Description of Business

12 Months Ended

Dec. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business

Note 1 - Description of Business

Organization and General

HF Foods Group Inc. and subsidiaries (collectively “HF Group”, or the “Company”) is an Asian foodservice distributor that markets and distributes fresh produce, seafood, frozen and dry food, and non-food products to primarily Asian restaurants and other foodservice customers throughout the United States. The Company's business consists of one operating segment, which is also its one reportable segment: HF Group, which operates solely in the United States. The Company's customer base consists primarily of Chinese and Asian restaurants, and it provides sales and service support to customers who mainly converse in Mandarin or Chinese dialects.

Corporate History

HF Group Holding Corporation ("HF Holding") was incorporated as a holding company to acquire and consolidate the various pre-merger operating entities. On January 1, 2018, HF Holding entered into a Share Exchange Agreement with the controlling shareholders in exchange for all of HF Holding’s outstanding shares.

On August 22, 2018, Atlantic Acquisition Corp. ("Atlantic") consummated a reverse acquisition transaction resulting in HF Holding becoming the surviving entity and a wholly owned subsidiary of Atlantic (the “Atlantic Acquisition”). The shareholders of HF Holding became the majority shareholders of Atlantic, and the Company changed its name to HF Foods Group Inc. (collectively, these transactions are referred to as the “Atlantic Transactions”).

The Atlantic Acquisition was treated as a reverse acquisition under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). For accounting purposes, HF Holding was considered to be acquiring Atlantic in this transaction, as such, the aggregate consideration paid in connection with the business combination was allocated to Atlantic’s tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of Atlantic were consolidated into the balance sheet and results of operations of HF Holding as of the completion of the Atlantic Transactions.

On November 4, 2019, HF Group consummated a merger transaction resulting in B&R Global Holdings, Inc. ("B&R Global") becoming a wholly-owned subsidiary of the Company (the "Business Combination"). At closing, the Company issued 30,700,000 shares of Common Stock of the Company to the shareholders of B&R Global in exchange for the 100% equity interest of B&R Global.

On January 17, 2020, the Company acquired 100% equity membership interest in nine subsidiaries under B&R Group Realty Holding, LLC ("BRGR"), which owned ten warehouses that were being leased by the Company for its operations in California, Arizona, Utah, Colorado, Washington, and Montana for purchase consideration of $101.3 million.

On December 30, 2021, the Company completed the acquisition of Great Wall Seafood Supply, Inc., Great Wall Restaurant Supplier, Inc., and First Mart Inc. (collectively the “Great Wall Group”), and substantially all of the operating assets of the Great Wall Group’s seafood and restaurant products sales, marketing, and distribution businesses (the “Great Wall Acquisition”). The acquisition was completed as part of the Company’s strategy to develop a national footprint through expansion into the Midwest, Southwest and Southern regions of the United States.

On April 29, 2022, the Company completed the acquisition of substantially all of the operating assets of Sealand Food, Inc. ("Sealand") including equipment, machinery and vehicles. The acquisition was completed to expand the Company's territory along the East Coast, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.

See Note 8 - Acquisitions for additional information on recent acquisitions.

Restatement of Previously Issued Consolidated Financial Statements

As previously disclosed in Note 1 of the Company’s financial statements for the year ended December 31, 2021, the Company identified certain errors impacting the financial statements, including disclosures, which the company analyzed using Staff

Accounting Bulletin (“SAB”) No. 99, “Materiality” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” and determined the errors were material. Accordingly, the Company restated the consolidated financial statements as of December 31, 2020 and for the years ended December 31, 2020 and 2019, and the related interim financial statements periods within the years ended December 31, 2021, 2020, and 2019 in accordance with Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections. For the year ended December 31, 2020 the errors 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, classification errors in the financial statements, and an error in the calculation of earnings per share. In addition, certain errors were identified during an independent investigation by a Special Investigation Committee commissioned by the Company’s Board of Directors (see Note 17) such as unrecorded executive compensation to a certain executive and immediate family members, and related party disclosures. For the year ended December 31, 2020 the nature of these error corrections is as follows:

a.Certain operating and finance leases were not properly identified and accounted for upon the adoption of ASC Topic 842 (“ASC 842”), Leases and adjustments have been made to correct these errors.

b.Four entities previously disclosed as related parties were determined not to be related parties. The four related party entities that were reclassified in the financial statements from related party to third party for were EMC Rowland, LLC; The Big Catch Alhambra, LLC; Winfar Foods, Inc; and Wokcano Carlsbad Partner LLP.

c.The Company identified an error related to the timing of revenue recognition for rental income received from UGO (a related party). Rental income received from UGO, which was previously recognized in error, was recognized in the appropriate accounting period as part of the error corrections. Please refer to Note 14 - Related Party Transactions for additional information on the lease arrangement with UGO.

d.The Company determined that certain payments made by the Company in prior years to related parties should have been accounted for in the Company's consolidated financial statements as executive compensation. The Company made payments for inventory to Revolution Industry, which were diverted to Revolution Automotive to make car lease payments for the benefit of Mr. Ni and his family. The Company also made payments to UGO for marketing services, which services were determined as part of the independent investigation to have not been received commensurate to the amounts paid. Please refer to Note 14 - Related Party Transactions for further details on Revolution Automotive, Revolution Industry and UGO. The Company has recorded an uncertain tax position liability associated with the reclassification of certain amounts as executive compensation as discussed further in j. below.

e.The Company had not previously recorded a liability (including incurred but not reported "IBNR") related to the self-insured portion of its automobile insurance policy.

f.The 2020 goodwill impairment loss, which was previously misclassified as other income (expense) in the consolidated statements of operations and comprehensive income (loss), was revised to be included in income (loss) from operations.

g.The gain/loss on sale of fixed assets, which was previously misclassified in other income (expense), net was revised to be included in distribution, selling and administrative expenses.

h.As part of the error corrections being made, the resultant earnings per share was corrected.

i.As a result of the executive compensation described in d. above, the Company recorded an uncertain tax position liability to account for potential implications to previously filed tax returns.

j.In the Company’s December 31, 2020 financial statements, the Company did not disclose NC Good Taste Noodle, Inc. as a related party since Mr. Zhou Min Ni reported that he sold his ownership effective January 1, 2020. However, the Company’s former Chief Financial Officer, Mr. Jian Ming Ni, continues to own a portion of NC Good Taste Noodle, Inc. and as a result, the Company has concluded that NC Good Taste Noodle, Inc. still meets the definition of a related party. See Note 14 - Related Party Transactions for additional information

The corresponding footnotes have been restated for the adjustments noted above.

The following table summarizes the effect of the restatements on each affected financial statement line item for the year ended December 31, 2020, impacting the consolidated statements of operations and comprehensive income (loss). The footnotes correspond to the error descriptions above:

	Consolidated Statement of Operations and Comprehensive Income (Loss)
(In thousands, except per share data)	As Previously Reported		Adjustments			As Restated
Year Ended December 31, 2020
Net revenue - third parties	$	553,409	$	115	(b)	$	553,524
Net revenue - related parties	13,423		(115)		(b)	13,308
Cost of revenue - third parties	453,706		94		(b)
			(454)		(d)	453,346
Cost of revenue - related parties	12,833		(94)		(b)	12,739
TOTAL COST OF REVENUE	466,539		(454)			466,085
GROSS PROFIT	100,293		454			100,747
Distribution, selling and administrative expenses	106,126		(476)		(a)
			454		(d)
			391		(e)
			(140)		(g)	106,355
Goodwill impairment loss	—		338,191		(f)	338,191
INCOME (LOSS) FROM OPERATIONS	(5,833)		(337,966)			(343,799)
Interest expense	(3,922)		(399)		(a)	(4,321)
Goodwill impairment loss	(338,191)		338,191		(f)	—
Other income	1,355		(119)		(c)
			(140)		(g)	1,096
Total other income (expense), net	(341,678)		337,533			(4,145)
INCOME (LOSS) BEFORE INCOME TAX	(347,512)		(432)			(347,944)
Income tax provision (benefit)	(4,831)		106		(i)	(4,725)
NET INCOME (LOSS) AND OTHER COMPREHENSIVE INCOME (LOSS)	(342,681)		(538)			(343,219)
NET INCOME (LOSS) AND OTHER COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.	(342,974)		(538)			(343,512)
EARNINGS (LOSS) PER COMMON SHARE - BASIC	(6.58)		(0.01)		(h)	(6.59)
EARNINGS (LOSS) PER COMMON SHARE - DILUTED	(6.58)		(0.01)		(h)	(6.59)

The following table summarizes the effect of the restatements on each category of cash flow for the year ended December 31, 2020, impacting the consolidated statements of cash flows:

	Consolidated Statement of Cash Flows
(In thousands)	As Previously Reported		Adjustment			As Restated
Year Ended December 31, 2020
Net cash provided by operating activities	$	44,131	$	1,562	(a)	$	45,693
Net cash used in investing activities	(94,411)		—			(94,411)
Net cash provided by financing activities	45,323		(1,562)		(a)	43,761

The effect of the restatements on the consolidated statements of changes in shareholders’ equity for the year ended December 31, 2020 is as follows:

	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity Attributable to HF Foods Group Inc.		Non-controlling Interests		Total Shareholders’ Equity
(In thousands, except share data)	Shares	Amount		Shares	Amount
As Previously Reported
Balance at 12/31/2019	53,050,211	$	5	(905,115)	$	(12,038)	$	599,617	$	15,824	$	603,408	$	4,249	607,657
Net (loss) income	—	—		—	—		—		(342,974)		(342,974)		293		(342,681)
Escrow shares transferred to and recorded as treasury stock	—	—		(231,685)	—		—		—		—		—		—
Retirement of treasury stock	(1,136,800)	—		1,136,800	12,038		(12,038)		—		—		—		—
Distribution to shareholders	—	—		—	—		—		—		—		(175)		(175)
Balance at 12/31/2020	51,913,411	$	5	—	$	—	$	587,579	$	(327,150)	$	260,434	$	4,367	$	264,801
Restatement Impacts
Balance at 12/31/2019	—	—		—	—		—		(741)		(741)		—		(741)
Net (loss) income	—	—		—	—		—		(538)		(538)		—		(538)
Escrow shares transferred to and recorded as treasury stock	—	—		—	—		—		—		—		—		—
Retirement of treasury stock	—	—		—	—		—		—		—		—		—
Distribution to shareholders	—	—		—	—		—		—		—		—		—
Balance at 12/31/2020	—	$	—	—	$	—	$	—	$	(1,279)	$	(1,279)	$	—	$	(1,279)
As Restated
Balance at 12/31/2019 (As Restated)	53,050,211	$	5	(905,115)	$	(12,038)	$	599,617	15,083		602,667		$	4,249	606,916
Net (loss) income (as restated)	—	—		—	—		—		(343,512)		(343,512)		293		(343,219)
Escrow shares transferred to and recorded as treasury stock	—	—		(231,685)	—		—		—		—		—		—
Retirement of treasury stock	(1,136,800)	—		1,136,800	12,038		(12,038)		—		—		—		—
Distribution to shareholders	—	—		—	—		—		—		—		(175)		(175)
Balance at 12/31/2020 (As Restated)	51,913,411	$	5	—	$	—	$	587,579	$	(328,429)	$	259,155	$	4,367	$	263,522