What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 506 added, 233 removed, 925 unchanged (44% of the section changed)

1 unchanged sentence

HF FOODS GROUP INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2020 December 31,

21 unchanged sentences

Accounts payable - related parties 2,663,255 4,521,356

Advances from customers - related parties 6,147 —

Current portion of long-term debt, net 7,736,016 2,726,981

11 unchanged sentences

SHAREHOLDERS’ EQUITY:

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

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

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

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

3 unchanged sentences

258,841,296 603,407,945

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

Noncontrolling interests 4,292,775 4,248,787

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

TOTAL SHAREHOLDERS’ EQUITY 263,134,071 607,656,732

2 unchanged sentences

HF FOODS GROUP INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

18 unchanged sentences

NET INCOME (LOSS) ( 396,939 ) 1,528,671 ( 344,397,661 ) 4,382,956

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

net income attributable to noncontrolling interests 226,865 181,106 168,988 339,683

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

3 unchanged sentences

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

HF FOODS GROUP INC.

AND SUBSIDIARIES

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

For the three and nine month ended September 30, 2020 and 2019

Common Stock Treasury Stock Additional

Capital Retained

1 unchanged sentence

Noncontrolling

Interest Total

Interests Total

Shareholders’

6 unchanged sentences

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

Net income (loss) — — — — ( 623,804 ) ( 623,804 ) 226,865 ( 396,939 )

Balance at September 30, 2020 52,145,096 $ 5,305 ( 12,038,030 ) $ 599,617,009 $ ( 328,742,988 ) $ 258,841,296 $ 4,292,775 $ 263,134,071

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

4 unchanged sentences

Balance at June 30, 2019 22,167,486 2,217 — 22,920,603 13,129,692 36,052,512 1,173,255 37,225,767

Net income — — — — 1,347,565 1,347,565 181,106 1,528,671

Exercise of Stock Options 182,725 18 — ( 18 ) — — — —

Buyback of common stock from a shareholder in exchange for notes receivable ( 905,115 ) — ( 12,038,030 ) — — ( 12,038,030 ) — ( 12,038,030 )

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

Balance at September 30, 2019 21,445,096 $ 2,235 ( 12,038,030 ) $ 22,920,585 $ 14,477,257 $ 25,362,047 $ 1,264,361 $ 26,626,408

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

HF FOODS GROUP INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30,

For the nine months ended September 30,

Cash flows from operating activities:

6 unchanged sentences

Allowance for inventories 119,737 —

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

Deferred tax expense (benefit) ( 3,172,293 ) 147,117

Income from equity method investment ( 65,612 ) —

3 unchanged sentences

Accounts receivable - related parties, net 3,319,539 ( 385,352 )

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

Inventories, net 15,720,722 ( 7,650,285 )

Advances to suppliers - related parties, net 447,287 536,343

11 unchanged sentences

Proceeds from disposal of equipment 160,659 275,699

Cash received from note receivable — 115,305

Cash received from notes receivable — 290,071

Payment made for notes receivable — ( 108,750 )

1 unchanged sentence

Payment made for long-term notes receivable to related parties — ( 260,933 )

Payment made for acquisition of B&R Realty ( 94,004,068 ) —

Payment made for acquisition of B&R Realty, net ( 94,004,068 ) —

Net cash used in investing activities ( 94,253,697 ) ( 4,798,693 )

18 unchanged sentences

HF Foods Group Inc.

(“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.

and subsidiaries (collectively “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.

20 unchanged sentences

By eliminating the effects of intra-entity transactions in determining the results of operations for the period before the combination, those results were on substantially the same basis as the results of operations for the period after the date of combination.

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.

The effects of intra-entity transactions on current assets, current liabilities, revenue, and cost of revenue 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

37 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

HF Holding 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.

7 unchanged sentences

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 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.

Formed in 2014 as a holding company to acquire and consolidate the various operating entities (listed below) under one roof, B&R Global, through its subsidiaries, supplies food items to approximately 6,800 restaurants across 11 Western states, and combined with HF Group, creates what the Company believes is 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.

49 unchanged sentences

(“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.

* At the acquisition date and as of September 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.

24 unchanged sentences

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.

Operating results for the three and nine month periods ended September 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 June 30, 2020 and December 31, 2019, FUSO is considered to be a VIE.

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

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

2 unchanged sentences

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:

September 30,

2020 December 31,

5 unchanged sentences

Total liabilities $ 822,926 $ 874,987

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

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Net income $ 16,157 $ — $ 115,602 $ —

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

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Net cash used in financing activities ( 15,359 ) — ( 260,971 ) —

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

Net increase in cash and cash equivalents $ 17,338 $ — $ 105,928 $ —

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

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

Name of Entity Percentage of

noncontrolling

interest ownership June 30,

interest ownership September 30,

2020 December 31,

Kirnland 33.33 % $ 1,417,443 $ 1,292,623

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

MS 35.00 % 472,323 459,126

MIN 39.75 % 928,533 896,980

MS 35.00 % 458,496 459,126

OW 32.50 % 1,488,303 1,600,058

Total $ 4,292,775 $ 4,248,787

3 unchanged sentences

Actual results could differ from those estimates.

Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include, but are not limited to, allowance for doubtful accounts, useful lives of property and equipment, lease assumptions, impairment of long-lived assets, long-term investments, goodwill, the purchase price allocation and fair value of noncontrolling interests with respect to business combinations, realization of deferred tax assets, and uncertain income tax positions.

Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include, but are not limited to, allowance for doubtful accounts, useful lives of property and equipment and intangible assets, lease assumptions, impairment of long-lived assets, long-term investments, and goodwill, the purchase price allocation and fair value of noncontrolling interests with respect to business combinations, realization of deferred tax assets, and uncertain income tax positions.

Cash and Cash Equivalents

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

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

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

As of September 30, 2020 and December 31, 2019, the allowances for doubtful accounts were $ 1,373,921 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 June 30, 2020 and December 31, 2019, the valuation allowance was $ 60,424 and $ 16,928 , respectively.

As of September 30, 2020 and December 31, 2019, the valuation allowance was $ 136,665 and $ 16,928 , respectively.

Property and Equipment

3 unchanged sentences

Estimated useful lives

Automobiles 3 — 7

Buildings and improvements 7 — 39

Furniture and fixtures 4 — 10

Machinery and equipment 3 — 10

Motor vehicles 5 — 7

Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterment that extends the useful lives of property, plant and equipment are capitalized as additions to the related assets.

13 unchanged sentences

On the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.

Transaction costs associated with business combinations are expensed as incurred, and are included in general and administrative expenses in the Company’s consolidated statements of operations.

Transaction costs associated with business combinations are expensed as incurred, and are included in distribution, selling and administrative expenses in the Company’s consolidated statements of operations.

The results of operations of the businesses that the Company acquired are included in the Company’s consolidated financial statements from the date of acquisition.

8 unchanged sentences

If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative analysis.

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

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

Intangible Assets

11 unchanged sentences

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.

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

Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC Topic 323 (“ASC 323”), Investments-Equity Method and Joint Ventures .

4 unchanged sentences

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

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

Impairment of Long-lived Assets Other Than Goodwill

3 unchanged sentences

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

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

Revenue Recognition

6 unchanged sentences

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

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

For the three and nine month periods ended September 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 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

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Arizona $ 8,418,352 $ — $ 25,344,389 $ —

1 unchanged sentence

Colorado 9,177,067 — 25,618,734 —

Florida 17,167,155 22,833,584 47,562,057 68,717,635

Georgia 12,524,287 16,051,306 34,699,175 48,801,770

North Carolina 28,688,103 36,813,987 79,672,578 107,698,700

Utah 13,717,413 — 39,010,162 —

2 unchanged sentences

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 $ 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.

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

Shipping and handling costs were $ 5,167,163 and $ 3,093,138 for the nine months ended September 30, 2020 and 2019, and $ 1,640,914 and $ 1,014,288 for the three months ended September 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.

5 unchanged sentences

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 June 30, 2020 and December 31, 2019.

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

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

7 unchanged sentences

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.

As of September 30, 2020 and December 31, 2019, the balances for operating lease assets and liabilities were $ 693,982 and $ 17,155,584 , respectively.

See Note 13 for additional information.

13 unchanged sentences

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 and six month periods ended June 30, 2020 and 2019.

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

Fair Value of Financial Instruments

12 unchanged sentences

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.

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.

3 unchanged sentences

Concentration risk

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.

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

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

As of September 30, 2020, there was one supplier that accounted for 19 % of total outstanding advance payments, and one supplier that accounted for 98 % 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.

6 unchanged sentences

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

The Company will adopt this ASU within the annual reporting period of December 31, 2023.

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.

3 unchanged sentences

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 will adopt this ASU within the annual reporting period of December 31, 2021.

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.

1 unchanged sentence

Accounts receivable, net consisted of the following:

As of June 30,

As of September 30,

2020 As of December 31,

3 unchanged sentences

Movement of allowance for doubtful accounts is as follows:

For the Six Months Ended

2020 June 30,

For the Nine Months Ended

September 30,

2020 September 30,

Beginning balance $ 623,970 $ 658,104

3 unchanged sentences

NOTE 4 - NOTES RECEIVABLE

On September 30, 2018, the Company entered into a line of credit promissory note agreement with Feilong Trading, Inc, which is a supplier to the Company.

Pursuant to the promissory note agreement, Feilong Trading, Inc.

was permitted to borrow up to $ 4,000,000 from time to time.

On September 30, 2018, the Company entered into a line of credit promissory note agreement with Feilong Trading, Inc, ("Feilong"), a supplier to the Company.

Pursuant to the promissory note agreement, Feilong was permitted to borrow up to $ 4,000,000 from time to time.

The note bore interest at the rate of 5 % per annum on the unpaid balance, compounded monthly.

On September 30, 2019, the entire outstanding balance of $ 3,622,505 was sold to Mr.

Zhou Min Ni in exchange for 272,369 shares of common stock of the Company, which shares were received and recorded as treasury stock by the Company as of September 30, 2019.

On March 1 2019, the Company and Feilong agreed to extend the expiration date to March 1, 2024.

Meanwhile, the Company’s major shareholder and Co-CEO, Mr.

Zhou Min Ni agreed to personally guarantee the repayment of all outstanding balances relating this note receivable.

On September 30, 2019, the Company and Mr.

Ni entered into a Loan Purchase and Sale Agreement (the "Loan Sale Agreement").

Pursuant to the Loan Sale Agreement, the entire outstanding balance of $ 3,622,505 owed by Feilong to the Company was sold to Mr.

Ni in exchange for 272,369 shares of common stock of the Company, which shares were received and recorded as treasury stock by the Company as of September 30, 2019.

In connection with the sale of this note receivable, the Company also required 89,882 additional shares of common stock of the Company owned by Mr.

Ni to be placed in an escrow account for a period of one year (the “Escrow Period”), which will be delivered to the Company in part or in full, if the weighted average closing price of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the Escrow Period is less than $ 13.30 .

Ni to be placed in an escrow account for a period of one year until September 30, 2020 (the “Escrow Period”), which would then be delivered to the Company in part or in full, if the volume weighted average price ("VWAP") of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the Escrow Period was less than $ 13.30 .

On October 9, 2020, in accordance with the terms of the Loan Sale Agreement, the Company and Mr.

Ni determined and agreed that the 250-day VWAP immediately preceding September 30, 2020 was $ 10.59 , and consequently, 69,719 of the Escrow Shares were transferred to and recorded as treasury stock by the Company, and the remaining 20,163 Escrow Shares were returned to Mr.

Following this event, the balance due from Feilong to the Company is considered fully settled.

NOTE 5 - LONG-TERM INVESTMENTS

Long-term investments consisted of the following:

Ownership as of June 30,

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

Ownership as of September 30,

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

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

6 unchanged sentences

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 June 30, 2020 and December 31, 2019 for these investments.

The Company believes there was no impairment as of September 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,

As of September 30,

2020 As of December 31,

Automobiles $ 24,740,366 $ 24,340,652

Building 71,285,127 17,721,292

Building improvements 9,639,748 9,079,737

Furniture and fixtures 223,996 220,169

Land 52,125,900 3,391,858

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

Machinery and equipment 13,413,088 11,414,764

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

Subtotal 171,428,225 66,168,472

3 unchanged sentences

See Note 8 for additional information.

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.

Depreciation expense was $ 4,870,523 and $ 2,160,538 for the nine month periods ended September 30, 2020 and 2019, respectively, and $ 1,605,661 and $ 731,731 for the three month periods ended September 30, 2020 and 2019, respectively.

NOTE 7 - BUSINESS COMBINATION WITH B&R GLOBAL

2 unchanged sentences

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.

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

The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets and liabilities acquired are fully evaluated by the Company, not to exceed one year as permitted under ASC 805.

34 unchanged sentences

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 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,

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

For the three months ended September 30,

2020 For the nine months ended September 30,

Net Revenue $ 81,539,397 $ 258,348,564

Net Loss $ ( 1,995,233 ) $ ( 9,652,554 )

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 following table presents the Company’s unaudited pro forma results for the three and nine month periods ended September 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 months ended June 30,

2019 For the six months ended June 30,

For the three months ended September 30,

2019 For the nine months ended September 30,

Pro forma net revenue $ 205,065,301 $ 622,054,119

3 unchanged sentences

Pro forma weighted average shares - basic and diluted 52,145,096 52,145,096

(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.

(1) Includes intangibles asset amortization expense of $ 2,722,575 for the three months ended September 30, 2019 and 8,167,725 for the nine months ended September 30, 2019, respectively.

NOTE 8 - ACQUISITION OF B&R REALTY SUBSIDIARIES

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.

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 to 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.

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NOTE 9 - GOODWILL AND ACQUIRED INTANGIBLE ASSETS

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

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

HF B&R Global Total

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

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

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

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

Balance at September 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.

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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.

As a result, the company recorded the amount as impairment loss 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.

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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 its value as of the acquisition date, mainly driven by the increased risk and volatility observed in the market.

The Company also observed that the WACC applied on March 31, 2020 increased significantly from the original WACC 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 these concerns and and resulting volatility.

Continued uncertainty about the removal or perpetuation of these restrictions and levels of consumer spending cause ongoing 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 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.

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

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

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

Amount Accumulated

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Total $ 188,503,000 $ ( 9,982,775 ) $ 178,520,225 $ 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.

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 September 30, 2020.

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

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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 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.

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

HF Group’s amortization expense for intangible assets was $ 2,722,575 and $ 8,167,725 for the three and nine month periods ended September 30, 2020, respectively, and nil for the three and nine month periods ended September 30, 2019, respectively.

Estimated future amortization expense for intangible assets is presented below:

Twelve months ending June 30, Amount

Twelve months ending September 30, Amount

2021 $ 10,890,300

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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.

The Company has existing term loans as of September 30, 2020 of approximately $ 73.5 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 $ 25.2 million as of September 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.

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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.

As of Sept 30, 2020 and December 31, 2019, the Company has determined that the fair value of the interest rate swap obligations was $ 1,357,434 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.

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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 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 Holdings, 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 was being reviewed by the bank.

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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.

On November 4, 2019, the balance of the Credit Agreement 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 .

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(“JP Morgan”).

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.

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

This line of credit was collateralized by all assets of the Company and was 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, contained 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 provides for a $ 100 million asset-secured revolving credit facility maturing on November 4, 2022, and 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 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 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.

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 had been leasing for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.

The Credit Agreement contained certain financial covenants and, as of September 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 September 30, 2020 was $ 25.2 million.

NOTE 12 - LONG-TERM DEBT

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,

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

Bank name Maturity Interest rate as of September 30,

2020 As of September 30,

2020 As of December 31,

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Bank of America – (c) April 2021 - December 2029 3.73 % — 5.51 % 6,138,879 4,263,663

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

JP Morgan (d) February 2023 – January 2030 2.03 % — 2.16 % 75,630,548 2,702,371

BMO Harris Bank – (e) April 2022 - January 2024 5.87 % — 5.99 % 320,394 508,564

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

Peoples United Bank – (e) December 2022-January 2023 6.69 % — 7.53 % 805,964 1,114,993

Other finance companies – (e) October 2020 – March 2024 3.90 % — 6.14 % 523,591 716,315

Total debt 95,108,684 21,261,997

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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.

As of September 30, 2020, the Company was in compliance.

As of December 31, 2019, the Company was in violation of one covenant and a waiver was obtained from Bank of America for the covenant violation.

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

(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.

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

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

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

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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.

(d) Real estate term loan with a principal balance of $ 73,510,296 as of September 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 $ 2,120,252 as of September 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

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

Twelve months ending September 30, Amount

2021 $ 7,736,016

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Lease expense is recognized on a straight-line basis over the lease term.

For finance leases, the Company also recognizes a finance lease asset and finance lease liability at inception, with lease expense recognized as interest expense and amortization of the lease payment.

For finance leases, the Company also recognizes finance lease assets and finance lease liabilities at inception, with lease expense recognized as interest expense and amortization of the lease payment.

Operating Leases

The components of lease expense were as follows:

For the Three Months Ended For the Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Operating lease cost $ 301,734 $ 184,002 $ 1,058,611 $ 476,262

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The components of lease expense were as follows:

For the Three Months Ended For the Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Finance leases cost:

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

For the Three Months Ended For the Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Operating cash flows from finance leases $ 21,647 $ 25,697 $ 72,767 $ 86,303

Supplemental balance sheet information related to leases was as follows:

September 30,

2020 December 31,

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Maturities of lease liabilities were as follows:

Twelve months ending June 30, Operating

Twelve months ending September 30, Operating

Leases Finance

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

For the Six Months Ended

2020 June 30,

For the Nine Months Ended

September 30,

2020 September 30,

Supplemental disclosure of cash flow data

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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.

(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,

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

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Current income taxes:

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

As of June 30,

As of September 30,

2020 As of December 31,

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

As of June 30,

As of September 30,

2020 As of December 31,

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(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,

For the Nine Months Ended

September 30,

2020 September 30,

Federal statutory tax rate 21.0 % 21.0 %

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Impact of goodwill impairment loss – permanent difference ( 20.5 ) % 3.4 %

Others — % ( 1.0 ) %

Effective tax rate 0.6 % 28.2 %

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The Company records transactions with various related parties.

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 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.

The related party transactions as of September 30, 2020 and December 31, 2019 and for the three and nine month periods ended September 30, 2020 and 2019 are identified as follows:

Related Party Sales and Purchases Transactions

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

Purchase - related parties

Below is a summary of purchases from related parties for the three months ended September 30, 2020 and 2019, respectively:

Name of Related Party Three Months Ended

September 30, 2020 Three Months Ended

September 30, 2019

(a) Best Food Services, LLC $ 1,231,399 $ —

(b) Eagle Food Service, LLC 26,400 24,278

(d) Enson Seafood GA, Inc.

(formerly “GA-GW Seafood, Inc.”) — 79,089

(e) First Choice Seafood, Inc 18,522 717,139

(f) Fujian RongFeng Plastic Co., Ltd.

753,997 1,337,292

(g) Han Feng (Fujian) Information Technology Co., Ltd 556,238 1,370,461

(h) N&F Logistic, Inc.

(i) North Carolina Good Taste Noodle, Inc.

1,039,162 1,127,902

(j) Ocean Pacific Seafood Group Inc.

150,035 77,957

(k) Revolution Industries, LLC 655,789 788,043

(l) UGO USA, Inc.

208,333 191,944

(m) Union Foods, LLC — 941,057

Others 129,741 8,655

Total $ 5,955,014 $ 8,512,370

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

(b) Tina Ni, one of Mr.

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

Zhou Min Ni, the Chairman and Co-Chief Executive Officer of the Company, owns 30 % equity interest in this entity.

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

Zhou Min Ni owns 25 % equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns 40 % equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns 100 % equity interest in this entity.

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

Jian Ming Ni (Ex-CFO) owns 29 % equity interest in this entity.

Zhou Min Ni previously owned 37.34 % equity in this entity as of 12/31/2019.

Mr Ni's equity interest was disposed of on 1/1/2020.

Zhou Min Ni owns 26 % equity interest in this entity.

(k) Raymond Ni, one of Mr.

Zhou Min Ni’s family members, owns 100 % equity interest in this entity.

Zhou Min Ni owns 30 % equity interest in this entity.

(m) Tina Ni, one of Mr.

Zhou Min Ni’s family members, owns 30 % equity interest in this entity.

Anthony Zhang, one of Mr.

Xiao Mou Zhang's family member, owns 10 % of equity interest in this entity.

Below is a summary of purchase from related parties for the nine months ended September 30, 2020 and 2019, respectively:

Name of Related Party Nine Months Ended

September 30, 2020 Nine Months Ended

September 30, 2019

(a) Allstate Trading Company, Inc.

$ 308,865 $ 111,213

(b) Best Food Services, LLC 4,204,084 —

(d) Fortune One Foods Inc.

(d) Eastern Fresh NJ, LLC 3,240,576 4,946,847

(e) Enson Seafood GA, Inc.

(formerly “GA-GW Seafood, Inc.”) — 181,984

(f) First Choice Seafood, Inc 355,261 1,668,593

(g) Fujian RongFeng Plastic Co., Ltd.

2,598,952 4,403,948

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

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

(g) Hengfeng Food Service Inc.

(h) Han Feng (Fujian) Information Technology Co., Ltd 1,581,450 2,259,539

(i) N&F Logistic, Inc.

368,529 1,130,403

(h) N&F Logistic, Inc.

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

(j) North Carolina Good Taste Noodle, Inc.

2,734,070 3,389,766

(k) Ocean Pacific Seafood Group Inc.

383,211 450,762

(l) Revolution Industries, LLC 1,701,490 2,054,234

(m) UGO USA, Inc.

429,073 540,468

(n) Union Foods, LLC 1,246,720 4,489,750

Others 171,901 174,711

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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.

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

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.

Zhou Min Ni owns a 30 % equity interest in this entity.

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

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

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

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

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

Zhou Min Ni owns 30 % equity interest in this entity.

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

Zhou Min Ni owns 25 % equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns 40 % equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns 100 % equity interest in this entity.

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

Jian Ming Ni (Ex-CFO) owns 29 % equity interest in this entity.

Zhou Min Ni owned 37.34 % equity in this entity as of 12/31/2019.

Mr Ni's equity interest has been disposed of on 1/1/2020.

Zhou Min Ni owns 26 % equity interest in this entity.

(l) Raymond Ni, one of Mr.

Zhou Min Ni’s family members, owns 100 % equity interest in this entity.

Zhou Min Ni owns 30 % equity interest in this entity.

(n) Tina Ni, one of Mr.

Zhou Min Ni’s family members, owns 30 % equity interest in this entity.

Anthony Zhang, one of Mr.

Xiao Mou Zhang's family member, owns 10 % of equity interest in this entity.

Sales - related parties

Below is a summary of sales to related parties for the three months ended September 30, 2020 and 2019, respectively:

Name of Related Party Three Months Ended

September 30, 2020 Three Months Ended

September 30, 2019

(a) ABC Food Trading, LLC $ 371,162 $ —

(b) Asahi Food, Inc.

(d) Eagle Food Service, LLC 1,067,890 1,742,733

(e) Eastern Fresh NJ, LLC 134,549 1,019,427

(f) Enson Group, LLC 29,608 161,268

(g) Enson Seafood GA, Inc.

(formerly “GA-GW Seafood, Inc.”) 9,097 1,064,244

(h) Fortune One Foods, Inc.

28,149 238,633

(i) Heng Feng Food Service, Inc.

113,546 352,000

(j) N&F Logistic, Inc.

293,100 523,807

(k) UGO USA, Inc.

15,440 16,500

Others 3,000 11,892

Total $ 2,287,377 $ 5,130,504

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

(b) The company through its subsidiary MF owns 49 % equity interest in this entity.

Xiao Mou Zhang owns 10.38 % equity interest in this entity indirectly through its parent company.

(d) Tina Ni, one of Mr.

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

Zhou Min Ni, the Chairman and Co-Chief Executive Officer of the Company, owns 30 % equity interest in this entity.

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

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

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

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

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

Zhou Min Ni owns 30 % equity interest in this entity.

Below is a summary of sales to related parties for the nine months ended September 30, 2020 and 2019, respectively:

Name of Related Party Nine Months Ended

September 30, 2020 Nine Months Ended

September 30, 2019

(a) ABC Food Trading, LLC $ 1,419,460 $ —

(b) Asahi Food, Inc.

(d) Eagle Food Service, LLC 3,504,915 5,221,409

(e) Eastern Fresh NJ, LLC 1,583,842 2,848,802

(f) Enson Group, LLC 302,360 483,412

(g) Enson Philadelphia, Inc.

125,684 117,595

(h) Enson Seafood GA, Inc.

(formerly “GA-GW Seafood, Inc.”) 49,313 1,314,727

(i) First Choice Seafood, Inc.

(j) Fortune one Foods, Inc.

264,915 638,497

(k) Heng Feng Food Service, Inc.

640,732 1,199,353

(l) N&F Logistic, Inc.

846,342 1,769,214

(m) The Big Catch Alhambra, LLC 57,048 —

(n) UGO USA, Inc.

52,023 54,243

Others 58,471 50,336

Total $ 10,907,028 $ 13,697,588

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

(b) The company through its subsidiary MF owns 49 % equity interest in this entity.

Xiao Mou Zhang owns 10.38 % equity interest in this entity indirectly through its parent company.

(d) Tina Ni, one of Mr.

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

Zhou Min Ni, the Chairman and Co-Chief Executive Officer of the Company, owns 30 % equity interest in this entity.

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

Zhou Min Ni owns 23.33 % equity interest in this entity indirectly through its parent company.

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

Zhou Min Ni owns 25 % equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns 17.5 % equity interest in this entity indirectly through its parent company.

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

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

Xiao Mou Zhang owns 10 % equity interest in this entity.

Zhou Min Ni owns 30 % equity interest in this entity.

Related Party Balances

Accounts receivable - related parties, net

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

Name of Related Party As of September 30,

2020 As of December 31,

(a) ABC Food Trading, LLC $ 253,896 $ 238,513

(b) Asahi Food, Inc.

75,763 34,265

(d) Eastern Fresh NJ, LLC — 1,511,075

(e) Enson Group, LLC — 341,200

(f) Enson Seafood GA, Inc.

(formerly “GA-GW Seafood, Inc.”) 98,540 348,833

(g) Heng Feng Food Service, Inc.

(h) N&F Logistic, Inc.

14,446 119,241

Others 30,441 152,611

Total $ 883,331 $ 4,202,870

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

(b) The Company through its subsidiary MF owns 49 % equity interest in this entity.

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

Zhou Min Ni, the Chairman and Co-Chief Executive Officer of the Company, owns 30 % equity interest in this entity.

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

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

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

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

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

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

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

Accounts payable - related parties, net

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

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

Name of Related Party As of September 30,

2020 As of December 31,

(a) Best Food Services, LLC $ 316,255 $ 987,487

(b) Eastern Fresh NJ, LLC 261,381

(d) Fujian RongFeng Plastic Co.,Ltd 434,754 1,684,192

(e) Golden Poultry, LLC — 248,901

(f) Han Feng Information Technology (Jinhua), Inc.

445,751 166,971

(g) North Carolina Good Taste Noodle, Inc.

781,752 992,353

(h) UGO USA, Inc.

93,970 340,087

Others 243,672 101,365

Total $ 2,663,255 $ 4,521,356

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

Zhou Min Ni, the Chairman and Co-Chief Executive Officer of the Company, owns 30 % equity interest in this entity.

Zhou Min Ni owns 25 % equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns 40 % equity interest in this entity indirectly through its parent company.

Zhou Min Ni owns 40 % equity interest in this entity.

In late 2019, this entity transferred its business to Union Foods, LLC, which is 30 % equity interest indirectly owned by Tina Ni, one of Mr.

Zhou Min Ni’s family members through its parent company, and 10 % of equity interest owned by Anthony Zhang, one of Mr.

Xiao Mou Zhang's family member.

Zhou Min Ni owns 37 % equity interest in this entity.

Jian Ming Ni (Ex-CFO) owns 29 % equity interest in this entity.

Zhou Min Ni owned 37.34 % equity in this entity as of 12/31/2019.

Mr Ni's equity interest has been disposed of on 1/1/2020.

Zhou Min Ni owns 30 % equity interest in this entity.

Advances to suppliers - related parties, net

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

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

Below is a summary of advances to related party suppliers as of September 30, 2020 and December 31, 2019, respectively:

Name of Related Party As of September 30,

2020 As of December 31,

(a) Ocean Pacific Seafood Group, Inc.

$ 7,506 $ 223,303

(b) Revolution Industry, LLC 290,342 521,832

Total $ 297,848 $ 745,135

Zhou Min Ni, the Chairman and Co-Chief Executive Officer of the Company, owns 26 % equity interest in this entity.

(b) Raymond Ni, one of Mr.

Zhou Min Ni’s family members, owns 100 % equity interest in this entity.

Advances from customers - related parties, net

The Company also periodically receives advances from its related parties for business purposes.

These advances are interest free and due upon demand.

The balance for advances from customers involving related parties was $ 6,147 as of September 30, 2020 and there were no advances from customers involving related parties as of December 31, 2019.

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 September 30, 2020, accrued interest payable was nil .

Security deposit - related parties

The Company made deposits to its related parties for warehouse rental purposes.

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

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

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 September 30, 2020.

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

Lease Agreements with Related Parties

The Company leases various facilities to related parties commensurate with market rates.

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

Rental income for the three months ended September 30, 2020 and 2019 was $ 11,400 and $ 11,400 , respectively, and the nine months ended September 30, 2020 and 2019 was $ 34,200 and $ 34,200 , respectively.

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

Rental income for the three months ended September 30, 2020 and 2019 was $ 10,500 and $ 10,500 , respectively, and the nine months ended September 30, 2020 and 2019 wa s $ 31,500 and $ 31,500 , respectively.

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

Rental income for the three months ended September 30, 2020 and 2019 was $ 120,000 and $ 120,000 , respectively, and the nine months ended September 30, 2020 and 2019 was $ 360,000 and $ 360,000 , respectively.

R&N Lexington leases certain portion of a warehouse space to a related party under an operating lease agreement expiring on June 30, 2025.

Rental income for the three months ended September 30, 2020 and 2019 was $ 15,000 and nil , respectively, and the nine months ended September 30, 2020 and 2019 was $ 15,000 and nil , 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, 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 September 30, 2020 and 2019, respectively, and $ 90,000 and $ 90,000 for the nine months ended September 30, 2020 and 2019, respectively.

Notes Receivable from Related Parties

The Company had previously made advances or loans to certain entities that are either owned by the controlling shareholders of the Company or family members of the controlling shareholders.

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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.

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.

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Zhou Min Ni agreed to personally guarantee these notes.

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

On September 30, 2019, the Company and Mr.

Ni entered into a Loan Purchase and Sale Agreement (the "Loan Sale Agreement").

Pursuant to the Loan Sale Agreement, all such notes receivable stated above, having then a combined outstanding balance of $ 8,415,525 ("Total Notes Receivable"), 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.

In connection with the sale of the above notes, the Company also required 208,806 additional shares of common stock of the Company owned by Mr.

Ni to be placed in an escrow account for a period of one year (the “Escrow Period”), which will be delivered to the Company in part or in full, if the volume weighted average closing price of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the Escrow Period is less than $ 13.30 .

Accounts payable - related parties

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.

Advances from customers - related parties

The Company also periodically receives advances from its related parties for business purposes.

These advances are interest free and due upon demand.

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

The Company made deposits to its related parties for warehouse rental purposes.

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

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 June 30, 2020, accrued interest payable was nil .

Lease Agreements with Related Parties

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, 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 $ 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.

Ni to be placed in an escrow account for a period of one year until September 30, 2020 (the “Escrow Period”), which will then be delivered to the Company in part or in full, if the volume weighted average price ("VWAP") of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the Escrow Period is less than $ 13.30 .

On October 9, 2020, in accordance with the terms of the Loan Sale Agreement, the Company and Mr.

Ni determined and agreed that the 250-day VWAP was $ 10.59 , and that, therefore, 161,966 of the Escrow Shares would be transferred to and recorded as treasury stock by the Company and the remaining 46,840 Escrow Shares would be returned to Mr.

Following which, the Total Notes Receivable guaranteed by Mr.

Ni is considered fully settled.

NOTE 17 - SEGMENT REPORTING

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The Company uses the “management approach” in determining reportable operating segments.

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

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

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

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

Management, including the operating decision makers, review operation results by the revenue of different distribution centers.

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.

As a result, the Company has two reportable segments, HF covering Southeastern Coast of U.S.

and B&R Global covering the Pacific and Mountain West regions of U.S., and has re-presented the segment reporting for the three and nine month periods ended September 30, 2019 as follows.

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

For the Three Months Ended For the Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

HF $ 58,379,545 $ 75,698,877 $ 161,933,810 $ 225,218,105

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

For the Three Months Ended June 30, 2020

For the Three Months Ended September 30, 2020

HF B&R Global Total

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Total capital expenditures $ 25,177 $ 175,147 $ 200,324

For the Three Months Ended June 30, 2019

For the Three Months Ended September 30, 2019

HF B&R Global Total

4 unchanged sentences

Total capital expenditures $ 224,366 $ — $ 224,366

For the Six Months Ended June 30, 2020

For the Nine Months Ended September 30, 2020

HF B&R Global Total

4 unchanged sentences

Total capital expenditures $ 75,726 $ 334,562 $ 410,288

For the Six Months Ended June 30, 2019

For the Nine Months Ended September 30, 2019

HF B&R Global Total

4 unchanged sentences

Total capital expenditures $ 5,381,138 $ — $ 5,381,138

As of June 30,

2020 As of June 30,

The following table presents total assets by reportable segment as of September 30, 2020 and December 31, 2019, respectively:

As of September 30,

2020 As of December 31,

Total assets:

4 unchanged sentences

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.

These entities deny all the allegations.

A labor and employment lawsuit was filed by a former employee against FUSO, alleging it failed to provide proper meal and rest breaks, as well as other related violations.

FUSO believes there is no merit to the case and vigorously defending against all

the allegations.

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

Various labor and employment claims have been filed or asserted against Happy FM Group Inc., alleging that this subsidiary failed to pay all wages owed to one or more employees under the California Labor Code as well as other related violations.

These allegations all have been denied.

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 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.

Therefore, the Company did not accrue any loss contingency for this matter on its consolidated financial statements as of September 30, 2020.

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.

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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 Ponce-Sanchez Lawsuit has now been consolidated with the Class Action Lawsuit and both cases will proceed under the Class Action Lawsuit docket.

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

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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.

On October 13, 2020, the Court appointed Yun F.

Yee as lead plaintiff and approved Mr.

Yee’s counsel as lead counsel in the Class Action Lawsuit.

On October 28, 2020, the Court entered a scheduling order setting December 4, 2020 as the deadline for lead plaintiff to file the Consolidated Amended Complaint and setting a schedule for Defendants' anticipated motion to dismiss.

The Class Action Lawsuit does not quantify any alleged damages.

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.

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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.

At this stage, the Company is unable to determine whether a future loss will be incurred due to the consolidated 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 September 30, 2020.

On August 21, 2020, Plaintiff Jim Bishop filed a putative shareholder derivative lawsuit (the “Bishop Lawsuit”) in the United States District Court for the District of Delaware against certain of the Company’s present and former directors and officers, as well as the Company (collectively, the “Bishop Defendants”) styled Jim Bishop v.

Zhou Min Ni, et al.

, Civil Action No.

1:20-cv-01103-RGA (D.

The Bishop Lawsuit complaint alleges claims that are virtually the same as those alleged in the Mendoza II Lawsuit.

The Bishop Lawsuit does not quantify any alleged damages.

But in addition to attorneys’ fees and costs, Mr.

Bishop seeks to recover damages on behalf of the Company for purported financial harm and to have the Court order changes to the Company’s corporate governance.

The Bishop Defendants will seek to have the Bishop Lawsuit stayed until such time as the Court has finally resolved the Mendoza Defendants’ anticipated motion to dismiss the securities class action claims in the consolidated Mendoza Lawsuit.

The Bishop Defendants and the Company dispute and intend to defend vigorously the allegations in the Bishop Lawsuit, assuming it proceeds.

On October 20, 2020, Mr.

Bishop and the Bishop Defendants filed a Joint Stipulation to Stay Litigation with the Court.

In response, the Court entered a docket order on October 21, 2020, indicating that the Bishop Lawsuit could have been brought in the Central District of California where the Mendoza Derivative Lawsuit is pending already, and directing that any party opposing a transfer of the case to the Central District of California should submit a brief in support of that position by November 4, 2020.

The Court further directed that the Bishop Defendants do not need to respond to the complaint until the transfer issue is resolved.

This case remains in early procedural posture.

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

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

NOTE 19 - SUBSEQUENT EVENTS

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

The Company evaluated subsequent events through November 9, 2020, which is the date the financial statements were available to be issued.

On October 9, 2020, in accordance with the terms of the Loan Sale Agreement dated September 30, 2019 between the Company and Mr.

Ni (See Note 4 and Note 16 on Notes Receivable from Related Parties), the parties had determined and agreed that the 250-day VWAP immediately preceding September 30, 2020 was $ 10.59 , and that, therefore, a total of 231,685 of the Escrow Shares were transferred to and recorded as treasury stock by the Company, and the remaining 67,003 Escrow Shares were returned to Mr.

Hence, as of November 9, 2020, the total outstanding shares of the Company's common stocks have been reduced from 52,145,096 to 51,193,411 shares.

CAUTIONARY NOTE ABOUT FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for HF Foods Group Inc.

(“HF Foods,” the “Company,” “we,” “us,” or “our”) contains forward-looking statements.

(“HF Foods,” “HF Group,” the “Company,” “we,” “us,” or “our”) contains forward-looking statements.

Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts.

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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