market leader in servicing the Asian/Chinese restaurant sector, we are well-positioned for long-term success. The fragmented nature of the Asian/Chinese foodservice industry and the current environment creates opportunities for a company that has the necessary expertise and a comprehensive cultural understanding of this unique customer base. We believe we are differentiated from our competitors given our extensive footprint, strong vendor and customer relationships, and value-added service offerings, all of which have allowed and will continue to allow us to better serve our customers in these unprecedented conditions.

How to Assess HF Group’s Performance

In assessing our performance, we consider a variety of performance and financial measures, including principal growth in net revenue, gross profit, distribution, selling and administrative expenses, as well as certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA. The key measures that we use to evaluate the performance of our business are set forth below:

Net Revenue

Net revenue is equal to gross sales minus sales returns, sales incentives that we offer to our customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. Our net revenue is driven by changes in number of customers and average customer order amount, product inflation that is reflected in the pricing of our products and mix of products sold.

Gross Profit

Gross profit is equal to net revenue minus cost of revenue. Cost of revenue primarily includes inventory costs (net of supplier consideration), inbound freight, customs clearance fees and other miscellaneous expenses. Cost of revenue generally changes as we incur higher or lower costs from suppliers and as the customer and product mix changes.

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Distribution, Selling and Administrative Expenses

Distribution, selling and administrative expenses consist primarily of salaries, stock-based compensation and benefits for employees and contract laborers, trucking and fuel expenses, utilities, maintenance and repair expenses, insurance expenses, depreciation and amortization expenses, selling and marketing expenses, professional fees and other operating expenses.

EBITDA and Adjusted EBITDA

Discussion of our results includes certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, that we believe provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial performance with other companies in the same industry, many of which present similar non-GAAP financial measures to investors. We present EBITDA and Adjusted EBITDA in order to provide supplemental information that we consider relevant for the readers of our consolidated financial statements included elsewhere in this report, and such information is not meant to replace or supersede GAAP measures.

Management uses EBITDA to measure operating performance, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization. In addition, management uses Adjusted EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization, further adjusted to exclude certain unusual, non-cash, or non-recurring expenses. Management believes that Adjusted EBITDA is less susceptible to variances in actual performance resulting from non-recurring expenses, and other non-cash charges and is more reflective of other factors that affect our operating performance.

The definition of EBITDA and Adjusted EBITDA may not be the same as similarly titled measures used by other companies in the industry. EBITDA and Adjusted EBITDA are not defined under GAAP and are subject to important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of HF Group’s results as reported under GAAP. For example, Adjusted EBITDA:

•excludes certain tax payments that may represent a reduction in cash available;

•does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

•does not reflect changes in, or cash requirements for, our working capital needs; and

•does not reflect the significant interest expense, or the cash requirements, necessary to service our debt.

For additional information on EBITDA and Adjusted EBITDA, see the section entitled “EBITDA and Adjusted EBITDA” below.

Financial Review

Highlights for 2021 included:

•Net revenue: Net revenue was $796.9 million in 2021, compared to $566.8 million in 2020, an increase of $230.1 million, or 40.6%. This increase was primarily attributable to the strong recovery of restaurant demand from the COVID-19 pandemic.

•Gross profit: Gross profit was $151.5 million in 2021 compared to $100.7 million in 2020, an increase of $50.8 million, or 50.4%. The increase was mainly due to strong sales growth in 2021 and improved gross profit margin from 17.8% in 2020 to 19.0% in 2021.

•Distribution, selling and administrative expenses ("DSA expenses"): DSA expenses increased by $15.7 million, or 14.7%, mainly due to an increase in sales related cost, driven by net revenue growth. DSA expenses as a percentage of net revenue decreased from 18.8% in 2020 to 15.3% in 2021, which represented cost savings from improved operational efficiencies.

•Net income attributable to HF Foods Group Inc.: Net income was $22.1 million in 2021 compared to a net loss of $343.5 million in 2020, primarily due to a goodwill impairment loss of $338.2 million in 2020 and our significant business recovery to pre-COVID-19 pandemic levels in 2021.

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•Great Wall Acquisition: On December 30, 2021, we acquired substantially all of the operating assets of the Great Wall Group’s seafood and restaurant products sales, marketing, and distribution businesses for an aggregate purchase price of $43.7 million in stock and cash, as well as $24.3 million of acquired saleable inventory and additional vehicles for approximately $0.2 million, for total consideration of $68.2 million. This acquisition extended our territory to include the Midwest and Southwest markets and expanded our product portfolio.

•Inventory: Inventory as of December 31, 2021 was $102.7 million, compared to $58.5 million as of December 31, 2020, an increase of $44.2 million, or 75.4%, We kept higher inventory levels as of December 31, 2021 mainly due to an expectation of continued sales growth as our business continues to recover from the impact of the COVID-19 pandemic, and we also acquired $24.3 million of inventory related to the Great Wall Acquisition.

Results of Operations

The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2021and 2020. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

Year Ended December 31, Change

(As Restated)

Change in fair value of interest rate swap contracts 1,425 (920) 2,345 NM

Less: net income attributable to noncontrolling interests 676 293 383 130.4%

______________________

NM - Not meaningful

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The following table sets forth the components of our consolidated results of operations expressed as a percentage of net revenue for the periods indicated:

Year Ended December 31,

(As Restated)

Distribution, selling and administrative expenses 15.3 % 18.8 %

Goodwill impairment loss — % 59.7 %

Income (loss) from operations 3.7 % (60.7) %

Interest expense (0.6) % (0.8) %

Other income, net 0.1 % 0.2 %

Change in fair value of interest rate swap contracts 0.2 % (0.2) %

Income (loss) before income tax provision 3.4 % (61.5) %

Provision (benefit) for income taxes 0.5 % (0.8) %

Net income (loss) 2.9 % (60.7) %

Less: net income attributable to noncontrolling interests 0.1 % 0.1 %

Net Revenue

Net revenue for the year ended December 31, 2021 increased by $230.1 million or 40.6% compared to the same period in 2020. The increase was primarily due to the easing of COVID-19 related restrictions in 2021 that resulted in more dine-in business for our customers and the increase in overall foot traffic to restaurants.

Gross Profit

Gross profit for the year ended December 31, 2021 increased by $50.8 million or 50.4%, compared to the same period in 2020, Overall gross margin improved to 19.0% for the year ended December 31, 2021 from 17.8% for the year ended December 31, 2020. An increase in sales contributed 79% of total increase in gross profit and an improvement in gross profit margin represented 21% of total increase in gross profit. The improvement in gross profit margin was primarily due to the favorable inventory allocation from supplier partners and timing of inventory purchasing.

Distribution, Selling and Administrative Expenses

Distribution, selling and administrative expenses for the year ended December 31, 2021 increased by $15.7 million, or 14.7%, to $122.0 million, compared to $106.4 million for the year ended December 31, 2020. Of the distribution, selling and administrative expenses increase, $17.2 million, primarily came from payroll and related labor costs, as more workers were, and will continue to be, required to handle the increasing sales demand, and $4.3 million was in delivery related cost primarily driven by increasing fuel prices and revenue growth. Distribution, selling and administrative expenses as a percentage of net revenue improved from 18.8% in 2020 to 15.3% in 2021 primarily due to better cost control measures and higher net revenue.

Goodwill Impairment Loss

Goodwill impairment loss was $338.2 million for the year ended December 31, 2020 primarily due to the negative impact of the COVID-19 pandemic on sales. No goodwill impairment loss was recorded for year ended December 31, 2021, as our business returned to pre-COVID-19 pandemic levels. See Note 8 - Goodwill and Acquired Intangible Assets to the consolidated financial statements in this Annual Report on Form 10-K for additional information.

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Interest Expense and Bank Charges

Interest expense for the year ended December 31, 2021 increased by $0.2 million or 5.3%, compared to the year ended December 31, 2020, primarily due to increased interest expense related to finance leases, partially offset by lower utilization of our line of credit, a reduction of our real estate term loan and a decrease in interest due to the lower interest-rate environment. Our average daily line of credit balance decreased by $17.9 million, or 52.0%, to $16.5 million in 2021 from $34.4 million in 2020, and our average daily real estate term loan balance decreased by $2.1 million, or 2.9%, to $71.2 million in 2021 from $73.3 million in 2020. Additionally, average floating interest rates for the year ended December 31, 2021 decreased by approximately 0.52%, compared to the same period in 2020, which further contributed to lower interest expense.

Income Tax Provision (Benefit)

Income tax provision was $4.5 million for the year ended December 31, 2021, compared to an income tax benefit of $4.7 million for the year ended December 31, 2020, primarily due to our improved profitability.

Net Income (Loss) Attributable to Our Shareholders

Net income attributable to our shareholders was $22.1 million for the year ended December 31, 2021, versus a net loss attributable to our shareholders of $343.5 million for the year ended December 31, 2020. The positive trend is attributed to increased consumer demand for dine-in/take out meals as COVID-19 restrictions eased in 2021, thereby prompting restaurants to replenish products at a more frequent rate. In addition, the year ended December 31, 2020 included the goodwill impairment loss discussed above.

EBITDA and Adjusted EBITDA

The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure:

Year Ended December 31, Change

(As Restated)

Stock-based compensation expense 635 — 635 NM

Acquisition and integration costs 1,090 47 1,043 NM

Adjusted EBITDA margin 6.4 % 2.6 %

____________________

NM - Not meaningful

Adjusted EBITDA was $50.8 million for the year ended December 31, 2021, an increase of $36.4 million or 251.6%, compared to $14.5 million for the year ended December 31, 2020. The increase in Adjusted EBITDA was primarily attributable to our strong business recovery to pre-COVID-19 pandemic levels and an improvement of 1.2% in gross profit margin, resulting from increased bargaining purchase power.

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Liquidity and Capital Resources

As of December 31, 2021, we had cash of approximately $14.8 million, checks issued not presented for payment of $17.8 million and access to approximately $44.7 million in additional funds through our $100.0 million line of credit, subject to a borrowing base calculation. We have funded working capital and other capital requirements primarily by cash flow from operations and bank loans. Cash is required to pay purchase costs for inventory, salaries, fuel and trucking expenses, selling expenses, rental expenses, income taxes, other operating expenses and to service debts.

Based on current sales volume, which has been increasing steadily quarter-on-quarter since the outbreak of COVID-19 in the first half of 2020, we believe that our cash flow generated from operations is sufficient to meet our normal working capital needs for at least the next twelve months. However, our ability to repay our current obligations will depend on the future realization of our current assets. Management has considered the historical experience, the economy, the trends in the foodservice distribution industry to determine the expected collectability of accounts receivable and the realization of inventories as of December 31, 2021.