What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-05-18 · 521 added, 438 removed, 637 unchanged (60% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

2020 December 31,

CURRENT ASSETS:

Cash $ 8,565,019 $ 14,538,286

Accounts receivable, net 23,166,278 50,027,134

9 unchanged sentences

Intangible assets, net 181,242,800 186,687,950

Goodwill 68,511,941 406,703,348

Deferred tax assets 319,320 78,993

Other long-term assets 342,712 372,499

TOTAL ASSETS $ 496,277,683 $ 802,843,794

CURRENT LIABILITIES:

3 unchanged sentences

Accounts payable - related parties 2,390,482 4,521,356

Advances from customers - related parties

Current portion of long-term debt, net 7,802,869 2,726,981

2 unchanged sentences

Accrued expenses and other liabilities 3,529,080 2,610,538

Obligations under interest rate swap contracts 1,337,412 73,158

TOTAL CURRENT LIABILITIES 85,564,717 110,445,754

6 unchanged sentences

SHAREHOLDERS’ EQUITY:

Preferred Stock, $0.0001 par value, 1,000,000 shares authorized , no shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

Common Stock, $0.0001 par value, 100,000,000 shares authorized, 53,050,211 shares issued, and 52,145,096 shares outstanding as of March 31, 2020 and December 31, 2019, respectively

Treasury Stock, at cost, 905,115 shares as of March 31, 2020 and December 31, 2019, respectively

Preferred Stock, $ 0.0001 par value, 1,000,000 shares authorized , no shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Common Stock, $ 0.0001 par value, 100,000,000 shares authorized, 53,050,211 shares issued, and 52,145,096 shares outstanding as of June 30, 2020 and December 31, 2019, respectively

Treasury Stock, at cost, 905,115 shares as of June 30, 2020 and December 31, 2019, respectively

( 12,038,030 ) ( 12,038,030 )

Additional paid-in capital 599,617,009 599,617,009

1 unchanged sentence

Total shareholders’ equity attributable to HF Foods Group Inc.

259,465,100 603,407,945

Noncontrolling interest 4,065,910 4,248,787

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months Ended Mar 31,

For the three months ended June 30, For the six months ended June 30,

2020 2019 2020 2019

Net revenue - third parties $ 101,103,767 $ 70,648,233 $ 271,743,781 $ 140,952,144

4 unchanged sentences

TOTAL COST OF REVENUE 83,947,312 62,206,053 230,775,603 124,300,219

GROSS PROFIT 20,612,784 12,512,153 49,587,829 25,219,009

DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES 25,092,568 11,094,041 54,499,161 21,459,213

2 unchanged sentences

Interest income 132 152,518 263 304,467

Interest expense and bank charges

Interest expenses ( 324,319 ) ( 388,160 ) ( 2,275,888 ) ( 725,118 )

Goodwill impairment loss — — ( 338,191,407 ) —

Other income 264,730 338,995 670,380 623,530

Change in fair value of interest rate swap contracts ( 1,264,254 ) — ( 1,264,254 ) —

Total Other Income (Expenses), net ( 1,323,711 ) 103,353 ( 341,060,906 ) 202,879

INCOME (LOSS) BEFORE INCOME TAX PROVISION

INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) ( 5,803,495 ) 1,521,465 ( 345,972,238 ) 3,962,675

PROVISION (BENEFIT) FOR INCOME TAXES ( 1,489,305 ) 460,751 ( 1,971,516 ) 1,108,390

NET INCOME (LOSS) ( 4,314,190 ) 1,060,714 ( 344,000,722 ) 2,854,285

net income attributable to noncontrolling interest

net income (loss) attributable to noncontrolling interest ( 255,287 ) 37,819 ( 57,877 ) 158,577

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

$ ( 4,058,903 ) $ 1,022,895 $ ( 343,942,845 ) $ 2,695,708

Earnings (loss) per common share - basic and diluted $ ( 0.08 ) $ 0.05 $ ( 6.60 ) $ 0.12

1 unchanged sentence

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the three month Ended Mar 31, 2020 and 2019

Total Shareholders’ Equity

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the three and six month ended June 30, 2020 and 2019

Common Stock Treasury

Stock Additional

Capital Retained

Deficit) Total Shareholders’

Noncontrolling

Interest Total

Shareholders’

Balance at December 31, 2019

Shares Amount

Balance at January 1, 2020 52,145,096 $ 5,305 $ ( 12,038,030 ) $ 599,617,009 $ 15,823,661 $ 603,407,945 $ 4,248,787 $ 607,656,732

Net income (loss) — — — — ( 339,883,942 ) ( 339,883,942 ) 197,410 ( 339,686,532 )

1 unchanged sentence

Balance at March 31, 2020 52,145,096 5,305 ( 12,038,030 ) 599,617,009 ( 324,060,281 ) 263,524,003 4,321,197 267,845,200

Balance at December 31, 2018

Net loss — — — — ( 4,058,903 ) ( 4,058,903 ) ( 255,287 ) ( 4,314,190 )

Balance at June 30, 2020 52,145,096 $ 5,305 $ ( 12,038,030 ) $ 599,617,009 $ ( 328,119,184 ) $ 259,465,100 $ 4,065,910 $ 263,531,010

Balance at January 1, 2019 22,167,486 $ 2,217 $ — $ 22,920,603 $ 10,433,984 $ 33,356,804 $ 1,104,678 $ 34,461,482

Net income — — — — 1,672,813 1,672,813 120,757 1,793,570

Balance at March 31, 2019 22,167,486 2,217 — 22,920,603 12,106,797 35,029,617 1,225,435 36,255,052

Net income — — — — 1,022,895 1,022,895 37,819 1,060,714

Distribution to shareholders — — — — — — ( 90,000 ) ( 90,000 )

Balance at June 30, 2019 22,167,486 $ 2,217 $ — $ 22,920,603 $ 13,129,692 $ 36,052,512 $ 1,173,254 $ 37,225,766

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months Ended Mar 31,

For the six months ended June 30,

Cash flows from operating activities:

Net Income (loss) $ ( 344,000,722 ) $ 2,854,285

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

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

Depreciation and amortization expense 8,995,488 1,434,819

3 unchanged sentences

Allowance for inventories 43,496 —

Deferred tax expenses (benefit)

Deferred tax benefit ( 2,497,040 ) ( 97,832 )

Income from equity method investment ( 50,337 ) —

Change in fair value of interest rate swap contracts 1,264,254 —

Changes in operating assets and liabilities:

1 unchanged sentence

Accounts receivable - related parties, net 3,153,318 ( 397,959 )

Inventories 10,705,175 ( 3,947,104 )

Advances to suppliers - related parties, net 615,503 296,823

4 unchanged sentences

Accounts payable - related parties ( 2,130,874 ) ( 469,601 )

Advance from customers - related parties

Operating lease liability ( 200,163 ) —

Income tax payable — 12,836

Accrued expenses

Accrued expenses and other liabilities 354,844 286,844

Net cash provided by operating activities 32,417,651 2,070,308

2 unchanged sentences

Proceeds from disposal of equipment 90,879 263,699

Cash received from note receivable — 115,305

Payment made for notes receivable — ( 108,750 )

9 unchanged sentences

Repayment of long-term debt ( 2,873,572 ) ( 1,101,973 )

Repayment of long-term debt - related parties

Repayment of obligations under finance leases ( 135,737 ) ( 247,662 )

11 unchanged sentences

HF Foods Group Inc.

(“HF Group”, or the “Company”) markets and distributes fresh produces, frozen and dry food, and non- food products to primarily Asian restaurants and other foodservice customers throughout the Southeast, Pacific and Mountain West regions in the United States.

(“HF Group”, or the “Company”) markets and distributes fresh produce, frozen and dry food, and non- food products to primarily Asian restaurants and other food service customers throughout the Southeast, Pacific and Mountain West regions in the United States.

The Company was originally incorporated in Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp.

21 unchanged sentences

The effects of intra-entity transactions on current assets, current liabilities, revenue, and cost of sales for periods presented and on retained earnings at the beginning of the periods presented are eliminated to the extent possible.

Furthermore, ASC 805-50-45-5 indicates that the financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

Furthermore, ASC 805-50-45-5 indicates that the financial

statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

In accordance with ASC 805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests should initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of the transfer.

1 unchanged sentence

Accordingly, the Company has recorded the assets and liabilities transferred from the above entities at their carrying amount.

On July 10, 2019, the Company, through its subsidiary Han Feng, Inc., formed a new real estate holding company, R & N Charlotte, LLC (“R&N Charlotte”).

R&N Charlotte owns a 4.66 acre tract of land with appurtenant 115,570 square foot office/warehouse/industrial facility located in Charlotte, North Carolina.

The following table summarizes the entities under HF Foods Group Inc.

after the above-mentioned reorganization:

Date of formation /

incorporation

Place of formation /

incorporation

October 11, 2017

North Carolina

Holding company

The following table summarizes all the existing entities under HF Holding after the above-mentioned reorganization, together with new entities formed after the Atlantic Transactions as described below:

Name Date of formation /

incorporation Place of formation /

incorporation Percentage

by HF Group Principal activities

HF Holding October 11, 2017 North Carolina 100 % Holding company

Subsidiaries:

January 14, 1997

North Carolina

Food service distributor

August 6, 2002

North Carolina

Logistic service provider

April15, 1999

North Carolina

Logistic service provider

November 21, 2002

North Carolina

Real estate holding company

R&N Lexington

North Carolina

Real estate holding company

R&N Charlotte

July 10, 2019

North Carolina

Real estate holding company

North Carolina

Design and printing services provider

July 12, 2011

North Carolina

Design and printing services provider

December 17, 2008

Food service distributor

September 12, 2001

Logistic service provider

April 11, 2006

Food service distributor

Real estate holding company

Han Feng January 14, 1997 North Carolina 100 % Food service distributor

TT August 6, 2002 North Carolina 100 % Logistic service provider

MFD April 15, 1999 North Carolina 100 % Logistic service provider

R&N Holdings November 21, 2002 North Carolina 100 % Real estate holding company

R&N Lexington May 27, 2010 North Carolina 100 % Real estate holding company

R & N Charlotte, LLC ("R&N Charlotte") July 10, 2019 North Carolina 100 % Real estate holding company

Kirnsway May 24, 2006 North Carolina 100 % Design and printing services provider

Chinesetg July 12, 2011 New York 100 % Design and printing services provider

NSF December 17, 2008 Florida 100 % Food service distributor

BB September 12, 2001 Florida 100 % Logistic service provider

Kirnland April 11, 2006 Georgia 66.67 % Food service distributor

HG Realty May 11, 2012 Georgia 100 % Real estate holding company

HF Foods Industrial, L.L.C.

("HF Foods Industrial") December 10, 2019 North Carolina 60 % Food processing company

Reverse Acquisition of HF Holding

Effective August 22, 2018, Atlantic consummated the transactions contemplated by a merger agreement (the “Atlantic Merger Agreement”), dated as of March 28, 2018, by and among Atlantic, HF Group Merger Sub Inc., a Delaware subsidiary formed by Atlantic, HF Holding, the stockholders of HF Holding, and Zhou Min Ni, as representative of the stockholders of HF Holding.

("HF Merger Sub"), a Delaware subsidiary formed by Atlantic, HF Holding, the stockholders of HF Holding, and Zhou Min Ni, as representative of the stockholders of HF Holding.

Pursuant to the Atlantic Merger Agreement, HF Holding merged with HF Merger Sub and HF Holding became the surviving entity (the “Atlantic Merger”) and a wholly owned subsidiary of Atlantic (the “Atlantic Acquisition”).

8 unchanged sentences

The assets and liabilities and results of operations of Atlantic were consolidated into the results of operations of HF Holding as of the completion of the business combination.

HF Holdings Entities Organized Post-Atlantic Merger

On July 10, 2019, the Company, through its subsidiary Han Feng, formed a new real estate holding company, R&N Charlotte.

R&N Charlotte owns a 4.66 acre tract of land with appurtenant 115,570 square foot office/warehouse/industrial facility located in Charlotte, North Carolina.

On December 10, 2019, the Company, through its subsidiary Han Feng, formed a new food processing company, HF Foods Industrial, as owner of 60 % of member interests.

Business Combination with B&R Global

Effective November 4, 2019, HF Group consummated the transactions contemplated by a merger agreement (the “B&R Merger Agreement”), dated as of June 21, 2019, by and among the Company, B&R Merger Sub Inc., a Delaware corporation (“Merger Sub”), B&R Global, the stockholders of B&R Global (the ”B&R Global Stockholders”), and Xiao Mou Zhang, as representative of the stockholders (the “Business Combination”).

("B&R Global"), the stockholders of B&R Global (the ”B&R Global Stockholders”), and Xiao Mou Zhang, as representative of the stockholders (the “Business Combination”).

Upon the closing of the transactions contemplated by the B&R Merger Agreement (the “Closing”), Merger Sub merged with and into B&R Global, resulting in B&R Global becoming a wholly owned subsidiary of HF Group.

HF Group acquired 100% of the controlling interest of B&R Global, in exchange for 30,700,000 shares of HF Group Common Stock.

HF Group acquired 100 % of the ownership interest of B&R Global, in exchange for 30,700,000 shares of HF Group Common Stock.

Pursuant to the B&R Merger Agreement, the aggregate fair value of the consideration paid by HF Group in the business combination was $ 576,699,494 , based on the closing share price of the Company’s common stock at the date of Closing.

Founded in 1999, B&R Global supplies approximately 6,800 restaurants across 11 Western states, and combined with HF Group, creates what we believe is the largest food distributors to Asian restaurants in the United States.

The combined entity now has 14 distribution centers strategically located in nine states across the East and West Coasts of the United States and a fleet of over 340 refrigerated vehicles.

With 960 employees supported by two call centers in China, HF Group now serves over 10,000 restaurants in 21 states and provides round-the-clock sales and service support to its customers, who mainly converse in Mandarin or Chinese dialects.

Founded in 1999, B&R Global supplies food items to approximately 6,800 restaurants across 11 Western states, and combined with HF Group, creates what the Company believes the largest food distributor to Asian restaurants in the United States.

The combined entity now has 14 distribution centers strategically located in nine states across the Southeast, Pacific and Mountain West regions of the United States and operates a fleet of over 340 refrigerated vehicles.

With approximately 960 employees supported by two call centers in China, HF Group now serves over 10,000 restaurants in 21 states and provides round-the-clock sales and service support to its customers, who mainly converse in Mandarin or Chinese dialects.

The following table summarizes the entities under B&R Global in the Business Combination:

Date of formation /

incorporation

Place of formation /

incorporation

Percentage of legal

ownership by B&R

Principal activities

January 3, 2014

Delaware, USA

Holding Company

Name Date of formation /

incorporation Place of formation /

incorporation Percentage

Global Principal activities

B&R Global January 3, 2014 Delaware, USA — Holding Company

Subsidiaries:

Rongcheng Trading, LLC (“RC”)

January 31, 2006

California, USA

Food service distributor

Capital Trading, LLC (“UT”)

March 10, 2003

Food service distributor

Win Woo Trading, LLC (‘WW”)

January 23, 2004

California, USA

Food service distributor

Mountain Food, LLC (“MF”)

Colorado, USA

Food service distributor

Rongcheng Trading, LLC (“RC”) January 31, 2006 California, USA 100 % Food service distributor

Capital Trading, LLC (“UT”) March 10, 2003 Utah, USA 100 % Food service distributor

Win Woo Trading, LLC (‘WW”) January 23, 2004 California, USA 100 % Food service distributor

Mountain Food, LLC (“MF”) May 2, 2006 Colorado, USA 100 % Food service distributor

R & C Trading L.L.C.

November 26, 2007

Food service distributor

Great Wall Seafood LA, LLC (“GW”)

March 7, 2014

California, USA

Food service distributor

B&L Trading, LLC (“BNL”)

July 18, 2013

Washington, USA

Food service distributor

(“RNC”) November 26, 2007 Arizona, USA 100 % Food service distributor

Great Wall Seafood LA, LLC (“GW”) March 7, 2014 California, USA 100 % Food service distributor

B&L Trading, LLC (“BNL”) July 18, 2013 Washington, USA 100 % Food service distributor

Min Food, Inc.

California, USA

Food service distributor

B&R Group Logistics Holding, LLC (“BRGL”)

July 17, 2014

Delaware, USA

Food service distributor

Ocean West Food Services, LLC (“OW”)

December 22, 2011

California, USA

Food service distributor

Monterey Food Service, LLC (“MS”)

September 14, 2017

California, USA

Food service distributor

Irwindale Poultry, LLC (“IP”)

December 27, 2017

California, USA

Poultry processing

Best Choice Trucking, LLC (“BCT”)

January 1, 2011

California, USA

Logistic service provider

(“MIN”) May 29, 2014 California, USA 60.25 % Food service distributor

B&R Group Logistics Holding, LLC (“BRGL”) July 17, 2014 Delaware, USA 100 % Logistic service provider

Ocean West Food Services, LLC (“OW”) December 22, 2011 California, USA 67.5 % Food service distributor

Monterey Food Service, LLC (“MS”) September 14, 2017 California, USA 65 % Food service distributor

Irwindale Poultry, LLC (“IP”) December 27, 2017 California, USA 100 % Poultry processing company

Best Choice Trucking, LLC (“BCT”) January 1, 2011 California, USA 100 % Logistic service provider

KYL Group, Inc.

April 18, 2014

Logistic service provider

(“KYL”) April 18, 2014 Nevada, USA 100 % Logistic service provider

American Fortune Foods Inc.

February 19, 2014

California, USA

Logistic and import service provider

(“AF”) February 19, 2014 California, USA 100 % Logistic and import service provider

Happy FM Group, Inc.

April 9, 2014

California, USA

Logistic service provider

(“HFM”) April 9, 2014 California, USA 100 % Logistic service provider

GM Food Supplies, Inc.

March 22, 2016

California, USA

Logistic service provider

(“GM”) March 22, 2016 California, USA 100 % Logistic service provider

Lin’s Distribution Inc., Inc.

February2, 2010

Logistic service provider

Lin’s Farms, LLC (“LNF”)

Poultry processing

New Berry Trading, LLC (“NBT”)

September 5, 2012

California, USA

Logistic service provider

(“LIN”) February 2, 2010 Utah, USA 100 % Logistic service provider

Lin’s Farms, LLC (“LNF”) July 2, 2014 Utah, USA 100 % Poultry processing company

New Berry Trading, LLC (“NBT”) September 5, 2012 California, USA 100 % Logistic service provider

Hayward Trucking, Inc.

September 5, 2012

California, USA

Logistic service provider

(“HRT”) September 5, 2012 California, USA 100 % Logistic service provider

Fuso Trucking Corp.

January 20, 2015

California, USA

Logistic service provider

Yi Z Service LLC (“YZ”)

October2, 2017

California, USA

Logistic service provider

(“FUSO”) January 20, 2015 California, USA VIE* Logistic service provider

Yi Z Service, LLC (“YZ”) October 2, 2017 California, USA 100 % Logistic service provider

Golden Well Inc.

November 8, 2011

California, USA

Logistic service provider

(“GWT”) November 8, 2011 California, USA 100 % Logistic service provider

Kami Trading Inc.

November 20, 2013

California, USA

Import service provider

(“KAMI”) November 20, 2013 California, USA 100 % Import service provider

Royal Trucking Services, Inc.

Washington, USA

Logistic service provider

(“RTS”) May 19, 2015 Washington, USA 100 % Logistic service provider

Royal Service Inc.

December 29, 2014

Logistic service provider

(“RS”) December 29, 2014 Oregon, USA 100 % Logistic service provider

MF Food Services, Inc.

December 21, 2017

California, USA

Logistic service provider

*At the acquisition date and as of March 31, 2020, B&R Global consolidates FUSO, which is considered as a variable interest entity (“VIE”) under U.S.

(“MFS”) December 21, 2017 California, USA 100 % Logistic service provider

* At the acquisition date and as of June 30, 2020, B&R Global consolidates FUSO, which is considered as a variable interest entity (“VIE”) under U.S.

GAAP, due to its pecuniary and contractual interest in this entity as a result of the funding arrangements outlined in the entity.

Acquisition of Real Estate Companies

On January 17, 2020, the Company completed the transactions contemplated by that certain membership interest purchase agreement dated the same date (the “Purchase Agreement”) by and among its subsidiary B&R Global, B&R Group Realty Holding, LLC ("B&R Group Realty"), and nine subsidiary limited liability companies wholly owned by B&R Group Realty (the “B&R Realty Subsidiaries”) (the “Realty Acquisition”).

Pursuant to the Purchase Agreement, B&R Global acquired all equity membership interests in the B&R Realty Subsidiaries, which own warehouse facilities that were being leased by the Company for its operations in California, Arizona, Utah, Colorado, Washington, and Montana for purchase consideration of $101,269,706.

Consideration for the Acquisition was funded by (i) $75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (Note 10), (ii) issuance by B&R Global of a $7.0 million Unsecured Subordinated Promissory Note (the “Note”) to B&R Group Realty, and (iii) payment of $18.7 million from funds drawn from the Company’s revolving credit facility.

The following table summarizes B&R Global’s additional wholly owned subsidiaries as a result of Realty Acquisition:

Date of formation /

incorporation

Place of formation /

incorporation

Percentage of legal

ownership by B&R

Principal activities

March 26, 2020

Real estate holding company

B & R Realty, LLC

August 28, 2013

Real estate holding company

Big Sea Realty, LLC

April 3, 2013

Real estate holding company

Fortune Liberty, LLC

November 22, 2006

Real estate holding company

Genstar Realty, LLC

February 27, 2012

Real estate holding company

Hardin St Properties, LLC

December 5, 2012

Real estate holding company

Lenfa Food, LLC

February 14, 2002

Real estate holding company

Lucky Realty, LLC

September 3, 2003

Real estate holding company

Murray Properties, LLC

February 27, 2013

Real estate holding company

On January 17, 2020, the Company completed the transactions contemplated by that certain membership interest purchase agreement dated the same date (the “Purchase Agreement”) by and among its subsidiary B&R Global, B&R Group Realty Holding, LLC ("BRGR"), and nine subsidiary limited liability companies wholly owned by BRGR (the “BRGR Subsidiaries”) (the “Realty Acquisition”).

Pursuant to the Purchase Agreement, B&R Global acquired all equity membership interests in the BRGR Subsidiaries, which own 10 warehouse facilities that were being leased by the Company for its operations in California,

Arizona, Utah, Colorado, Washington, and Montana for purchase consideration of $ 101,269,706 .

Consideration for Realty Acquisition was funded by (i) $ 75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 11 for additional information), (ii) issuance by B&R Global of a $ 7.0 million Unsecured Subordinated Promissory Note (the “Note”) to BRGR, and (iii) payment of $ 18.7 million from funds drawn from the Company’s revolving credit facility.

The following table summarizes B&R Global’s additional wholly owned subsidiaries as a result of the Realty Acquisition:

Name Date of formation /

incorporation Place of formation /

incorporation Percentage of legal

ownership by B&R Global Principal activities

A & Kie, LLC ("AK") March 26, 2010 Arizona 100 % Real estate holding company

B & R Realty, LLC ("BRR") August 28, 2013 California 100 % Real estate holding company

Big Sea Realty, LLC ("BSR") April 3, 2013 Washington 100 % Real estate holding company

Fortune Liberty, LLC ("FL") November 22, 2006 Utah 100 % Real estate holding company

Genstar Realty, LLC ("GSR") February 27, 2012 California 100 % Real estate holding company

Hardin St Properties, LLC ("HP") December 5, 2012 Montana 100 % Real estate holding company

Lenfa Food, LLC ("LF") February 14, 2002 Colorado 100 % Real estate holding company

Lucky Realty, LLC ("LR") September 3, 2003 California 100 % Real estate holding company

Murray Properties, LLC ("MP") February 27, 2013 Utah 100 % Real estate holding company

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

GAAP for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and have been consistently applied.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

These financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended December 31, 2019 and 2018.

Operating results for the three and six month periods ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The unaudited condensed consolidated financial statements include the financial statements of HF Group, its subsidiaries and the VIE.

5 unchanged sentences

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

As of March 31, 2020 and December 31, 2019, FUSO is considered to be a VIE.

As of June 30, 2020 and December 31, 2019, FUSO is considered to be a VIE.

FUSO was established solely to provide exclusive services to the Company.

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

The entity lacks sufficient equity to finance its activities without additional subordinated financial support from the Company, and the Company has the power to direct the VIE's activities.

In addition, the Company receives the economic benefits from the entity and has concluded that the Company is a primary beneficiary.

The carrying amounts of the assets, liabilities, the results of operations and cash flows of the VIE is included in the Company’s consolidated balance sheets, statements of income and statements of cash flows are as follows:

The carrying amounts of the assets, liabilities, the results of operations and cash flows of the VIE included in the Company’s unaudited condensed consolidated balance sheets, statements of operations, and statements of cash flows are as follows:

2020 December 31,

Current assets $ 248,364 $ 158,184

Non-current assets 215,673 301,803

Total assets $ 464,037 $ 459,987

Current liabilities $ 606,491 $ 805,666

1 unchanged sentence

Total liabilities $ 779,592 $ 874,987

For the three months ended March 31

For the three months ended June 30, For the six months ended June 30,

2020 2019 2020 2019

Net revenue $ 415,377 $ — $ 1,081,805 $ —

Net income $ 34,667 $ — $ 99,445 $ —

For the three months ended June 30, For the six months ended June 30,

2020 2019 2020 2019

Net cash provided by operating activities $ 19,978 $ — $ 334,202 $ —

Net cash used in financing activities ( 23,475 ) — ( 245,612 ) —

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents $ ( 3,497 ) $ — $ 88,590 $ —

Noncontrolling Interests

1 unchanged sentence

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

As of March 31, 2020 and December 31, 2019, noncontrolling interest consisted of the following:

Name of Entity

Percentage of

noncontrolling interest

As of June 30, 2020 and December 31, 2019, noncontrolling interests consisted of the following:

Name of Entity Percentage of

noncontrolling

interest ownership June 30,

2020 December 31,

Kirnland 33.33 % $ 1,313,108 $ 1,292,623

OW 32.50 % 1,602,298 1,600,058

MS 35.00 % 472,323 459,126

MIN 39.75 % 678,181 896,980

Total $ 4,065,910 $ 4,248,787

Uses of Estimates

5 unchanged sentences

The Company considers all highly liquid investments purchased with a maturity of three or fewer months to be cash equivalents.

As of March 31, 2020 and December 31, 2019, the Company had no cash equivalents.

As of June 30, 2020 and December 31, 2019, the Company had no cash equivalents.

Accounts Receivable

5 unchanged sentences

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

As of March 31, 2020 and December 31, 2019, the allowances for doubtful accounts were $819,807 and $623,970, respectively.

As of June 30, 2020 and December 31, 2019, the allowances for doubtful accounts were $ 2,283,458 and $ 623,970 , respectively.

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

2 unchanged sentences

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method.

As of March 31, 2020, and December 31, 2019, the valuation allowance was $316,368 and $16,928, respectively.

As of June 30, 2020 and December 31, 2019, the valuation allowance was $ 60,424 and $ 16,928 , respectively.

Property and Equipment

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Estimated useful lives

Tradenames 10

Customer relationships 20

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The Company makes a qualitative assessment of whether the investment is impaired at each reporting date.

If a qualitative assessment indicates that the investment is impaired, the Company has to estimate the investment’s fair value in accordance with the principles of ASC Topic 820 (“ASC 820”), Fair Value Measurements and Disclosures .

Value Measurements and Disclosures .

If the fair value is less than the investment’s carrying value, the entity has to recognize an impairment loss in net income equal to the difference between the carrying value and fair value.

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An impairment loss on the equity method investments is recognized in earnings when the decline in value is determined to be other-than-temporary.

The Company did not record any impairment loss on its long-term investments as of March 31, 2020 and December 31, 2019.

The Company did no t record any impairment loss on its long-term investments as of June 30, 2020 and December 31, 2019.

Impairment of Long-lived Assets Other Than Goodwill

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If property and equipment, and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair value.

The Company did not record any impairment loss on its long-lived assets as of March 31, 2020 and December 31, 2019.

The Company did no t record any impairment loss on its long-lived assets as of June 30, 2020 and December 31, 2019.

Revenue Recognition

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The Company’s revenue streams are recognized at a specific point in time.

The contract assets and contract liabilities are recorded on the consolidated balance sheets as accounts receivable and advances from customers as of March 31, 2020 and December 31, 2019.

For three months ended March 31, 2020 and 2019, revenue recognized from performance obligations related to prior periods was insignificant.

For the three and six month periods ended June 30, 2020 and 2019, revenue recognized from performance obligations related to prior periods was insignificant.

Revenue expected to be recognized in any future periods related to remaining performance obligations is insignificant.

The following table summarizes disaggregated revenue from contracts with customers by geographic locations:

For the Three Months Ended

For the Three Months Ended For the Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

North Carolina $ 21,266,959 $ 35,624,947 $ 50,984,476 $ 70,884,714

Florida 11,309,093 22,753,309 30,394,902 45,884,051

Georgia 8,072,633 16,339,950 22,174,887 32,750,463

Arizona 6,914,288 — 16,926,037 —

California 34,492,561 — 102,157,517 —

Colorado 7,532,674 — 16,441,667 —

Utah 10,294,374 — 25,292,749 —

Washington 4,677,514 — 15,991,197 —

Total $ 104,560,096 $ 74,718,206 $ 280,363,432 $ 149,519,228

Shipping and Handling Costs

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

Shipping and handling costs were $2,558,233 and $1,051,120 for the three months ended March 31, 2020 and 2019, respectively.

Shipping and handling costs were $ 3,526,249 and $ 2,078,850 for the six months ended June 30, 2020 and 2019, and $ 968,016 and $ 1,027,730 for the three months ended June 30, 2020 and 2019, respectively.

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

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The Company records uncertain tax positions in accordance with ASC 740 (“ASC 740”), Income Taxes , on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company does not believe that there were any uncertain tax positions at March 31, 2020 and December 31, 2019.

The Company does not believe that there were any uncertain tax positions at June 30, 2020 and December 31, 2019.

On January 1, 2019, the Company adopted ASU 2016-2, Leases ("Topic 842") .

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and (3) initial direct costs for any existing leases.

The adoption of Topic 842 did not have a material impact on the Company’s consolidated statements of operations.

The adoption of Topic 842 resulted in the presentation of $21.2 million of operating lease assets and operating lease liabilities on the consolidated balance sheet as of January 1, 2019.

The adoption of Topic 842 did not have a material impact on the Company’s condensed consolidated statements of operations.

The adoption of Topic 842 resulted in the presentation of $ 21.2 million of operating lease assets and operating lease liabilities on the consolidated balance sheet as of January 1, 2019 on a pro forma basis.

As a result of the Realty Acquisition (see Note 8 for additional information), nine leases previously included in the operating lease asset and liabilities balance were eliminated during consolidation.

As of June 30, 2020 and December 31, 2019, the balances for operating lease assets and liabilities were $ 785,478 and $ 17,155,584 , respectively.

See Note 13 for additional information.

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

There is no anti-dilutive effect for the three months ended March 31, 2020 and 2019.

There is no anti-dilutive effect for the three and six month periods ended June 30, 2020 and 2019.

Fair Value of Financial Instruments

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• Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions about what assumptions market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash, accounts receivable, advances to suppliers, other current assets, accounts payable, bank overdraft, income tax payable, advances from customers – related parties, current portion of long-term debt, current portion of obligations under finance and operating leases, and accrued expenses and other liabilities approximate their fair value based on the short-term maturity of these instruments.

Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized at the end of the reporting period in which the transfer occurs.

There were no transfers between fair value levels in any of the periods presented herein.

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash, accounts receivable, advances to suppliers, other current assets, accounts payable, bank overdraft, income tax payable, current portion of long-term debt, current portion of obligations under finance and operating leases, and accrued expenses and other liabilities approximate their fair value based on the short-term maturity of these instruments.

Derivative Financial Instrument

In accordance with the guidance in ASC Topic 815 ("ASC 815"), Derivatives and Hedging, d erivative financial instruments are recognized as assets or liabilities on the unaudited condensed consolidated balance sheets at fair value.

The Company has not designated its interest rate swap ("IRS") contracts as hedges for accounting treatment.

Pursuant to U.S.

GAAP, income or loss from fair value changes for derivatives that are not designated as hedges by management are reflected as income or loss on the statement of operations.

Net amounts received or paid under the interest rate swap contracts are recognized as an increase or decrease to interest expense when such amounts are incurred.

The Company is exposed to credit loss in the event of nonperformance by the counterparty.

Concentrations and Credit Risk

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Concentration risk

There were no receivables from any one customer representing more than 10% of the Company’s consolidated gross accounts receivable at March 31, 2020 and December 31, 2019.

For the three months ended March 31, 2020 and 2019, no supplier accounted for more than 10% of the total cost of revenue.

As of March 31, 2020, two suppliers accounted for 56% and 15% of total advance payments outstanding and these two suppliers accounted for 79% and 21% of advance payments to related parties, respectively.

As of December 31, 2019, two suppliers accounted for 34% and 15% of total advance payments outstanding and these two suppliers accounted for 70% and 30% of advance payments to related parties, respectively.

There were no receivables from any one customer representing more than 10 % of the Company’s consolidated gross accounts receivable at June 30, 2020 and December 31, 2019.

For the three months ended June 30, 2020 and 2019, no supplier accounted for more than 10 % of the total cost of revenue.

As of June 30, 2020, there were two suppliers that accounted for 16 % and 15 % of total outstanding advance payments, respectively, and one of them accounted for 100 % of advance payments to related parties.

As of December 31, 2019, two suppliers accounted for 34 % and 15 % of total outstanding advance payments, respectively, and these two suppliers accounted for 70 % and 30 % of advance payments to related parties, respectively.

Recent Accounting Pronouncements

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This guidance is effective for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years.

For emerging growth companies, the effective date is has been extended to fiscal years beginning after December 31, 2022.

The Company is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement .

ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820 “Fair Value Measurement”.

ASU 2018-13 eliminates certain disclosures related to transfers and the valuations process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements.

ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning January 1, 2020.

The Company adopted ASU 2018-13 on January 1, 2020 and the adoption did not have any material impact on its consolidated financial statements.

For emerging growth companies, the effective date has been extended to fiscal years beginning after December 31, 2022.

The Company is currently assessing the impact of adopting this standard, but based upon its preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740):

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This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company is currently assessing the impact of adopting this standard, but based on its preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

NOTE 3 - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following:

As of June 30,

2020 As of December 31,

Accounts receivable $ 25,449,736 $ 50,651,104

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Movement of allowance for doubtful accounts is as follows:

For the Three Months Ended

For the Six Months Ended

2020 June 30,

Beginning balance $ 623,970 $ 658,104

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Long-term investments consisted of the following:

Ownership as of March 31,

March 31, 2020

December 31, 2019

Ownership as of June 30,

2020 As of June 30, 2020 As of December 31, 2019

Tamron Akuatik Produk Industri 12 % $ 1,800,000 $ 1,800,000

Asahi Food, Inc.

49 % 546,613 496,276

Long-term investments $ 2,346,613 $ 2,296,276

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

The Company believes there was no impairment as of March 31, 2020 and December 31, 2019 for these investments.

The Company believes there was no impairment as of June 30, 2020 and December 31, 2019 for these investments.

NOTE 6 - PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

As of June 30,

2020 As of December 31,

Land $ 50,744,295 $ 2,010,253

Buildings and improvements 80,707,118 26,903,528

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Motor vehicles 24,596,718 23,841,730

Subtotal 171,046,286 66,168,472

accumulated depreciation ( 31,773,447 ) ( 28,630,325 )

Property and equipment, net $ 139,272,839 $ 37,538,147

The Company acquired $102,331,567 of property and equipment from acquisition of assets from B&R Realty Group on January 17, 2020.

The Company acquired $ 102,331,567 of property and equipment resulting from an acquisition of assets from B&R Realty Group on January 17, 2020.

See Note 8 for additional information.

Depreciation expense was $1,651,505 and $707,396 for the three months ended March 31, 2020 and 2019, respectively.

Depreciation expense was $ 3,264,862 and $ 1,428,806 for the six month periods ended June 30, 2020 and 2019, respectively, and $ 1,607,452 and $ 721,410 for the three month periods ended June 30, 2020 and 2019, respectively.

NOTE 7 - BUSINESS COMBINATION WITH B&R GLOBAL

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HF Group is considered as both the legal and accounting acquirer based on the fact that there was no change of control in connection with this business combination.

The aggregate fair value of the consideration paid by HF Group in the business combination is $576,699,494 and is based on the closing share price of the Company’s common stock at the date of Closing.

The aggregate fair value of the consideration paid by HF Group in the business combination was $ 576,699,494 based upon the closing share price of the Company’s common stock at the date of Closing.

The information included herein has been prepared based on the allocation of the purchase price using estimates of the fair value of assets acquired and liabilities assumed which were determined with the assistance of independent valuations using quoted market prices, discounted cash flow, and estimates made by management.

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The following table presents the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

Cash $ 7,017,467

Accounts receivable, net 30,934,831

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Property and equipment, net 11,042,601

Deposit 281,282

Deposit – related parties 591,380

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Right-of-use assets 17,791,681

TANGIBLE ASSETS ACQUIRED

Lines of credit

Total tangible assets acquired 132,722,684

Line of credit 35,567,911

Accounts payable 24,884,247

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Deferred tax liabilities arising from acquired intangible assets 51,413,633

TANGIBLE LIABILITIES ASSUMED

Total tangible liabilities assumed 148,288,538

Net tangible liabilities assumed ( 15,565,854 )

Identifiable intangible assets 188,503,000

Goodwill 406,703,348

Intangible assets acquired 595,206,348

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The Company recorded acquired intangible assets of $ 188,503,000 .

These intangible assets include tradenames of $29,303,000 and customer relationships of $159,200,000.

These intangible assets include tradenames valued at $ 29,303,000 and customer relationships valued at $ 159,200,000 .

The associated goodwill and intangible assets are not deductible for tax purposes.

The amounts of revenue and earnings of B&R Global included in the Company’s consolidated statement of income for the three months ended March 31, 2020 are as follows:

For the three

The following table presents the Company’s unaudited pro forma results for the three months ended March 31, 2019, as if the Business Combination had occurred on January 1, 2019.

The amounts of revenue and earnings of B&R Global included in the Company’s consolidated statement of operations for the three and six month periods ended June 30, 2020 are as follows:

For the three months ended June 30,

2020 For the six months ended June 30,

Net Revenue $ 63,911,411 $ 176,809,167

Net Loss $ ( 5,541,887 ) $ ( 345,848,729 )

The following table presents the Company’s unaudited pro forma results for the three and six month periods ended June 30, 2019, as if the Business Combination had occurred on January 1, 2019.

The unaudited pro forma financial information presented includes the effects of adjustments related to the amortization of acquired intangible assets, and excludes other non-recurring transaction costs directly associated with the acquisition such as legal and other professional service fees.

Statutory rates were used to calculate income taxes.

For the three

For the three months ended June 30,

2019 For the six months ended June 30,

Pro forma net revenue $ 208,033,452 $ 416,988,818

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Pro forma weighted average shares - basic and diluted 52,867,486 52,867,486

Includes intangibles asset amortization expense of $2,722,575 for the three months ended March 31, 2019.

(1) Includes intangibles asset amortization expense of $ 2,722,575 for the three months ended June 30, 2019 and 5,445,150 for the six months ended June 30, 2019, respectively.

NOTE 8 - ACQUISITION OF B&R REALTY SUBSIDIARIES

On January 17, 2020, B&R Global acquired all equity membership interests in the B&R Realty subsidiaries, which own warehouse facilities that were being leased by B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.

Co-CEO of the Company, Xiao Mou Zhang, managed and owned an 8.91% interest in B&R Group Realty.

The total purchase price for the acquisition was $101,269,706, which is based on fair market value appraisals of the properties owned by the B&R Realty subsidiaries.

The Company notes that substantially all of the fair value of the gross assets acquired is concentrated in a group of similar assets (land and buildings in which the buildings are all used for warehousing and distribution purposes).

As such, the acquisition of Selling B&R Global Realty Subsidiaries would be deemed an asset acquisition under ASC 805-10-55, and the total purchase price is allocated on a relative fair value basis to the net assets acquired.

Consideration for the acquisition was funded by (i) $75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 11 for additional information), (ii) issuance by B&R Global of a $7.0 million Unsecured Subordinated Promissory Note to B&R Group Realty maturing on January 17, 2030, and (iii) payment of $18.7 million from funds drawn from the Company’s revolving credit facility.

The reissuance of the mortgage-backed term loans released B&R Group Realty from its obligations to the lenders under the First Amended Credit Agreement (See Note 10 for additional information) and predecessor financing arrangements.

On January 17, 2020, B&R Global acquired 100 % equity membership interests of the subsidiaries of BRGR, which own warehouse facilities that were being leased by B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.

Co-CEO of the Company, Xiao Mou Zhang, managed and owned an 8.91 % interest in BRGR.

The total purchase price for the acquisition was $ 101,269,706 , based on independent appraisals of the fair market value of the properties.

The Company notes that substantially all of the fair value of the gross assets acquired is concentrated in a group of similar assets (land and buildings all used for warehousing and distribution purposes).

As such, the acquisition of BRGR Subsidiaries would be deemed an asset acquisition under ASC 805-10-55, and the total purchase price is allocated on a relative fair value basis to the net assets acquired.

Consideration for the acquisition was funded by (i) $ 75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 12 for additional information), (ii) issuance by B&R Global of a $ 7.0 million Unsecured Subordinated Promissory Note to BRGR maturing on January 17, 2030, and (iii) payment of $ 18.7 million from funds drawn from the Company’s revolving credit facility.

The reissuance of the mortgage-backed term loans released BRGR from its obligations to the lenders under the First Amended Credit Agreement (See Note 11 for additional information) and predecessor financing arrangements.

The following table presents the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

ASSETS ACQUIRED

Cash $ 265,639

Automobile 33,690

Prepaids 39,193

Land 48,734,042

Buildings 53,563,835

Total assets acquired 102,636,399

Accounts payable and accrued expenses 1,366,693

LIABILITIES ASSUMED

Total liabilities assumed 1,366,693

Net assets acquired $ 101,269,706

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The changes in HF Group’s carrying amount of goodwill by segment are presented below:

HF B&R Global Total

Balance at December 31, 2019 $ — $ 406,703,348 $ 406,703,348

Balance at March 31, 2020 (1)

The Company had booked approximately $406.7 million of goodwill from business combination with B&R Global on December 31, 2019.

The Company tests goodwill for impairment annually in the fourth quarter, or more frequently if events or circumstances indicate it could be impaired.

Impairment charge — ( 338,191,407 ) ( 338,191,407 )

Balance at June 30, 2020 $ — $ 68,511,941 $ 68,511,941

The Company booked approximately $ 406.7 million of goodwill on December 31, 2019, resulting from the completion of business combination with B&R Global, which represents the excess of the purchase price over the fair value of net assets acquired.

HF Group acquired 100 % of the controlling interest of B&R Global, in exchange for 30,700,000 consideration shares of HF Group Common Stock, valued at $ 576,699,494 based upon the closing share price of the Company’s common stock at the date of Closing on November 4, 2019.

The Company's policy is to test goodwill for impairment annually in the fourth quarter, or more frequently if certain triggering events or circumstances indicate it could be impaired.

Potential impairment indicators include (but are not limited to) macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit, or sustained decrease in share price.

During the first quarter of fiscal 2020, as a result of significant declines in the Company’s business due to COVID-19 pandemic, the Company determined that B&R Global reporting unit was very sensitive to these declines and that it was more likely than not that an impairment may exist.

The Company, therefore, performed an analysis of the fair value of B&R Global reporting unit as of March 31, 2020 using a discounted cash flow for goodwill impairment testing purposes.

Based on this analysis, the Company determined that the carrying value of its B&R Global reporting unit exceeded its fair value by $338.2 million.

As a result, the company recorded the amount as impairment charges during the first quarter of fiscal 2020.

The Company estimated the fair values of B&R Global reporting unit using the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment.

Towards the end of first quarter of fiscal year 2020, the Company 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.

The Company 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.

The Company, therefore, 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, the Company concluded that the carrying value of its B&R Global reporting unit exceeded its fair value by $ 338.2 million.

As a result, the company recorded the amount as impairment charges during the first quarter of fiscal year 2020.

The Company estimated the fair values of the B&R Global reporting unit using the income approach, discounting projected future cash flows based upon management’s expectations of the current and future operating environment.

The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital ("WACC"), future revenue, profitability, perpetual growth rates and fair values of assets and liabilities.

The fair value conclusions as of March 31, 2020 for the reporting unit are highly sensitive to changes in the WACC, which considered observable data about guideline publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums.

The fair value conclusions as of March 31, 2020 for the reporting unit are highly sensitive to changes in the WACC, which consider observable data about guideline publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums.

The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization.

The Company also observed the WACC applied on March 31, 2020 increased from the one on acquisition date, mainly driven by the increased risk and volatility observed in the market.

The Company also observed the WACC applied on March 31, 2020 increased from its value as of the acquisition date, mainly driven by the increased risk and volatility observed in the market.

Volatility has primarily been due to concerns about demand for food distribution services, as restaurant activity in much of the country has been reduced to takeout and delivery offerings.

Furthermore, increased uncertainty about the unwinding of these restrictions and levels of consumer spending are driving the uncertainty and subsequent volatility.

In addition, the fair value of the goodwill is sensitive to the changes in the assumptions used in the projected cash flows, which include forecasted revenues, perpetual growth rates, among others, all of which require significant judgments by management.

Furthermore, increased uncertainty about the unwinding of these restrictions and levels of consumer spending are driving these concerns and and resulting volatility.

In addition, the fair value of the goodwill is sensitive to the changes in the assumptions used in the projected cash flows, which include forecasted revenues and perpetual growth rates, among others, all of which require significant judgment by management.

The Company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model.

These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future changes, industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives.

These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future conditions, industry and global economic and geo-political factors, and the timing and success of the implementation of current strategic initiatives.

Based on the quarterly results ended June 30, 2020 and current sales run rate, which is in line with the forecast and assumptions used in the analysis of the fair value of B&R Global reporting unit as of March 31, 2020, the Company determined that no further impairment is needed for the quarter ended June 30, 2020.

The impact of the COVID-19 pandemic on estimated future cash flows is uncertain and will largely depend on the outcome of future events, which could result in further goodwill impairments going forward.

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Acquired Intangible Assets

In connection with the Business Acquisition of B&R Global, HF Group acquired $188,503,000 of intangible assets, primarily representing tradenames and customer relationships, which have an estimated weighted-average amortization period of approximately 10 years and 20 years respectively.

In connection with the Business Acquisition of B&R Global, HF Group acquired $ 188,503,000 of intangible assets, primarily representing tradenames and customer relationships, which have an estimated amortization period of approximately 10 years and 20 years respectively.

The components of the intangible assets are as follows:

At March 31, 2020

At December 31, 2019

As of June 30, 2020 As of December 31, 2019

Amount Accumulated

Amortization Net

Amount Accumulated

Amortization Net

Tradenames $ 29,303,000 $ ( 1,953,533 ) $ 27,349,467 $ 29,303,000 $ ( 488,383 ) 28,814,617

Customer relationships 159,200,000 ( 5,306,667 ) 153,893,333 159,200,000 ( 1,326,667 ) 157,873,333

Since COVID-19 has had a adverse impact on the Company’s customers, which was a triggering event, the Company performed interim long-lived asset quantitative impairment tests as of March 30, 2020.

Total $ 188,503,000 $ ( 7,260,200 ) $ 181,242,800 $ 188,503,000 $ ( 1,815,050 ) 186,687,950

Since COVID-19 has had an adverse impact on the Company’s customers, which was a triggering event, the Company performed interim long-lived asset quantitative impairment tests as of June 30, 2020.

All intangible assets were tested for recoverability at the asset group level.

ASC 360 defines the recoverability of these assets as measured by comparison of their (or asset group) carrying amounts to future undiscounted cash flows the assets (or asset group) are expected to generate.

ASC Topic 360, Property, Plant and Equipment ("ASC 360") defines the recoverability of these assets as measured by comparison of their (or asset group) carrying amounts to future undiscounted cash flows the assets (or asset group) are expected to generate.

Based on the test for recoverability using undiscounted cash flows attributable to the asset (or asset group), the sum of the undiscounted cash flows exceeded the carrying value of the measured asset (or asset group).

As such, no impairment was recorded for the finite lived assets.

HF Group’s amortization expense for intangible assets was $2,722,575 for the three months ended March 31, 2020 and nil for the three months ended March 31, 2019, respectively.

As such, no impairment was recorded for the finite lived assets as of June 30, 2020.

HF Group’s amortization expense for intangible assets was $ 2,722,575 and 5,445,150 for the three and six month periods ended June 30, 2020, respectively, and nil for the three and six month periods ended June 30, 2019, respectively.

Estimated future amortization expense for intangible assets is presented below:

Twelve months ending March 31,

Twelve months ending June 30, Amount

2021 $ 10,890,300

2022 10,890,300

2023 10,890,300

2024 10,890,300

2025 10,890,300

Thereafter 126,791,300

Total $ 181,242,800

NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes interest rate swaps for the sole purpose of mitigating interest rate fluctuation risk associated to floating rate debt instruments (as defined in Note 11 Lines of Credit, and Note 12 Long-Term Debt).

The Company does not use any other derivative financial instruments for trading or speculative purposes.

On August 20, 2019, HF Group entered into two IRS contracts with East West Bank (the "EWB IRS") for initial notional amounts of $ 1.05 million and $ 2.625 million, respectively.

The EWB IRS contracts were entered into in conjunction with two mortgage term loans of corresponding amount that were priced at USD 1-month LIBOR (London Interbank Offering Rate) plus 2.25 % per annum for the entire duration of the term loans.

The EWB IRS contracts have fixed the two term loans at 4.23 % per annum until maturity in September 2029.

On December 19, 2019, HF Group entered into an IRS contract with Bank of America (the "BOA IRS") for an initial notional amount of $ 2.74 million in conjunction with a newly contracted mortgage term loan of corresponding amount.

The term loan was contracted at USD 1-month LIBOR plus 2.15 % per annum but was fixed at 4.25 % per annum resulting from the corresponding BOA IRS contract.

The term loan and corresponding BOA IRS contract matures in December, 2029.

On June 24, 2020, HF Group entered into a forward starting IRS contract with JP Morgan Chase Bank (the "JPM IRS") for a fixed $ 80 million notional amount, effective from June 30, 2021 and expiring on June 30, 2025, as a means to partially hedge its existing floating rate loans exposure.

The Company has an existing term loan as of June 30, 2020 of approximately $ 74.1 million which was pegged to a floating rate of 1-month LIBOR plus 1.875 % per annum, as well as a revolving line of credit with an outstanding balance of $ 32 million as of June 30, 2020 that was pegged to 1-month LIBOR plus 1.375 % per annum.

Under the terms of the JPM IRS contract, the Company will receive interest at prevailing 1-month LIBOR and pay fixed interest at 0.413 % plus the agreed bank spread starting from July 31, 2021 through July 31, 2025 inclusive.

The Company evaluated the above mentioned interest rate swap contracts currently in place and did not designate those as cash flow hedges.

Hence, the fair value change on the aforementioned interest rate swap contracts are accounted for and recognized as change in fair value of interest rate swap contracts in the unaudited condensed consolidated statements of operations.

As of June 30, 2020 and December 31, 2019, the Company has determined that the fair value of the interest rate swaps was $ 1,337,412 and 73,158 , respectively.

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

The interest rate swaps are classified as Level 3 liabilities and fair value was obtained from the respective counterparties.

NOTE 11 - LINES OF CREDIT

On July 1, 2016, Han Feng, HF Group’s main operating entity, entered into a line of credit agreement with East West Bank.

The line of credit agreement provided for a revolving credit of $14,500,000.

The line of credit agreement provided for a revolving credit in the amount of $ 14,500,000 .

The line of credit was secured by virtually all assets of Han Feng, the premises and an adjoining undeveloped parcel of land owned by R&N Holding, and premises owned by R&N Lexington.

The principal and all accrued unpaid interest were originally due in May 2018 and then extended to May 27, 2019, in order to provide an uninterrupted credit facility while the renewal of the line of credit is being reviewed by the bank.

Interest was based on the prime rate less 0.15 %, but in no event less than 3.25 % per annum, and was payable monthly.

1 unchanged sentence

On November 14, 2012, NSF, another operating entity, entered into a line of credit agreement with Bank of America.

The line of credit agreement provided for a revolving credit of $4,000,000.

The line of credit was secured by three real properties owned by NSF, and guaranteed by the two shareholders of the Company, as well as BB, a subsidiary of the Company.

The line of credit agreement provided for a revolving credit in the amount of $ 4,000,000 .

The line of credit was secured by three real properties owned by NSF and guaranteed by the two shareholders of the Company, as well as by BB, a subsidiary of the Company.

The maximum borrowings were determined by certain percentages of eligible accounts receivable and inventories.

3 unchanged sentences

On April 18, 2019, the Company, Han Feng, NSF and Kirnland entered into a Credit Agreement (the “Credit Agreement”) with East West Bank.

The Credit Agreement provided for a $25 million secured line of credit facility available to be used in one or more revolving loans to the Company’s domestic subsidiaries that were parties to the Credit Agreement for working capital and general corporate purposes.

The Credit Agreement provided for a $ 25 million secured line of credit available to be used in one or more revolving loans to the Company’s domestic subsidiaries that were parties to the Credit Agreement for working capital and general corporate purposes.

Han Feng, NSF and Kirnland (the “Borrower Subsidiaries”) were the borrowers and the Company and each of its other material subsidiaries were guarantors of all the obligations under the Credit Agreement.

1 unchanged sentence

Contemporaneously with the execution of the Credit Agreement, existing senior debt of the Borrower Subsidiaries in the amount of $ 6,111,692 was paid from revolving loans drawn on the line of credit.

Under the Credit Agreement, the Borrower subsidiaries were to pay interest on the principal amounts drawn on the line of credit at a rate per annum equal to (a) 0.375% below the Prime Rate in effect from time to time, or (b) 2.20% above the LIBOR Rate in effect from time to time, depending on the rate elected at the time a borrowing request is made, but in no event would the interest rate of any revolving loan at any time be less than 4.214% per annum (4.625% at September 30, 2019).

The outstanding balance on the line of credit at September 30, 2019 was $11,864,481.

The Credit Agreement contained certain financial covenants which, among other things, required Han Feng to maintain certain financial ratios.

Under the Credit Agreement, the Borrower subsidiaries were to pay interest on the principal amounts drawn on the line of credit at a rate per annum equal to (a) 0.375 % below the Prime Rate in effect from time to time, or (b) 2.20 % above the LIBOR Rate in effect from time to time, depending on the rate elected at the time a borrowing request is made, but in no event less than 4.214 % per annum.

The Credit Agreement contained certain financial covenants which, among other things, required Han Feng

to maintain certain financial ratios.

On November 4, 2019, the line of credit was paid off from borrowings under the Amended and Restated Credit Agreement entered into in connection with the closing of the merger with B&R Global as described below.

The outstanding balance paid off, including accrued interest, was $ 13,864,481 .

On November 4, 2019, the Company entered into an Amended and Restated Credit Agreement with JP Morgan Chase Bank, N.A.

On November 4, 2019, the Company entered into an Amended and Restated Credit Agreement (the "First Amended Credit Agreement") with JP Morgan Chase Bank, N.A.

(“JP Morgan”).

The Amended and Restated Credit Agreement provides for a $100 million asset-secured revolving credit facility maturing on November 4, 2022, with an option to renew at the bank’s discretion.

The line of credit is collateralized by all assets of the Company and is also guaranteed by B&R Group Realty and B&R Realty Subsidiaries, which are related parties of the Company.

The Amended and Restated Credit Agreement contains financial covenants requiring the Company on a consolidated basis to maintain a Fixed Charge Coverage Ratio of 1.10 to 1.00, determined as of the end of each fiscal quarter for the four fiscal quarter periods then ended.

As of March 31, 2020, the Company was in compliance with the covenants under the credit agreement.

On January 17, 2020, the Company, its wholly-owned subsidiary, B&R Global, and certain of the wholly-owned subsidiaries and affiliates of the Company (collectively with the Company, the “Borrowers”), as borrowers, and certain material subsidiaries of the Company as guarantors, entered into a Second Amended and Restated Credit Agreement (the “Second Amended Credit Agreement”) with JPMorgan Chase Bank, N.A.

(“JPMorgan”), as Administrative Agent, and certain lender parties thereto, including Comerica Bank.

The First Amended Credit Agreement provides for a $ 100 million asset-secured revolving credit facility maturing on November 4, 2022, with an option to renew at the bank’s discretion.

The line of credit is collateralized by all assets of the Company and is also guaranteed by B&R Group Realty and B&R Realty Subsidiaries, which B&R Realty Subsidiaries were subsequently acquired by the Company on January 17, 2020 (See Note 8 for additional information).

The First Amended Credit Agreement, later superseded by the Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") on January 17, 2020, contains financial covenants requiring the Company on a consolidated basis to maintain a Fixed Charge Coverage Ratio of 1.10 to 1.00, determined as of the end of each fiscal quarter for the four fiscal quarter periods then ended.

On January 17, 2020, the Company, its wholly-owned subsidiary, B&R Global, and certain of the wholly-owned subsidiaries and affiliates of the Company (collectively with the Company, the “Borrowers”), as borrowers, and certain material subsidiaries of the Company as guarantors, entered into the Second Amended Credit Agreement with JP Morgan, as Administrative Agent, and certain lender parties thereto, including Comerica Bank.

The Second Amended Credit Agreement provides for (a) a $ 100 million asset-secured revolving credit facility maturing on November 4, 2022 (the “Facility”), and (b) mortgage-secured Term Loans of $ 75.6 million.

The Second Amended Credit Agreement amends and restates the existing $55.0 million of real estate term loans evidenced by that certain Amended and Restated Credit Agreement, dated as of November 4, 2019, among the Company, B&R Global, its affiliates and JP Morgan Chase Bank, N.A., as Administrative Agent and sole lender (the “First Amended Credit Agreement”).

The Second Amended Credit Agreement amends and restates the existing $ 55.0 million of real estate term loans evidenced by the First Amended Credit Agreement.

As of January 17, 2020, the existing balance of revolving debt under the First Amended Credit Agreement, $ 41.2 million, was rolled over, and an additional $ 18.7 million available to the Company under the Facility was drawn.

The Company and B&R used the $75.6 million in mortgage-secured term loans and $18.7 million drawn from the revolving credit facility to fund in part the acquisition of 10 warehouse facilities owned by the Selling B&R Group Realty Subsidiaries, which the Company has been leasing for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.

The outstanding principal balance on the line of credit as of March 31, 2020 was $43.1 million.

The Company and B&R used the $ 75.6 million in mortgage-secured term loans and $ 18.7 million drawn from the revolving credit facility to fund in part the acquisition of ten warehouse facilities owned by the selling BRGR Subsidiaries, which the Company has been leasing for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.

The Credit Agreement contained certain financial covenants and, as of June 30, 2020, the Company was in compliance with the covenants under the Second Amended Credit Agreement.

The outstanding principal balance on the line of credit as of June 30, 2020 was $ 32.0 million.

NOTE 12 - LONG-TERM DEBT

Long-term debt at March 31, 2020 and December 31, 2019 is as follows:

East West Bank – (a)

August 2027 - September 2029

Capital Bank – (b)

Bank of America – (c)

April 2021 – December 2029

Morgan Chase (d)

February 2023 – January 2030

BMO Harris Bank – (e)

April 2022 - January 2024

Peoples United Bank – (e)

April 2020 – January 2023

Other finance companies – (e)

May 2020 – March 2024

Long-term debt at June 30, 2020 and December 31, 2019 is as follows:

Bank name Maturity Interest rate as of June 30,

2020 As of June 30,

2020 As of December 31,

East West Bank – (a) August 2027 - September 2029 3.94 % — 4.25 % $ 6,912,246 $ 6,989,016

Capital Bank – (b) October 2027 3.85 % 4,854,756 4,967,075

Bank of America – (c) April 2021 – December 2029 3.84 % — 5.51 % 6,369,850 4,263,663

Morgan Chase (d) February 2023 – January 2030 2.05 % — 2.17 % 76,573,289 2,702,371

BMO Harris Bank – (e) April 2022 - January 2024 5.87 % — 5.99 % 358,320 508,564

Peoples United Bank – (e) April 2020 – December 2022 5.75 % — 7.53 % 885,002 1,114,993

Other finance companies – (e) August 2020 – March 2024 3.9 % — 6.14 % 578,128 716,315

Total debt 96,531,591 21,261,997

current portion ( 7,802,869 ) ( 2,726,981 )

Long-term debt $ 88,728,722 $ 18,535,016

The terms of the various loan agreements related to long-term bank borrowings contain certain restrictive financial covenants which, among other things, require the Company to maintain specified ratios of debt to tangible net assets and debt service coverage.

As of March 31, 2020, and December 31, 2019, the Company was in compliance with such covenants.

The terms of the various loan agreements related to long-term bank borrowings require the Company to comply with certain financial covenants.

As of June 30, 2020, and December 31, 2019, the Company was in violation of one covenant.

On August 7, 2020, the Company obtained waiver from Bank of America for above mentioned covenant violation.

The loans outstanding were guaranteed by the following properties, entities or individuals, or otherwise secured as shown:

Guaranteed by two shareholders of the Company, as well as five subsidiaries of the Company, Han Feng, TT, MFD, R&N Holding and R&N Lexington.

Also secured by assets of Han Feng and R&N Lexington and R&N Holding, two real properties of R&N Holding, and a parcel of real property owned by R&N Lexington.

(a) Guaranteed by five subsidiaries of the Company, Han Feng, TT, MFD, R&N Holding and R&N Lexington, and also secured by assets of Han Feng and R&N Lexington and R&N Holding, two real properties of R&N Holding, and a parcel of real property owned by R&N Lexington.

Balloon payment of $ 2,293,751 is due in 2027 and another balloon payments of $ 3,007,239 is due in 2029.

Guaranteed by two shareholders, as well as Han Feng, a subsidiary of the Company.

(b) Guaranteed by two shareholders, as well as Han Feng.

Also secured by a real property owned by HG Realty.

Balloon payment for this debt is $ 3,116,687 .

Guaranteed by two shareholders, as well as two subsidiaries of the Company, NSF and BB.

Secured by real property, equipment and fixtures, inventories, receivables and all other personal property owned by NSF.

Balloon payment for this long-term debt is $1,382,046.

Real estate term loan with a principal balance of $75,007,690 is secured by assets held by nine subsidiaries of the Company, AK, BRR, BSR, FL, GSR, HP, LF, LR, and MP.

Equipment term loan with a principal balance of $2,508,340 is secured by specific vehicles and equipment as defined in loan agreements.

Secured by vehicles.

The future maturities of long-term debt as of March 31,2020 are as follows:

Twelve months ending March 31,

(c) Guaranteed by two subsidiaries of the Company, NSF and BB and also secured by real property, equipment and fixtures, inventories, receivables and all other personal property owned by NSF.

Balloon payment is $ 1,382,046 .

(d) Real estate term loan with a principal balance of $ 74,258,993 as of June 30, 2020 is secured by assets held by nine subsidiaries of the Company, AK, BRR, BSR, FL, GSR, HP, LF, LR, and MP.

Equipment term loan with a principal balance of $ 2,314,296 as of June 30, 2020 is secured by specific vehicles and equipment as defined in loan agreements.

(e) Secured by vehicles.

The future maturities of long-term debt as of June 30, 2020 are as follows:

Twelve months ending June 30, Amount

2021 $ 7,802,869

2022 5,774,355

2023 4,635,859

2024 3,828,783

2025 3,700,239

Thereafter 70,789,486

Total $ 96,531,591

NOTE 13 - LEASES

On January 1, 2019, the Company adopted ASU 2016-02, Leases (ASC Topic 842) .

For all leases that were entered into prior to the effective date of Topic 842, the Company elected to apply the package of practical expedients.

The Company leases office space and warehouses under non-cancelable operating leases, with terms typically ranging from one to five years , as well as operating and finance leases for vehicles and delivery trucks, forklifts and computer equipment with various expiration dates through 2021.

5 unchanged sentences

The components of lease expense were as follows:

For the Three Months Ended

For the Three Months Ended For the Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Operating lease cost $ 253,820 $ 127,508 $ 756,877 $ 292,260

5 unchanged sentences

The components of lease expense were as follows:

For the Three Months Ended

For the Three Months Ended For the Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Finance leases cost:

3 unchanged sentences

Supplemental cash flow information related to finance leases was as follows:

For the Three Months Ended

For the Three Months Ended For the Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Operating cash flows from finance leases 23,218 28,279 51,120 60,606

Supplemental balance sheet information related to leases was as follows:

2020 December 31,

Finance Leases

7 unchanged sentences

Maturities of lease liabilities were as follows:

Twelve months ending March 31,

Twelve months ending June 30, Operating

Leases Finance

2021 $ 355,148 $ 373,715

2022 285,983 342,278

2023 235,779 334,224

2024 19,696 277,340

2025 — 96,496

Total Lease Payments 896,606 1,424,053

Less Imputed Interest ( 111,128 ) ( 226,381 )

On July 2, 2018, AnHeart entered into two separate leases for two buildings located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively, which are net leases, meaning that AnHeart is required to pay all costs associated with the buildings, including utilities, maintenance and repairs.

HF Holding provided a guaranty for all rent and related costs of the leases, including costs associated with the construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue.

On February 23, 2019, HF Group executed an agreement to transfer all of its ownership interest in AnHeart to Jianping An, a resident of New York, for a sum of $20,000.

Total $ 785,478 $ 1,197,672

On July 2, 2018, AnHeart Inc.

("AnHeart"), a wholly-owned subsidiary of HF Holding, entered into two separate leases for two properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively.

The leases were on a triple net basis, meaning AnHeart is required to pay all costs associated with the properties, including taxes, insurance, utilities, maintenance and repairs.

HF Holding provided a guaranty for all rent and related costs of the leases, including costs associated with the planned construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue.

The Company entered into the leases with the planned purpose of expanding its product lines to include Chinese herb supplements, and to use the sites to develop into a hub for such products.

The Company has since determined to cease this business expansion.

On February 23, 2019, HF Holding executed an agreement to divest all of its ownership interest in AnHeart to Ms.

Jianping An, a resident of New York, for the sum of $ 20,000 .

The transfer of ownership was completed on May 2, 2019.

However, the transfer of ownership does not release HF Holding’s guaranty of AnHeart’s obligations or liabilities under the original lease agreements.

However, the divestment does not release HF Holding’s guaranty of AnHeart’s obligations or liabilities under the original lease agreements.

Under the terms of the sale of AnHeart stock to Ms.

An, and in consideration of the Company’s ongoing guaranty of AnHeart’s performance of the lease obligations, AnHeart granted to the Company a security interest in all AnHeart assets, together with a covenant that the Company will be assigned the leases, to be exercised if AnHeart defaults.

Further, AnHeart has tendered an unconditional guaranty of all AnHeart liabilities arising from the leases, in favor of the Company, executed by Minsheng Pharmaceutical Group Company, Ltd., a Chinese manufacturer and distributor of herbal medicines.

An, and in consideration of the Company’s ongoing guaranty of AnHeart’s

performance of the lease obligations, AnHeart granted to the Company a security interest in all AnHeart assets, together with a covenant that the Company will be assigned the leases, to be exercised if AnHeart defaults on the original lease agreements.

An has tendered an unconditional guaranty of all AnHeart liabilities arising from the leases, in favor of the Company, executed by Minsheng Pharmaceutical Group Company, Ltd., a Chinese manufacturer and distributor of herbal medicines.

NOTE 14 - SUPPLEMENTAL CASH FLOWS INFORMATION

Supplemental cash flow disclosures and noncash investing and financing activities are as follows:

For the Three Months Ended

For the Six Months Ended

2020 June 30,

Supplemental disclosure of cash flow data

2 unchanged sentences

Supplemental disclosure of non-cash investing and financing activities

Property and equipment purchases from notes payable $ 2,528,554 $ —

Issuance of promissory note for the acquisition of B&R Realty Subsidiaries $ 7,000,000 $ —

8 unchanged sentences

The Company does not expect the repatriation tax and new minimum tax on certain future foreign earnings to have any impact on the Company’s operations since it currently has no foreign income and does not expect to generate any foreign income in the future.

The provision for income taxes of the Company for the three months ended March 31, 2020 and 2019 consists of the following:

For the Three Months Ended

(i) The provision for income taxes of the Company for the three and six months ended June 30, 2020 and 2019 consists of the following :

For the Three Months Ended For the Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Current income taxes:

Federal $ 40,618 $ 531,491 $ 400,218 $ 923,974

State 35,646 142,860 125,306 282,248

Current income taxes 76,264 674,351 525,524 1,206,222

Deferred income taxes (benefit):

Federal ( 1,195,341 ) ( 161,190 ) ( 1,918,683 ) ( 58,129 )

State ( 370,228 ) ( 52,410 ) ( 578,357 ) ( 39,703 )

Deferred income taxes (benefit) ( 1,565,569 ) ( 213,600 ) ( 2,497,040 ) ( 97,832 )

Total provision (benefit) for income taxes $ ( 1,489,305 ) $ 460,751 $ ( 1,971,516 ) $ 1,108,390

Temporary differences and carryforwards of the Company that created significant deferred tax assets and liabilities are as follows:

(ii) Temporary differences and carryforwards of the Company that created significant deferred tax assets and liabilities are as follows:

As of June 30,

2020 As of December 31,

Deferred tax assets:

Allowance for doubtful accounts $ 826,586 $ 373,438

Basis in intangible assets

Inventories 532,276 594,628

Federal net operating loss 228,637 228,637

State net operating loss 80,673 80,514

Fair value change in interest rate swap contracts 338,131 —

Accrued expenses 133,896 80,100

5 unchanged sentences

Net deferred tax liabilities $ ( 49,744,012 ) $ ( 52,241,052 )

The net deferred tax liabilities presented in the Company's unaudited condensed consolidated balance sheets were as follows：

The net deferred tax liabilities presented in the Company's unaudited condensed consolidated balance sheets are as follows:

As of June 30,

2020 As of December 31,

Deferred tax assets $ 319,320 $ 78,993

1 unchanged sentence

Net deferred tax liabilities $ ( 49,744,012 ) $ ( 52,241,052 )

Reconciliations of the statutory income tax rate to the effective income tax rate are as follows:

For the Three Months Ended

(iii) Reconciliations of the statutory income tax rate to the effective income tax rate are as follows:

For the Six Months Ended

2020 June 30,

Federal statutory tax rate 21.0 % 21.0 %

4 unchanged sentences

The Company records transactions with various related parties.

The related party transactions as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 are identified as follows:

The related party transactions as of June 30, 2020 and December 31, 2019 and for the three and six month periodss ended June 30, 2020 and 2019 are identified as follows:

Related Party Balances

Accounts receivable - related parties, net

Below is a summary of accounts receivable with related parties as of March 31, 2020 and December 31, 2019, respectively:

Name of Related Party

Allstate Trading Company Inc.

Enson Seafood GA Inc.

Below is a summary of accounts receivable with related parties as of June 30, 2020 and December 31, 2019, respectively:

Name of Related Party As of June 30,

2020 As of December 31,

(a) Allstate Trading Company Inc.

(b) Enson Seafood GA Inc.

(formerly “GA-GW Seafood, Inc.”) 68,443 348,833

Eagle Food Service LLC

Fortune One Foods Inc.

Eastern Fresh LLC

Enson Trading LLC

Hengfeng Food Service Inc.

N&F Logistic, Inc.

ABC Trading, LLC

Best Food Services, LLC

Zhou Min Ni, the Chairman and Co-Chief Executive Officer of the Company, owns a 40% equity interest in this entity;

Zhou Min Ni owns a 50% equity interest in this entity.

Tina Ni, one of Mr.

Zhou Min Ni’s family members, owns a 50% equity interest in this entity.

(d) Fortune One Foods Inc.

32,812 53,862

(e) Eastern Fresh LLC 83,050 1,511,075

(f) Enson Trading LLC 57,419 341,200

(g) Hengfeng Food Service Inc.

280,307 477,541

(h) N&F Logistic, Inc.

(i) ABC Trading, LLC 119,270 238,513

Others 76,995 121,692

Total $ 1,049,552 $ 4,202,870

Zhou Min Ni, the Chairman and Co-Chief Executive Officer of the Company, owns 40 % equity interest in this entity;

Zhou Min Ni owns a 50 % equity interest in this entity.

Zhou Min Ni’s family members, owns a 26.5 % equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns a 17.5 % equity interest in this entity.

2 unchanged sentences

Zhou Min Ni owns a 45 % equity interest in this entity.

Xiaomou Zhang, Co-Chief Executive Officer of the Company, owns 10.38% equity interest in this entity.

Zhou Min Ni owns a 25 % equity interest in this entity.

Xiaomou Zhang owns 10.38% equity interest in this entity.

Xiao Mou Zhang, Co-Chief Executive Officer of the Company, owns 10.38 % equity interest in this entity.

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

No allowance is deemed necessary.

No allowance is deemed necessary as of June 30, 2020 and December 31, 2019.

Advances to suppliers - related parties, net

1 unchanged sentence

These advances are made in the normal course of business and are considered fully realizable.

Below is a summary of advances to related party suppliers as of March 31, 2020 and December 31, 2019, respectively:

Name of Related Party

(1) Ocean Pacific Seafood Group

(2) Revolution Industry, LLC

Zhou Min Ni owns a 25% equity interest in this entity.

The son of Mr.

Zhou Min N, Raymond Ni, owns 100% of Revolution Industry, LLC.

As of June 30, 2020, and December 31, 2019, the Company had total advances to related party suppliers of $ 129,632 and $ 745,135 , respectively.

Notes receivable - related parties

1 unchanged sentence

On January 1, 2018, the Company entered into a promissory note agreement with Enson Seafood.

Pursuant to the promissory note agreement, the outstanding balances of $550,000 due from Enson Seafood as of December 31, 2017 were converted into promissory notes bearing annual interest of 5% commencing January 1, 2018.

Pursuant to the promissory note agreement, the total outstanding balance of $ 550,000 due from Enson Seafood as of December 31, 2017 was converted into promissory notes bearing annual interest of 5 % commencing January 1, 2018.

The principal plus interest was due no later than December 31, 2019.

6 unchanged sentences

On January 1, 2018, the Company signed a promissory note agreement with NSG.

Pursuant to the promissory note agreement, the outstanding balances of $5,993,552 due from NSG as of December 31, 2017 were converted into promissory notes bearing annual interest of 5% commencing January 1, 2018.

The principal plus interest was required to be paid off no later than December 31, 2019.

Pursuant to the promissory note agreement, the outstanding total outstanding balances of $ 5,993,552 due from NSG as of December 31, 2017 were converted into promissory notes bearing annual interest of 5 % commencing January 1, 2018.

The principal plus interest was required to be

paid off no later than December 31, 2019.

Interest was computed on the outstanding balance on the basis of the actual number of days elapsed in a year of 360 days.

2 unchanged sentences

On March 1, 2018, the Company entered into a promissory note agreement by which Revolution Automotive was loaned $ 483,628 .

Pursuant to this promissory note agreement, Revolution Automotive was required to make monthly payments of $5,000 for 60 months, including interest, with final payment of $284,453.

Pursuant to this promissory note agreement, Revolution Automotive was required to make monthly payments of $ 5,000 for 60 months, including interest, with a final payment of $ 284,453 .

The loan bore interest of 5 % per annum.

3 unchanged sentences

Zhou Min Ni agreed to personally guarantee these notes.

On September 30, 2019, the entire outstanding balance of all the above notes of $8,415,525 was sold to Mr.

On September 30, 2019, all such notes receivable, having then a combined outstanding balance of $ 8,415,525 , were sold to Mr.

Zhou Min Ni in exchange for 632,746 shares of common stock of the Company, which shares were received and recorded in treasury stock by the Company as of September 30, 2019.

2 unchanged sentences

Accounts payable - related parties

As of March 31, 2020, and December 31, 2019, the Company had a total accounts payable balance of $3,738,202 and $4,521,356 due to various related parties, respectively.

As of June 30, 2020, and December 31, 2019, the Company had a total accounts payable balances of $ 2,390,482 and $ 4,521,356 , respectively, due to various related parties.

All these accounts payable to related parties occurred in the ordinary course of business and are payable upon demand without interest.

2 unchanged sentences

These advances are interest free and due upon demand.

The balance for advances from customers involving related parties was $213,354 at March 31, 2020 and there were no advances from customers involving related parties at December 31, 2019.

The balance for advances from customers involving related parties was $ 47,754 as of June 30, 2020 and there were no advances from customers involving related parties as of December 31, 2019.

Security deposit - related parties

1 unchanged sentence

These deposits are expected to be returned upon termination of the respective leases.

Total deposits to related parties amounted to $591,380 at December 31, 2019.

As a result of the Realty Acquisition referenced in Footnote 8, rent deposits previously classified as related party became intercompany balances and were eliminated as of March 31, 2020.

There was no related party rent deposit as of March 31, 2020.

Term Loan guaranty - related parties

B&R Global issued a $7.0 million Unsecured Subordinated Promissory Note to B&R Group Realty.

Total deposits to related parties amounted to $ 591,380 as of December 31, 2019.

As a result of the Realty Acquisition referenced in Note 8, rent deposits previously classified as made by related parties became intercompany balances and were eliminated as of June 30, 2020.

There were no related party rent deposits as of June 30, 2020.

Subordinated debt - related parties

B&R Global issued a $ 7.0 million Unsecured Subordinated Promissory Note to BRGR.

The note bears an interest rate of 6 % per annum that matures in January 2030.

At March 31, 2020, accrued interest payable was $87,500.

The term loan is collateralized by all assets of the Company.

At June 30, 2020, accrued interest payable was nil .

Lease Agreements with Related Parties

A subsidiary of the Company, R&N Holding, leases a facility to a related party under an operating lease agreement expiring in 2024.

The cost of the leased building is $400,000 at March 31, 2020 and December 31, 2019, and the accumulated depreciation of the leased building is $80,102 and $78,282 at March 31, 2020 and December 31, 2019, respectively.

Rental income for the three months ended March 31, 2020 and 2019 was $11,400 and $11,400, respectively.

A subsidiary of the Company, R&N Holding, leases a facility to a related party under an operating lease agreement expiring in 2022.

Rental income for the three months ended March 31, 2020 and 2019 was $10,500 and $10,500, respectively.

In 2017, a subsidiary of the Company, HG Realty, leased a warehouse to a related party under an operating lease agreement expiring on September 21, 2027.

The cost of the leased building is $3,223,745 at March 31, 2020 and December 31, 2019, and the accumulated depreciation of the leased building is $537,291 and $516,626 as of March 31, 2020 and December 31, 2019, respectively.

Rental income for the three months ended March 31, 2020 and 2019 was $120,000 and $120,000, respectively.

B&R Global leased warehouses from related parties owned by the majority shareholder of B&R Global prior to Realty Acquisition on January 17, 2020.

R&N Holding leases a facility to a related party under an operating lease agreement expiring in 2024.

The cost of the leased building is $ 400,000 as of June 30, 2020 and December 31, 2019, respectively, and the accumulated depreciation of the leased building is $ 81,923 and $ 78,282 as of June 30, 2020 and December 31, 2019, respectively.

Rental income for the three months ended June 30, 2020 and 2019 was $ 11,400 and $ 11,400 , respectively, and the six months ended June 30, 2020 and 2019 was $ 22,800 and $ 22,800 , respectively.

R&N Holding also leases a facility to a related party under an operating lease agreement expiring in 2022.

Rental income for the three months ended June 30, 2020 and 2019 was $ 10,500 and $ 10,500 , respectively, and the six months ended June 30, 2020 and 2019 was $ 21,000 and $ 21,000 , respectively.

In 2017, HG Realty leased a warehouse to a related party under an operating lease agreement expiring on September 21, 2027.

The cost of the leased building is $ 3,223,745 and $ 3,223,745 at June 30, 2020 and December 31, 2019, respectively, and the accumulated depreciation of the leased building is $ 537,291 and $ 516,626 as of June 30, 2020 and December 31, 2019, respectively.

Rental income for the three months ended June 30, 2020 and 2019 was $ 120,000 and $ 120,000 , respectively, and the six months ended June 30, 2020 and 2019 was $ 240,000 and $ 240,000 , respectively.

B&R Global leased warehouses from related parties owned by the majority shareholder of B&R Global prior to the Realty Acquisition on January 17, 2020.

Rent incurred to the related parties from January 1, 2020 to January 16, 2020 was $ 187,750 .

In 2020, a subsidiary of the Company, Kirnland, leased a warehouse from a related party under an operating lease agreement expiring on December 31, 2020.

Rent incurred to the related party was $30,000 and $30,000 for the three months ended March 31, 2020 and 2019, respectively.

In 2020, Kirnland renewed a warehouse lease from a related party under an operating lease agreement expiring on December 31, 2020.

Rent incurred to the related party was $ 30,000 and $ 30,000 for the three months ended June 30, 2020 and 2019, respectively, and $ 60,000 and $ 60,000 for the six months ended June 30, 2020 and 2019, respectively.

Related Party Sales and Purchases Transactions

The Company makes regular sales to and purchases from various related parties during the normal course of business.

The total sales to related parties were $5,163,322 and $4,497,111 for the three months ended March 31, 2020 and 2019, respectively.

The total purchases made from related parties were $10,492,252 and $8,932,217 for the three months ended March 31, 2020 and 2019, respectively.

The total sales to related parties were $ 3,456,329 and $ 4,069,973 for the three months ended June 30, 2020 and 2019, respectively, and $ 8,619,651 and $ 8,567,084 for the six months ended June 30, 2020 and 2019, respectively.

The total purchases made from related parties were $ 3,310,800 and $ 8,553,875 for the three months ended June 30, 2020 and 2019, respectively, and $ 14,775,292 and $ 17,486,091 for the six months ended June 30, 2020 and 2019, respectively.

NOTE 17 - SEGMENT REPORTING

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Management, including the chief operating decision makers, reviews operation results by the revenue of different products.

After acquiring the business of B&R Global, the Company distinguishes revenues, costs and expenses between HF Group and B&R Global in its internal reporting, and reports costs and expenses by nature in different operating segments.

As a result, the Company has two reportable segments, including HF Group and B&R Global, and has re-presented the segment reporting for the three months ended March 31, 2019 as follows.

The following table presents net sales by segment for the three months ended March 31, 2020 and 2019, respectively:

For the Three Months Ended

March 31, 2020

March 31, 2019

After acquiring the business of B&R Global in November 2019, the Company distinguishes revenues, costs and expenses between HF and B&R Global in its internal reporting, and reports costs and expenses by nature in different operating segments.

As a result, the Company has two reportable segments, including HF and B&R Global, and has re-presented the segment reporting for the three and six month periods ended June 30, 2019 as follows.

The following table presents net sales by segment for the three and six month periods ended June 30, 2020 and 2019, respectively:

For the Three Months Ended For the Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

HF $ 40,648,685 $ 74,718,206 $ 103,554,265 $ 149,519,228

B&R Global 63,911,411 — 176,809,167 —

Total $ 104,560,096 $ 74,718,206 $ 280,363,432 $ 149,519,228

All the Company’s revenue was generated from its business operations in the U.S.

For the Three Months Ended March 31, 2020

For the Three Months Ended June 30, 2020

HF B&R Global Total

Revenue $ 40,648,685 $ 63,911,411 $ 104,560,096

Cost of revenue $ 31,555,564 $ 52,391,748 $ 83,947,312

Gross profit $ 9,093,121 $ 11,519,663 $ 20,612,784

Depreciation and amortization $ 762,938 $ 3,720,879 $ 4,483,817

Total capital expenditures $ 29,090 $ 20,622 $ 49,712

For the Three Months Ended March 31, 2019

For the Three Months Ended June 30, 2019

HF B&R Global Total

Revenue $ 74,718,206 $ — $ 74,718,206

Cost of revenue $ 62,206,053 $ — $ 62,206,053

Gross profit $ 12,512,153 $ — $ 12,512,153

Depreciation and amortization $ 727,423 $ — $ 727,423

Total capital expenditures $ 3,812,217 $ — $ 3,812,217

For the Six Months Ended June 30, 2020

HF B&R Global Total

Revenue $ 103,554,265 $ 176,809,167 $ 280,363,432

Cost of revenue $ 82,905,852 $ 147,869,751 $ 230,775,603

Gross profit $ 20,648,413 $ 28,939,416 $ 49,587,829

Depreciation and amortization $ 1,518,580 $ 7,491,514 $ 9,010,094

Total capital expenditures $ 50,549 $ 159,415 $ 209,964

For the Six Months Ended June 30, 2019

HF B&R Global Total

Revenue $ 149,519,228 $ — $ 149,519,228

Cost of revenue $ 124,300,219 $ — $ 124,300,219

Gross profit $ 25,219,009 $ — $ 25,219,009

Depreciation and amortization $ 1,434,819 $ — $ 1,434,819

Total capital expenditures $ 5,156,772 $ — $ 5,156,772

As of June 30,

2020 As of June 30,

Total assets:

HF $ 61,875,975 $ 80,514,529

B&R Global 434,401,708 722,329,265

Total Assets $ 496,277,683 $ 802,843,794

All of the Company’s long-lived assets are located in the US.

NOTE 17 – COMMITMENT AND CONTINGENCY

NOTE 18 - COMMITMENT AND CONTINGENCIES

Various labor and employment lawsuits were filed by former employees against FUSO, NBT, and HRT, alleging these entities failed to provide proper meal and rest breaks, as well as other related violations.

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Management believes there is no merit to the cases and will vigorously defend the cases.

Therefore, the Company did not accrue any loss contingency for this matter on its consolidated financial statements as of March 31, 2020 and 2019.

On March 29, 2020, plaintiff Jesus Mendoza (“Mendoza”) filed a putative shareholder securities class action lawsuit (the “Mendoza Lawsuit”) in the United States District Court for the Central District of California against the Company and certain of its present and former officers (collectively, the “Mendoza Defendants”) styled Mendoza v.

Therefore, the Company did not accrue any loss contingency for this matter on its consolidated financial statements as of June 30, 2020 and December 31, 2019.

On March 29, 2020, plaintiff Jesus Mendoza (“Mendoza”) filed a putative shareholder securities class action lawsuit (the “Class Action Lawsuit”) in the United States District Court for the Central District of California against the Company and certain of its

present and former officers (collectively, the “Class Action Defendants”) for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 styled Mendoza v.

HF Foods Group Inc., et al., Civil Action No.

2:20-CV-2929-ODW-JPR (C.D.

On April 30, 2020, plaintiff Walter Ponce-Sanchez (“Ponce-Sanchez”) filed a substantially similar putative shareholder securities class action lawsuit (the “Ponce-Sanchez Lawsuit”) in the United States District Court for the Central District of California against the same defendants named in the Mendoza Lawsuit (collectively, the “Ponce-Sanchez Defendants” and with the Mendoza Defendants, the “Defendants”) styled Ponce-Sanchez v.

HF Foods Group Inc., et al., Civil Action No.

2:20-CV-3967-PA-GJS (C.D.

The complaints in the Mendoza Lawsuit and the Ponce-Sanchez Lawsuit both allege that the Defendants made materially false and/or misleading statements that caused losses to investors.

Additionally, Mendoza and Ponce-Sanchez both allege that the Defendants failed to disclose in public statements that the Company engaged in certain related party transactions, that insiders and related parties were enriching themselves by misusing shareholder funds, and that the Company masked the true number of free-floating shares.

Neither the Mendoza Lawsuit nor the Ponce-Sanchez Lawsuit quantifies any alleged damages, but, in addition to attorneys’ fees and costs, they seek to recover damages on behalf of themselves and other persons who purchased or otherwise acquired Company stock during the putative class period from August 23, 2018 through March 23, 2020 at allegedly inflated prices and purportedly suffered financial harm as a result.

The Company disputes these allegations and intends to defend the Mendoza Lawsuit and the Ponce-Sanchez Lawsuit vigorously.

At this stage, the Company is unable to determine whether a future loss will be incurred due to this litigation, or estimate a range of loss, if any, and accordingly, no amounts have been accrued in the Company’s financial statements.

On April 30, 2020, plaintiff Walter Ponce-Sanchez (“Ponce-Sanchez”) filed a substantially similar putative shareholder securities class action lawsuit (the “Ponce-Sanchez Lawsuit”) in the United States District Court for the Central District of California against the same defendants named in the Class Action Lawsuit (collectively, the “Ponce-Sanchez Defendants” and with the Class Action Defendants, the “Defendants”) styled Ponce-Sanchez v.

HF Foods Group Inc., et al.

, Civil Action No.

2:20-CV-3967-ODW-JPR (C.D.

The Ponce-Sanchez Lawsuit has now been consolidated with the Class Action Lawsuit and a motion for lead plaintiff and lead plaintiff’s counsel is pending.

The complaints both allege that the Defendants made materially false and (or) misleading statements that caused losses to investors.

Additionally, the complaints both allege that the Defendants failed to disclose in public statements that the Company engaged in certain related party transactions, that insiders and related parties were enriching themselves by misusing shareholder funds, and that the Company masked the true number of free-floating shares.

Neither complaint quantifies any alleged damages, but, in addition to attorneys’ fees and costs, they seek to recover damages on behalf of themselves and other persons who purchased or otherwise acquired Company stock during the putative class period from August 23, 2018 through March 23, 2020 at allegedly inflated prices and purportedly suffered financial harm as a result.

The Company disputes these allegations and intends to defend the consolidated actions vigorously.

At this stage, the Company is unable to determine whether a future loss will be incurred due to the consolidated actions.

On June 15, 2020, Mendoza filed a shareholder derivative lawsuit on behalf of the Company as a nominal defendant (the “Mendoza Derivative Lawsuit”) in the United States District Court for the Central District of California against certain of the Company’s present and former directors and officers (collectively, the “Mendoza Derivative Defendants”) styled Mendoza v.

Zhou Min Ni, et al., Civil Action No.

2:20-CV-5300-ODW-JPR (C.D.

The complaint in the Mendoza Derivative Lawsuit is based largely on the same allegations as set forth in the Class Action Lawsuit discussed above and alleges 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.

The Mendoza Derivative Lawsuit does not quantify any alleged damages, but, in addition to attorneys’ fees and costs, Mendoza seeks to recover damages on behalf of the Company for purported financial harm and to have the court order changes in the Company’s corporate governance.

The Mendoza Derivative Defendants and the Company dispute these allegations and intend to defend the Mendoza Derivative Lawsuit vigorously.

At this stage, the Company is unable to determine whether a future loss will be incurred due to the Mendoza Derivative Lawsuit.

On July 8, 2020, the Court ordered that all proceedings in the Mendoza Derivative Lawsuit be stayed until such time as the Court has finally resolved the Mendoza Defendants’ anticipated motion to dismiss the Class Action Lawsuit.

(See Note 18 for additional information).

At this stage, the Company is unable to determine whether a future loss will be incurred due to the Class Action Lawsuit or the Mendoza Derivative Lawsuit, or estimate a range of loss, if any;

accordingly, no amounts have been accrued in the Company’s financial statements as of June 30, 2020.

NOTE 19 - SUBSEQUENT EVENTS

Starting Mid-March 2020 when, federal, state and local governments throughout the United States issued shelter-in-place orders related to the COVID-19 pandemic.

Many of the Company’s customers, including those in the restaurant segments, ceased operating due to governmental requirements for closures to help curb the spread of COVID-19, and there are no assurances as to how long these closures may remain in effect.

Furthermore, even after reopening, there can be no assurance as to the time required to regain operations and sales volume at prior levels.

Given the uncertain nature of this situation, the Company cannot reasonably estimate the further impacts of COVID-19 on its financial condition, results of operations or cash flows for the foreseeable future.

However, the Company expects the COVID-19 pandemic will have a material and adverse impact on future revenue growth, as well as overall profitability, and may lead to higher bad debt expense, higher inventory allowance, additional impairment of goodwill, intangible assets or fixed assets.

The Company evaluated subsequent events through August 10, 2020, which is the date the financial statements were available to be issued .

CAUTIONARY NOTE ABOUT FORWARD LOOKING STATEMENTS

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• Unfavorable macroeconomic conditions in the United States;

Competition in the food service distribution industry particularly the entry of new competitors into the Chinese/Asian restaurant market niche;

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

• Increases in fuel costs;

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

US government tariffs on products imported into the United States, particularly from China;

government tariffs on products imported into the United States, particularly from China;

• Changes in consumer eating and dining out habits;

• Disruption of relationships with or loss of customers;

Our ability to execute our acquisition strategy;

Availability of financing to execute our acquisition strategy;

• Our ability to renew or replace the current lease of our warehouse in Georgia;

• Control of the Company by our Co-Chief Executive Officers and principal stockholders;

Failure to retain our senior management and other key personnel particularly, Zhou Min Ni and Chan Sin Wong;

• Failure to retain our senior management and other key personnel, particularly Zhou Min Ni, Xiao Mou Zhang and Kong Hian Lee;

• Our ability to attract, train and retain employees;

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

• The effects of the COVID-19 pandemic;

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

What changed 10-Q

Item 1. Financial Statements