HF Foods Group Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. HF Foods Group Inc. Consolidated Financial Statements For the Fiscal Years Ended December 31, 2020 and December 31, 2019 Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 41 Consolidated Financial Statements Consolidated Balance Sheets 42 Consolidated Statements of Operations 43 Consolidated Statements of Cash Flows 44 Consolidated Statements of Changes in Shareholders’ Equity 46 Notes to Consolidated Financial Statements 47 40 Table of Conte n t s REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of HF Foods Group Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of HF Foods Group Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement. We believe that our audits provide a reasonable basis for our opinion. /s/ Friedman LLP We have served as the Company’s auditor since 2017. New York, New York March 16, 2021 41 Table of Conte n t s HF Foods Group Inc. Consolidated Balance Sheets As of December 31, 2020 December 31, 2019 ASSETS CURRENT ASSETS: Cash $ 9,580,853 $ 14,538,286 Accounts receivable, net 24,852,212 50,027,134 Accounts receivable - related parties, net 1,266,573 4,202,870 Inventories, net 58,535,040 77,531,854 Advances to suppliers - related parties 196,803 745,135 Other current assets 4,614,164 4,374,338 TOTAL CURRENT ASSETS 99,045,645 151,419,617 Property and equipment, net 136,869,085 37,538,147 Security deposits - related parties — 591,380 Operating lease right-of-use assets 931,630 17,155,584 Long-term investments 2,377,164 2,296,276 Intangible assets, net 175,797,650 186,687,950 Goodwill 68,511,941 406,703,348 Deferred tax assets 57,478 78,993 Other long-term assets 694,490 372,499 TOTAL ASSETS $ 484,285,083 $ 802,843,794 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Bank overdraft $ 14,839,747 $ 14,952,510 Lines of credit 18,279,062 41,268,554 Accounts payable 28,391,136 39,689,911 Accounts payable - related parties 1,783,861 4,521,356 Current portion of long-term debt, net 5,641,259 2,726,981 Current portion of obligations under finance leases 286,903 280,243 Current portion of obligations under operating leases 308,148 4,322,503 Accrued expenses and other liabilities 6,178,144 2,610,538 Obligation under interest rate swap contracts 993,516 73,158 TOTAL CURRENT LIABILITIES 76,701,776 110,445,754 Long-term debt, non-current 88,008,803 18,535,016 Promissory note payable - related party 7,000,000 — Obligations under finance leases, non-current 766,885 1,053,166 Obligations under operating leases, non-current 623,482 12,833,081 Deferred tax liabilities 46,382,704 52,320,045 TOTAL LIABILITIES 219,483,650 195,187,062 SHAREHOLDERS’ EQUITY: Preferred Stock, $ 0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively — — Common Stock, $ 0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued and outstanding as of December 31, 2020, and 53,050,211 shares issued and 52,145,096 shares outstanding as of December 31, 2019, respectively 5,191 5,305 Treasury Stock, at cost, — shares as of December 31, 2020, and 905,115 shares at December 31, 2019, respectively — ( 12,038,030 ) Additional paid-in capital 587,579,093 599,617,009 Retained earnings (accumulated deficit) ( 327,150,398 ) 15,823,661 TOTAL SHAREHOLDER'S EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC. 260,433,886 603,407,945 Noncontrolling interest 4,367,547 4,248,787 TOTAL SHAREHOLDERS’ EQUITY 264,801,433 607,656,732 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 484,285,083 $ 802,843,794 The accompanying notes are an integral part of these consolidated financial statements. 42 Table of Conte n t s HF Foods Group Inc. Consolidated Statements of Operations For the years ended December 31 2020 2019 Net revenue - third parties $ 553,408,528 $ 368,809,865 Net revenue - related parties 13,422,547 19,352,416 TOTAL NET REVENUE 566,831,075 388,162,281 Cost of revenue - third parties 453,706,426 306,370,972 Cost of revenue - related parties 12,833,066 18,582,786 TOTAL COST OF REVENUE 466,539,492 324,953,758 GROSS PROFIT 100,291,583 63,208,523 DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES 106,126,392 54,931,157 INCOME (LOSS) FROM OPERATIONS ( 5,834,809 ) 8,277,366 Other Income (Expenses) Interest income 529 418,530 Interest expense ( 3,922,191 ) ( 1,661,454 ) Goodwill impairment loss ( 338,191,407 ) — Other income 1,355,706 1,057,936 Change in fair value of interest rate swap contracts ( 920,358 ) — Total Other Income (Expenses), net ( 341,677,721 ) ( 184,988 ) INCOME (LOSS) BEFORE INCOME TAX PROVISION ( 347,512,530 ) 8,092,378 PROVISION (BENEFIT) FOR INCOME TAXES ( 4,831,731 ) 2,197,092 NET INCOME (LOSS) ( 342,680,799 ) 5,895,286 Less: net income attributable to noncontrolling interest 293,260 505,609 NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC. $ ( 342,974,059 ) $ 5,389,677 Earnings (loss) per common share – basic and diluted $ ( 6.58 ) $ 0.22 Weighted average shares – basic and diluted 52,095,585 27,113,288 The accompanying notes are an integral part of these consolidated financial statements. 43 Table of Conte n t s HF Foods Group Inc. Consolidated Statements of Cash Flows For the years ended December 31 2020 2019 Cash flows from operating activities: Net Income (Loss) $ ( 342,680,799 ) $ 5,895,286 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 17,868,596 6,754,508 Goodwill impairment loss 338,191,407 — Gain (loss) from disposal of equipment ( 151,676 ) 65,624 Allowance for doubtful accounts 1,564,321 72,359 Allowance for inventory obsolescence 129,150 ( 16,928 ) Deferred tax benefit ( 5,915,827 ) ( 250,705 ) Income from equity method investment ( 80,888 ) ( 6,886 ) Change in fair value of interest rate swap contracts 920,358 — Changes in operating assets and liabilities: Accounts receivable, net 23,425,562 ( 4,758,186 ) Accounts receivable - related parties, net 2,936,297 1,483,211 Inventories, net 18,867,664 1,112,728 Advances to suppliers - related parties 548,332 781,347 Other current assets ( 204,859 ) ( 271,098 ) Other long-term assets ( 298,209 ) 142,426 Accounts payable ( 11,391,797 ) ( 2,668,541 ) Accounts payable - related parties ( 2,737,495 ) ( 929,903 ) Operating lease liability ( 385,250 ) ( 1,601,678 ) Accrued expenses and other liabilities 3,526,399 ( 1,137,036 ) Net cash provided by operating activities 44,131,286 4,666,528 Cash flows from investing activities: Cash received from acquisition of B&R Global — 7,017,467 Purchase of property and equipment ( 664,750 ) ( 4,835,929 ) Proceeds from disposal of equipment 257,372 286,831 Cash received from long-term notes receivable — 290,071 Payment made for notes receivable — ( 108,750 ) Proceeds from long-term notes receivable to related parties — 386,358 Payment made for long-term notes receivable to related parties — ( 260,933 ) Payment made for acquisition of B&R Realty ( 94,004,068 ) — Net cash provided by (used in) investing activities ( 94,411,446 ) 2,775,115 Cash flows from financing activities: Proceeds from bank overdraft 5,367,468 2,870,416 Repayment of bank overdraft ( 5,480,231 ) — Proceeds from lines of credit 553,192,068 144,045,699 Repayment of lines of credit ( 576,312,758 ) ( 146,661,467 ) Proceeds from long-term debt 75,600,006 8,378,467 Repayment of long-term debt ( 6,589,704 ) ( 6,338,525 ) Repayment of obligations under finance leases ( 279,622 ) ( 384,851 ) Cash distribution paid to shareholders ( 174,500 ) ( 302,500 ) Net cash provided by financing activities 45,322,727 1,607,239 Net increase (decrease) in cash ( 4,957,433 ) 9,048,882 Cash at beginning of the year 14,538,286 5,489,404 Cash at end of the year $ 9,580,853 $ 14,538,286 44 Table of Conte n t s The accompanying notes are an integral part of these consolidated financial statements. 45 Table of Conte n t s HF Foods Group Inc. Consolidated Statements of Changes in Shareholders’ Equity For the Years Ended December 31, 2020 and 2019 Common Stock Treasury Stock Number of Shares Amount Number of Shares Amount Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Total Shareholders’ Equity Attributable to HF Foods Group Inc Noncontrolling Interest Total Shareholders’ Equity Balance at December 31, 2018 22,167,486 $ 2,217 — $ — $ 22,920,603 $ 10,433,984 $ 33,356,804 $ 1,104,678 $ 34,461,482 Net income — — — — — 5,389,677 5,389,677 505,609 5,895,286 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 ) Acquisition of B&R Global by issuance of common stock 30,700,000 3,070 — — 576,696,424 — 576,699,494 2,941,000 579,640,494 Distribution to shareholders — — — — — — — ( 302,500 ) ( 302,500 ) Balance at December 31, 2019 53,050,211 $ 5,305 ( 905,115 ) $ ( 12,038,030 ) $ 599,617,009 $ 15,823,661 $ 603,407,945 $ 4,248,787 $ 607,656,732 Net income (loss) — — — — — ( 342,974,059 ) ( 342,974,059 ) 293,260 ( 342,680,799 ) Escrow shares transferred to and recorded as treasury stock by the Company — — ( 231,685 ) — — — — — — Retirement of treasury stock ( 1,136,800 ) ( 114 ) 1,136,800 12,038,030 ( 12,037,916 ) — — — — Distribution to shareholders — — — — — — — ( 174,500 ) ( 174,500 ) Balance at December 31, 2020 51,913,411 $ 5,191 — $ — $ 587,579,093 $ ( 327,150,398 ) $ 260,433,886 $ 4,367,547 $ 264,801,433 The accompanying notes are an integral part of these consolidated financial statements. 46 Table of Conte n t s HF FOODS GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND BUSINESS DESCRIPTION Organization and General HF Foods Group Inc. 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 foodservice customers throughout the Southeast, Pacific and Mountain West regions of the United States. The Company was originally incorporated in Delaware on May 19, 2016 as a special purpose acquisition company ("SPAC") under the name Atlantic Acquisition Corp. (“Atlantic”), in order to acquire, through merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities. Reorganization of HF Holding HF Group Holding Corporation (“HF Holding”) was incorporated in the State of North Carolina on October 11, 2017. Effective January 1, 2018, HF Holding entered into a Share Exchange Agreement (the “Agreement”) whereby the controlling shareholders of the following eleven entities contributed their respective stocks to HF Holding in exchange for all of HF Holding’s outstanding shares. Upon completion of the share exchanges, these entities became either wholly-owned or majority-owned subsidiaries of HF Holding. • Han Feng, Inc. (“Han Feng”) • Truse Trucking, Inc. (“TT”) • Morning First Delivery, Inc. (“MFD”) • R&N Holdings, LLC (“R&N Holdings”) • R&N Lexington, LLC (“R&N Lexington”) • Kirnsway Manufacturing, Inc. (“Kirnsway”) • Chinesetg, Inc. (“Chinesetg”) • New Southern Food Distributors, Inc. (“NSF”) • B&B Trucking Services, Inc. (“BB”) • Kirnland Food Distribution, Inc. (“Kirnland”) • HG Realty, LLC (“HG Realty”) In accordance with Financial Accounting Standards Board’s (“FASB") Accounting Standards Codification (“ASC”) 805-50-25, the transaction consummated through the Agreement has been accounted for as a transaction among entities under common control since the same shareholders controlled all these eleven entities prior to the execution of the Agreement. Furthermore, ASC 805-50-45-5 indicates that the financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information. In accordance with ASC 805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests should initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of the transfer. If the carrying amounts of the assets and liabilities transferred differ from the historical cost of the parent of the entities under common control, then the financial statements of the receiving entity should reflect the transferred assets and liabilities at the historical cost of the parent of the entities under common control. Accordingly, the Company has recorded the assets and liabilities transferred from the above entities at their carrying amount. 47 Table of Conte n t s The following table summarizes the entities under HF Foods Group Inc. after the above-mentioned reorganization, together with new entities formed after the Atlantic Transactions as described below: Name Date of formation / incorporation Place of formation / incorporation Percentage of legal ownership by HF Group Principal activities Parent: HF Holding October 11, 2017 North Carolina, USA 100 % Holding Company Subsidiaries: Han Feng January 14, 1997 North Carolina, USA 100 % Foodservice distributor TT August 6, 2002 North Carolina, USA 100 % Logistic service provider MFD April 15, 1999 North Carolina, USA 100 % Logistic service provider R&N Holdings November 21, 2002 North Carolina, USA 100 % Real estate holding company R&N Lexington May 27, 2010 North Carolina, USA 100 % Real estate holding company R&N Charlotte, LLC ("R&N Charlotte") July 10, 2019 North Carolina, USA 100 % Real estate holding company Kirnsway May 24, 2006 North Carolina, USA 100 % Design and printing services provider Chinesetg July 12, 2011 New York, USA 100 % Design and printing services provider NSF December 17, 2008 Florida, USA 100 % Foodservice distributor BB September 12, 2001 Florida, USA 100 % Logistic service provider Kirnland April 11, 2006 Georgia, USA 66.7 % Foodservice distributor HG Realty May 11, 2012 Georgia, USA 100 % Real estate holding company HF Foods Industrial, L.L.C. ("HF Foods Industrial") December 10, 2019 North Carolina, USA 60.0 % Food processing company 273 Fifth Avenue, L.L.C. ("273 Co") October 10, 2020 Delaware, USA 100 % Real estate lease holding company Reverse Acquisition of HF Holding Effective August 22, 2018, Atlantic consummated the transactions contemplated by a merger agreement (the “Atlantic Merger Agreement”), dated as of March 28, 2018, by and among Atlantic, HF Group Merger Sub, Inc. ("HF Merger Sub"), a Delaware subsidiary formed by Atlantic, HF Holding, the stockholders of HF Holding, and Company's former director and Co-CEO, Zhou Min Ni, as representative of the stockholders of HF Holding. Pursuant to the Atlantic Merger Agreement, HF Holding merged with HF Merger Sub and HF Holding became the surviving entity (the “Atlantic Merger”) and a wholly-owned subsidiary of Atlantic (the “Atlantic Acquisition”). Additionally, upon the closing of the transactions contemplated by the Atlantic Merger Agreement, the stockholders of HF Holding became the holders of a majority of the shares of common stock of Atlantic, and Atlantic changed its name to HF Foods Group, Inc. (Collectively, these transactions are referred to as the “Atlantic Transactions”). At closing on August 22, 2018, Atlantic issued the HF Holding stockholders an aggregate of 19,969,831 shares of its common stock, equal to approximately 88.5 % of the aggregate issued and outstanding shares of Atlantic’s common stock. The pre-Atlantic Transactions' stockholders owned the remaining 11.5 % of the issued and outstanding shares of common stock of the combined entity. Following the consummation of the Atlantic Transactions on August 22, 2018, there were 22,167,486 shares of common stock issued and outstanding, consisting of (i) 19,969,831 shares issued to HF Holding’s stockholders pursuant to the Atlantic Merger Agreement, (ii) 400,000 shares redeemed by one of Atlantic’s shareholders in conjunction with the Atlantic Transactions, (iii) 48 Table of Conte n t s 10,000 restricted shares issued to one of Atlantic’s shareholders in conjunction with the Atlantic Transactions, and (iv) 2,587,655 shares originally issued to the pre-Atlantic Transactions stockholders of Atlantic. The Atlantic Transactions was treated as a reverse acquisition under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For accounting purposes, HF Holding was considered to be acquiring Atlantic in this transaction. Therefore, the aggregate consideration paid in connection with the business combination was allocated to Atlantic’s tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of Atlantic were consolidated into the results of operations of HF Holding as of the completion of the Atlantic Transactions. HF Holding Entities Organized Post-Atlantic Transactions On July 10, 2019, the Company, through its subsidiary Han Feng, formed a new real estate holding company, R&N Charlotte. R&N Charlotte owns a 4.66 acre tract of land with appurtenant 115,570 square foot of office, warehouse, and industrial facility located in Charlotte, North Carolina. On December 10, 2019, the Company, through its subsidiary Han Feng, formed a new food processing company, HF Foods Industrial, as owner of 60 % of membership interest. On October 1, 2020, the Company, through its subsidiary HF Group Holding, formed a wholly-owned new real estate lease holding company, 273 Co. Business Combination with B&R Global Effective November 4, 2019, HF Group consummated the transactions contemplated by a merger agreement (the “B&R Merger Agreement”), dated as of June 21, 2019, by and among the Company, B&R Merger Sub, Inc., a Delaware corporation (“Merger Sub”), B&R Global Holdings, Inc. ("B&R Global"), the stockholders of B&R Global (the ”B&R Global Stockholders”), and Xiao Mou Zhang, as representative of the stockholders (the “Business Combination”). Upon the closing of the transactions contemplated by the B&R Merger Agreement (the “Closing”), Merger Sub merged with and into B&R Global, resulting in B&R Global becoming a wholly owned subsidiary of HF Group. HF Group acquired 100 % of the controlling interest of B&R Global, in exchange for 30,700,000 shares of HF Group Common Stock. 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. 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 foodservice items to approximately 5,000 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 13 distribution centers strategically located in 8 states across the Southeast, Pacific and Mountain West regions of the United States and operates a fleet of over 300 refrigerated vehicles. With over 780 employees and subcontractors supported by two call centers in China, HF Group now serves around 10,000 restaurants in 22 states and provides round-the-clock sales and service support to its customers, who mainly converse in Mandarin or Chinese dialects. The following table summarizes the entities under B&R Global in the Business Combination: 49 Table of Conte n t s Name Date of formation / incorporation Place of formation / incorporation Percentage of legal ownership by B&R Global Principal activities Parent: B&R Global January 3, 2014 Delaware, USA — Holding Company Subsidiaries: Rongcheng Trading, LLC (“RC”) January 31, 2006 California, USA 100 % Foodservice distributor Capital Trading, LLC (“UT”) March 10, 2003 Utah, USA 100 % Foodservice distributor Win Woo Trading, LLC (‘WW”) January 23, 2004 California, USA 100 % Foodservice distributor Mountain Food, LLC (“MF”) May 2, 2006 Colorado, USA 100 % Foodservice distributor R & C Trading L.L.C. (“RNC”) November 26, 2007 Arizona, USA 100 % Foodservice distributor Great Wall Seafood LA, LLC (“GW”) March 7, 2014 California, USA 100 % Foodservice distributor B&L Trading, LLC (“BNL”) July 18, 2013 Washington, USA 100 % Foodservice distributor Min Food, Inc. (“MIN”) May 29, 2014 California, USA 60.25 % Foodservice distributor B&R Group Logistics Holding, LLC (“BRGL”) July 17, 2014 Delaware, USA 100 % Logistic service provider Ocean West Food Services, LLC (“OW”) December 22, 2011 California, USA 67.5 % Foodservice distributor Monterey Food Service, LLC (“MS”) September 14, 2017 California, USA 65 % Foodservice distributor Irwindale Poultry, LLC (“IP”) December 27, 2017 California, USA 100 % Poultry processing company Best Choice Trucking, LLC (“BCT”) January 1, 2011 California, USA 100 % Logistic service provider KYL Group, Inc. (“KYL”) April 18, 2014 Nevada, USA 100 % Logistic service provider American Fortune Foods Inc. (“AF”) February 19, 2014 California, USA 100 % Logistic and import service provider Happy FM Group, Inc. (“HFM”) April 9, 2014 California, USA 100 % Logistic service provider GM Food Supplies, Inc. (“GM”) March 22, 2016 California, USA 100 % Logistic service provider Lin’s Distribution, Inc., Inc. (“LIN”) February 2, 2010 Utah, USA 100 % Logistic service provider Lin’s Farms, LLC (“LNF”) July 2, 2014 Utah, USA 100 % Poultry processing company New Berry Trading, LLC (“NBT”) September 5, 2012 California, USA 100 % Logistic service provider Hayward Trucking, Inc. (“HRT”) September 5, 2012 California, USA 100 % Logistic service provider Fuso Trucking Corp. (“FUSO”) January 20, 2015 California, USA VIE* Logistic service provider Yi Z Service LLC (“YZ”) October 2, 2017 California, USA 100 % Logistic service provider Golden Well Inc. (“GWT”) November 8, 2011 California, USA 100 % Logistic service provider Kami Trading Inc. (“KAMI”) November 20, 2013 California, USA 100 % Import service provider Royal Trucking Services, Inc. (“RTS”) May 19, 2015 Washington, USA 100 % Logistic service provider Royal Service Inc. (“RS”) December 29, 2014 Oregon, USA 100 % Logistic service provider MF Food Services Inc. (“MFS”) December 21, 2017 California, USA 100 % Logistic service provider * At the acquisition date and as of December 31, 2020, B&R Global consolidates FUSO, which is considered as a variable interest entity (“VIE”) under U.S. GAAP, due to its pecuniary and contractual interest in this entity as a result of the funding arrangements outlined in the entity. Acquisition of Real Estate Companies On January 17, 2020, the Company completed the transactions contemplated by that certain membership interest purchase agreement dated the same date (the “Purchase Agreement”) by and among its subsidiary B&R Global, B&R Group Realty 50 Table of Conte n t s Holding, LLC ("BRGR"), and nine subsidiary limited liability companies wholly owned by BRGR (the “BRGR Subsidiaries”) (the “Realty Acquisition”). Pursuant to the Purchase Agreement, B&R Global acquired all equity membership interests in the BRGR Subsidiaries, which own 10 warehouse facilities that were being leased by the Company for its operations in California, Arizona, Utah, Colorado, Washington, and Montana for purchase consideration of $ 101,269,706 . Consideration for Realty Acquisition was funded by (1) $ 75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 11 for additional information), (2) issuance by B&R Global of a $ 7.0 million Unsecured Subordinated Promissory Note (the “Note”) to BRGR, and (iii) payment of $ 18.7 million from funds drawn from the Company’s revolving credit facility. The following table summarizes B&R Global’s additional wholly owned subsidiaries as a result of the Realty Acquisition: Name Date of formation / incorporation Place of formation / incorporation Percentage of legal ownership by B&R Global Principal activities A & Kie, LLC ("AK") March 26, 2010 Arizona, USA 100 % Real estate holding company B & R Realty, LLC ("BRR") August 28, 2013 California, USA 100 % Real estate holding company Big Sea Realty, LLC ("BSR") April 3, 2013 Washington, USA 100 % Real estate holding company Fortune Liberty, LLC ("FL") November 22, 2006 Utah, USA 100 % Real estate holding company Genstar Realty, LLC ("GSR") February 27, 2012 California, USA 100 % Real estate holding company Hardin St Properties, LLC ("HP") December 5, 2012 Montana, USA 100 % Real estate holding company Lenfa Food, LLC ("LF") February 14, 2002 Colorado, USA 100 % Real estate holding company Lucky Realty, LLC ("LR") September 3, 2003 California, USA 100 % Real estate holding company Murray Properties, LLC ("MP") February 27, 2013 Utah, USA 100 % Real estate holding company NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. The consolidated financial statements include the financial statements of HF Group, its subsidiaries and the VIE. The VIE has been accounted for at historical cost and prepared on the basis as if common control had been established as of the beginning of the first period presented in the accompanying consolidated financial statements. All inter-company balances and transactions have been eliminated upon consolidation. U.S. GAAP provides guidance on the identification of VIE and financial reporting for entities over which control is achieved through means other than voting interests. The Company evaluates each of its interests in an entity to determine whether or not the investee is a VIE and, if so, whether the Company is the primary beneficiary of such VIE. In determining whether the Company is the primary beneficiary, the Company considers if the Company (1) has power to direct the activities that most significantly affect the economic performance of the VIE, and (2) receives the economic benefits of the VIE that could be significant to the VIE. If deemed the primary beneficiary, the Company consolidates the VIE. As of December 31, 2020 and 2019, FUSO is considered to be a VIE. FUSO was established solely to provide exclusive services to the Company. The entity lacks sufficient equity to finance its activities without additional subordinated financial support from the Company, and the Company has the power to direct the VIEs’ activities. In addition, the Company receives the economic benefits from the entity and has concluded that the Company is a primary beneficiary. The carrying amounts of the assets, liabilities, the results of operations and cash flows of the VIE is included in the Company’s consolidated balance sheets, statements of income (loss) and statements of cash flows are as follows: 51 Table of Conte n t s December 31, 2020 December 31, 2019 Current assets $ 47,822 $ 158,184 Non-current assets 115,934 301,803 Total assets $ 163,756 $ 459,987 Current liabilities $ 496,234 $ 805,666 Non-current liabilities 39,475 69,321 Total liabilities $ 535,709 $ 874,987 For the year ended December 31 2020 2019 Net revenue $ 2,020,416 $ 420,163 Net income $ 43,046 $ 68,449 For the year ended December 31 2020 2019 Net cash provided by operating activities $ 246,153 $ 201,885 Net cash used in financing activities ( 265,004 ) ( 207,159 ) Net decrease in cash and cash equivalents $ ( 18,851 ) $ ( 5,274 ) Noncontrolling Interests U.S. GAAP requires that noncontrolling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the amounts attributable to the net income (loss) of those subsidiaries are reported separately in the consolidated statements of income. As of December 31, 2020 and 2019, noncontrolling interest equity consisted of the following: Name of Entity Percentage of Ownership of noncontrolling interest December 31, 2020 December 31, 2019 Kirnland 33.33 % $ 1,384,780 $ 1,292,623 MIN 39.75 % 889,596 896,980 MS 35.00 % 459,816 459,126 OW 32.50 % 1,633,355 1,600,058 Total $ 4,367,547 $ 4,248,787 Uses of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during each reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s 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. 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 December 31, 2020 and 2019, the Company had no cash equivalents. 52 Table of Conte n t s Accounts Receivable Accounts receivable represent amounts due from customers in the ordinary course of business and are recorded at the invoiced amount and do not bear interest. Receivables are presented net of the allowance for doubtful accounts in the accompanying consolidated balance sheets. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. When the Company is aware of a customer’s inability to meet its financial obligation, a specific allowance for doubtful accounts is recorded, reducing the receivable to the net amount the Company reasonably expects to collect. In addition, allowances are recorded for all other receivables based on historic collection trends, write-offs and the aging of receivables. 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 December 31, 2020 and 2019, allowances for doubtful accounts were $ 909,182 and $ 623,970 , respectively. Inventories The Company’s inventories, consisting mainly of food and other food service-related products, are primarily considered as finished goods. Inventory costs, including the purchase price of the product and freight charges to deliver it to the Company’s warehouses, are net of certain cash or non-cash consideration received from vendors. The Company assesses the need for valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory age, specifically identified items, and overall economic conditions. Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. As of December 31, 2020 and 2019, the valuation allowance was $ 146,078 and $ 16,928 , respectively. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Following are the estimated useful lives of the Company’s property and equipment: Estimated useful lives (years) Automobiles 3 — 7 Buildings and improvements 7 — 39 Furniture and fixtures 4 — 10 Machinery and equipment 3 — 10 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. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in the consolidated statements of income in other income or expenses. Business Combinations The Company accounts for its business combinations using the purchase method of accounting in accordance with ASC 805 (“ASC 805”), Business Combinations . The purchase method of accounting requires that the consideration transferred be allocated to the assets, including separately identifiable assets and liabilities the Company acquired, based on their estimated fair values. The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total of cost of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over, (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in earnings. The Company estimates the fair value of assets acquired and liabilities assumed in a business combination. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, its 53 Table of Conte n t s estimates are inherently uncertain and subject to refinement. Significant estimates in valuing certain intangible assets include, but are not limited to future expected revenues and cash flows, useful lives, discount rates, and selection of comparable companies. Although the Company believes the assumptions and estimates it has made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain. During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. 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 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. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. The Company tests goodwill for impairment at least annually, in the fourth quarter, or whenever events or changes in circumstances indicate that goodwill might be impaired. The Company reviews the carrying values of goodwill and identifiable intangibles whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually for goodwill and indefinite lived intangible assets as required by ASC Topic 350 (“ASC 350”), Intangibles — Goodwill and Other . This guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. 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. The Company opted the early adoption of Accounting Standards Update (“ASU”) 2017-4, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . The standard simplifies the subsequent measurement of goodwill by removing Step 2 of the current goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new standard, an impairment loss will be recognized in the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Intangible Assets Intangible assets are carried at cost and amortized on a straight-line basis over their estimated useful lives. The Company determines the appropriate useful life of its intangible assets by measuring the expected cash flows of acquired assets. The estimated useful lives of intangible assets are as follows: Estimated useful lives (years) Tradenames 10 Customer relationships 20 Long term investments The Company’s investments in unconsolidated entities consist of equity investments and investment without readily determinable fair value. The Company follows ASC Topic 321 (“ASC 321”), Investments – Equity Securities , using the measurement alternative to measure investments in investees that do not have readily determinable fair value and over which the Company does not have significant influence at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company makes a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, the Company has to estimate the investment’s fair value in accordance with the principles of ASC Topic 820 (“ASC 820”), Fair 54 Table of Conte n t s 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. 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 . Under the equity method, the Company initially records its investment at cost and the difference between the cost and the fair value of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill, which is included in the equity method investment on the consolidated balance sheets. The equity method goodwill is not subsequently amortized and is not tested for impairment under ASC 350. The Company subsequently adjusts the carrying amount of the investment to recognize the Company’s proportionate share of each equity investee’s net income or loss into earnings after the date of investment. The Company evaluates the equity method investments for impairment under ASC 323. 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 December 31, 2020 and 2019. Impairment of Long-lived Assets other than goodwill The Company assesses its long-lived assets such as property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Factors which may indicate potential impairment include a significant underperformance related to the historical or projected future operating results or a significant negative industry or economic trend. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. 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 December 31, 2020 and 2019. Revenue Recognition The Company recognizes revenue from the sale of products when title and risk of loss passes and the customer accepts the goods, which occurs at delivery. Sales taxes invoiced to customers and remitted to government authorities are excluded from net sales. The Company follows ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . The Company recognizes revenue that represents the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfer to a customer. The majority of the Company’s contracts have one single performance obligation, as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. The Company’s revenue streams are recognized at a specific point in time. For the years ended December 31, 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: 55 Table of Conte n t s For the Years Ended December 31, 2020 December 31, 2019 Arizona $ 34,952,390 $ 7,196,217 California 192,998,208 54,877,209 Colorado 34,908,440 6,658,931 Florida 65,415,191 91,173,814 Georgia 46,985,078 65,173,052 North Carolina 108,954,235 145,756,172 Utah 52,458,685 8,249,684 Washington 30,158,848 9,077,202 Total $ 566,831,075 $ 388,162,281 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 $ 6,813,693 and $ 4,443,967 for the years ended December 31, 2020 and 2019, respectively. Income Taxes 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. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. 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 December 31, 2020 and 2019. Leases On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) ("Topic 842"). For all leases that were entered into prior to the effective date of ASC 842, the Company elected to apply the package of practical expedients. Based on this guidance the Company will not reassess the following: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) initial direct costs for any existing leases. The adoption of Topic 842 did not have a material impact on the Company’s consolidated balance sheets or on its consolidated statements of operations. The adoption of Topic 842 resulted in the presentation of $ 21.2 million of operating lease assets and operating lease liabilities on the consolidated balance sheet as of January 1, 2019. See Note 11 for additional information. 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 December 31, 2020 and 2019, the balances for operating lease assets and liabilities were $ 931,630 and $ 17,155,584 , respectively. See Note 13 for additional information. 56 Table of Conte n t s The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of finance lease liabilities, and finance lease liabilities, non-current on the consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Earnings Per Share The Company computes earnings per share (“EPS”) in accordance with ASC Topic 260 (“ASC 260”), Earnings per Share . ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There is no anti-dilutive effect for the years ended December 31, 2020 and 2019. Fair Value of Financial Instruments The Company follows the provisions of FASB ASC 820, Fair Value Measurements and Disclosures . ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: • Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. • Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. • Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions about what assumptions market participants would use in pricing the asset or liability based on the best available information. Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized at the end of the reporting period in which the transfer occurs. There were no transfers between fair value levels in any of the periods presented herein. The carrying amounts reported in the balance sheets for cash, accounts receivable, advances to suppliers, other current assets, accounts payable, bank overdraft, income tax payable, current portion of long-term debt, current portion of obligations under finance and operating leases, and accrued expenses and other liabilities approximate their fair value based on the short-term maturity of these instruments. Derivative Financial Instrument In accordance with the guidance in ASC Topic 815 ("ASC 815"), Derivatives and Hedging, d erivative financial instruments are recognized as assets or liabilities on the consolidated balance sheets at fair value. The Company has not designated its interest rate swap ("IRS") contracts as hedges for accounting treatment. Pursuant to U.S. GAAP, income or loss from fair value changes for derivatives that are not designated as hedges by management are reflected as income or loss on the statement of operations. Net amounts received or paid under the interest rate swap contracts are recognized as an increase or decrease to interest expense when such amounts are incurred. The Company is exposed to credit loss in the event of nonperformance by the counterparty. Concentrations and Credit Risk 57 Table of Conte n t s Credit risk Accounts receivable are typically unsecured and derived from revenue earned from customers, and thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances. Concentration risk There were no receivables from any one customer representing more than 10 % of the Company’s consolidated gross accounts receivable at December 31, 2020 and 2019. For the years ended December 31, 2020 and 2019, no supplier accounted for more than 10 % of the total cost of revenue. As of December 31, 2020, two suppliers accounted for 22 % and 18 % of total advance payments outstanding and one suppliers accounted for 96 % of advance payments to related parties, respectively. As of December 31, 2019, two suppliers accounted for 34 % and 15 % of total advance payments outstanding and these two suppliers accounted for 70 % and 30 % of advance payments to related parties, respectively. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13 (“ASU 2016-13”), Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments” . ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 was further amended in November 2019 in “Codification Improvements to Topic 326, Financial Instruments-Credit losses”. This guidance is effective for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years. For emerging growth companies, the effective date 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. In December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to managerial accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. 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. NOTE 3 - ACCOUNTS RECEIVABLE, NET Accounts receivable, net consisted of the following: As of December 31, 2020 As of December 31, 2019 Accounts receivable $ 25,761,394 $ 50,651,104 Less: allowance for doubtful accounts ( 909,182 ) ( 623,970 ) Accounts receivable, net $ 24,852,212 $ 50,027,134 Movement of allowance for doubtful accounts is as follows: 58 Table of Conte n t s For the Years Ended December 31, 2020 December 31, 2019 Beginning balance $ 623,970 $ 658,104 Provision for doubtful accounts 1,337,820 ( 4,515 ) Less: write off/recovery ( 1,052,608 ) ( 29,619 ) Ending balance $ 909,182 $ 623,970 NOTE 4 - NOTES RECEIVABLE As of December 31, 2018, the Company's records reflected that there was a promissory note agreement with Feilong Trading, Inc, ("Feilong"). The relationship between Feilong and HF is within the scope of our internal investigation. 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. The Company’s former Chairman and Co-CEO, Zhou Min Ni agreed to personally guarantee the repayment of all outstanding balances relating to 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 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. Ni. Following this event, the balance due from Feilong to the Company is considered fully settled. The Company has retired all treasury stocks as of December 31, 2020. NOTE 5 - LONG TERM INVESTMENTS Long term investments consisted of the following: Ownership as of December 31, 2020 As of December 31, 2020 As of December 31, 2019 Asahi Food, Inc. 49 % $ 577,164 $ 496,276 Pt. Tamron Akuatik Produk Industri 12 % 1,800,000 1,800,000 Long term investments $ 2,377,164 $ 2,296,276 The investment in Pt. Tamron Akuatik Produk Industri is accounted for using the measurement alternative under ASC321, which is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments, if any. The investment in Asahi Food, Inc. 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 December 31, 2020 and 2019 for these investments. NOTE 6 - PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following: 59 Table of Conte n t s As of December 31, 2020 As of December 31, 2019 Automobiles $ 24,544,094 $ 24,340,652 Building 71,285,127 17,721,292 Building improvements 9,807,234 9,079,737 Furniture and fixtures 223,996 220,169 Land 52,125,900 3,391,858 Machinery and equipment 13,498,211 11,414,764 Subtotal 171,484,562 66,168,472 Less: accumulated depreciation ( 34,615,477 ) ( 28,630,325 ) Property and equipment, net $ 136,869,085 $ 37,538,147 The Company acquired $ 102,331,567 of property and equipment resulting from an acquisition of assets from B&R Realty Group on January 17, 2020. See Note 8 for additional information. Depreciation expense was $ 6,393,309 and $ 3,251,162 for the years ended December 31, 2020 and 2019, respectively. NOTE 7 - BUSINESS COMBINATION WITH B&R GLOBAL Effective November 4, 2019, HF Group acquired 100 % of the controlling interest of B&R Global, in exchange for 30,700,000 shares of HF Group Common Stock. HF Group is considered as both the legal and accounting acquirer based on the fact that there was no change of control in connection with this Business Combination. The aggregate fair value of the consideration paid by HF Group in the Business Combination is $ 576,699,494 and is based on the closing share price of the Company’s common stock at the date of Closing. The 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 was 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. The following table presents the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition: 60 Table of Conte n t s Cash $ 7,017,467 Accounts receivable, net 30,934,831 Accounts receivable - related parties, net 3,393,930 Inventories, net 56,451,885 Other current assets 2,332,063 Other current assets - related parties 498,211 Advances to suppliers, net 97,964 Property and equipment, net 11,042,601 Deposit 281,282 Deposit – related parties 591,380 Long-term investments 2,289,389 Right-of-use assets 17,791,681 TANGIBLE ASSETS ACQUIRED 132,722,684 Line of credit 35,567,911 Accounts payable 24,884,247 Accounts payable - related parties 1,528,139 Bank overdraft 12,082,094 Accrued expenses 778,779 Other payables 185,938 Other payables – related party 733,448 Customer deposits 38,510 Long-term debt 3,284,159 Lease liabilities 17,791,680 Deferred tax liabilities arising from acquired intangible assets 51,413,633 TANGIBLE LIABILITIES ASSUMED 148,288,538 NET TANGIBLE LIABILITIES ASSUMED ( 15,565,854 ) Identifiable intangible assets 188,503,000 Goodwill 406,703,348 INTANGIBLE ASSETS ACQUIRED 595,206,348 Noncontrolling interests 2,941,000 Total consideration $ 576,699,494 The Company recorded acquired intangible assets of $ 188,503,000 . These intangible assets include tradenames valued at $ 29,303,000 and customer relationships valued at $ 159,200,000 . The associated goodwill and intangible assets are not deductible for tax purposes. The following table presents the Company’s unaudited pro forma results for the year ended December 31, 2019, as if the B&R Global Acquisition 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 61 Table of Conte n t s costs directly associated with the acquisition such as legal and other professional service fees. Statutory rates were used to calculate income taxes. For the Year Ended December 31, 2019 Pro forma net revenue $ 828,045,703 Pro forma net income 6,799,694 (1) Pro forma net income attributable to HF Group 5,662,499 (1) Pro forma earnings per common share - basic and diluted $ 0.11 Pro forma weighted average shares - basic and diluted 53,293,566 (1) Includes intangibles asset amortization expense of $ 10,890,300 for the year ended December 31, 2019. 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 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. The total purchase price for the acquisition was $ 101,269,706 , based on independent appraisals of the fair market value of the properties. The Company notes that substantially all of the fair value of the gross assets acquired is concentrated in a group of similar assets (land and buildings all used for warehousing and distribution purposes). As such, the acquisition of BRGR Subsidiaries would be deemed an asset acquisition under ASC 805-10-55, and the total purchase price is allocated on a relative fair value basis to the net assets acquired. Consideration for the acquisition was funded by (1) $ 75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 12 for additional information), (2) issuance by B&R Global of a $ 7.0 million Unsecured Subordinated Promissory Note to BRGR maturing on January 17, 2030, and (3) payment of $ 18.7 million from funds drawn from the Company’s revolving credit facility. The reissuance of the mortgage-backed term loans released BRGR from its obligations to the lenders under the First Amended Credit Agreement (See Note 11 for additional information) and predecessor financing arrangements. Capitalizable tangible net assets acquired are depreciated on a straight-line basis over the estimated useful lives, ranges from 3 years to 39 years. Depreciation expense for property and equipment acquired was $ 1,268,753 for the year ended December 31, 2020. 62 Table of Conte n t s The following table presents the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition: Cash $ 265,639 Automobile 33,690 Prepaids 39,193 Land 48,734,042 Buildings 53,563,835 Total assets acquired 102,636,399 Accounts payable and Accrued Expenses 1,366,693 Total liabilities assumed 1,366,693 Net assets acquired $ 101,269,706 NOTE 9 - GOODWILL AND ACQUIRED INTANGIBLE ASSETS Goodwill The changes in HF Group’s carrying amount of goodwill by segment are presented below: HF B&R Global Total Balance at December 31, 2019 $ — $ 406,703,348 $ 406,703,348 Impairment Loss — ( 338,191,407 ) ( 338,191,407 ) Balance at December 31, 2020 $ — $ 68,511,941 $ 68,511,941 The Company recorded approximately $ 406.7 million of goodwill on December 31, 2019, resulting from the completion of the Business Combination with B&R Global, which represents the excess of the purchase price over the fair value of net assets acquired. HF Group acquired 100 % of the controlling interest of B&R Global, in exchange for 30,700,000 consideration shares of HF Group Common Stock, valued at $ 576,699,494 based upon the closing share price of the Company’s common stock at the date of Closing on November 4, 2019. The Company's policy is to test goodwill for impairment annually in the fourth quarter, or more frequently if certain triggering events or circumstances indicate it could be impaired. Potential impairment indicators include (but are not limited to) macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit, or sustained decrease in share price. Towards the end of first quarter of fiscal year 2020, the Company experienced significant decline in business volume due to mandatory stay-at-home orders issued by governmental authorities in response to the intensification of the COVID-19 pandemic. The Company determined that the B&R Global reporting unit was very sensitive to these declines and that it was more likely than not that an impairment may exist. The Company, therefore, performed an analysis of the fair value of the B&R Global reporting unit as of March 31, 2020 using a discounted cash flow method for goodwill impairment testing purposes. Based upon the analysis, the Company concluded that the carrying value of its B&R Global reporting unit exceeded its fair value by approximately $ 338.2 million. 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. The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital ("WACC"), future revenue, profitability, perpetual growth rates and fair values of assets and liabilities. The fair value conclusions as of March 31, 2020 for the reporting unit are highly sensitive to changes in the WACC, which consider observable data about guideline publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization. The Company also observed 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. Continued uncertainty about the removal or perpetuation of these restrictions and levels of consumer spending cause ongoing volatility. 63 Table of Conte n t s 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 Company's implementation of current strategic initiatives. Using historic monthly sales run rate and forecasted sales run rates for the next year, the Company performed goodwill impairment assessment and concluded no further impairment is required as of December 31, 2020. Acquired Intangible Assets In connection with the Business Acquisition, HF Group acquired $ 188,503,000 of intangible assets, primarily representing tradenames and customer relationships, which have an estimated amortization period of approximately 10 years and 20 years respectively. The components of the intangible assets are as follows: As of December 31, 2020 As of December 31, 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Tradenames $ 29,303,000 $ ( 3,418,683 ) $ 25,884,317 $ 29,303,000 $ ( 488,383 ) $ 28,814,617 Customer relationships 159,200,000 ( 9,286,667 ) 149,913,333 159,200,000 ( 1,326,667 ) 157,873,333 Total $ 188,503,000 $ ( 12,705,350 ) $ 175,797,650 $ 188,503,000 $ ( 1,815,050 ) $ 186,687,950 Since COVID-19 has had an adverse impact on the Company’s business volume, which was a triggering event, the Company performed long-lived asset quantitative impairment tests as of December 31, 2020. All intangible assets were tested for recoverability at the asset group level. ASC Topic 360, Property, Plant and Equipment ("ASC 360") defines the recoverability of these assets as measured by comparison of their (or asset group) carrying amounts to future undiscounted cash flows the assets (or asset group) are expected to generate. Based on the test for recoverability using undiscounted cash flows attributable to the asset (or asset group), the sum of the undiscounted cash flows exceeded the carrying value of the measured asset (or asset group). As such, no impairment was recorded for the finite lived assets as of December 31, 2020. HF Group’s amortization expense for intangible assets was $ 10,890,300 in 2020 and $ 1,815,050 in 2019, respectively. Estimated future amortization expense for intangible assets is presented below: Twelve months ending December 31, Amount 2021 $ 10,890,300 2022 10,890,300 2023 10,890,300 2024 10,890,300 2025 10,890,300 Thereafter 121,346,150 Total $ 175,797,650 NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes interest rate swaps for the sole purpose of mitigating interest rate fluctuation risk associated to floating rate debt instruments (as defined in Note 11 Lines of Credit, and Note 12 Long-Term Debt). The Company does not use any other derivative financial instruments for trading or speculative purposes. On August 20, 2019, HF Group entered into two IRS contracts with East West Bank (the "EWB IRS") for initial notional amounts of $ 1.05 million and $ 2.625 million, respectively. The EWB IRS contracts were entered into in conjunction with two mortgage term loans of corresponding amount that were priced at USD 1-month LIBOR (London Interbank Offering Rate) plus 64 Table of Conte n t s 2.25 % per annum for the entire duration of the term loans. The EWB IRS contracts have fixed the two term loans at 4.23 % per annum until maturity in September 2029. On December 19, 2019, HF Group entered into an IRS contract with Bank of America (the "BOA IRS") for an initial notional amount of $ 2.74 million in conjunction with a newly contracted mortgage term loan of corresponding amount. The term loan was contracted at USD 1-month LIBOR plus 2.15 % per annum but was fixed at 4.25 % per annum resulting from the corresponding BOA IRS contract. The term loan and corresponding BOA IRS contract matures in December, 2029. On June 24, 2020, HF Group entered into a forward starting IRS contract with JP Morgan Chase Bank (the "JPM IRS") for a fixed $ 80 million notional amount, effective from June 30, 2021 and expiring on June 30, 2025, as a means to partially hedge its existing floating rate loans exposure. The Company has an existing term loan as of December 31, 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 $ 18.3 millions as of December 31, 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. On March 3, 2021, the Company unwind the JPM IRS. The contract was unwound with a view that 1-month LIBOR will continue to remain low in the foreseeable future despite the spike at the long end of the yield curve. The Company recorded a gain of $ 718,600 in the first quarter of 2021. The Company evaluated the above mentioned interest rate swap contracts currently in place and did not designate those as cash flow hedges. Hence, the fair value change on the aforementioned interest rate swap contracts are accounted for and recognized as change in fair value of interest rate swap contracts in the unaudited condensed consolidated statements of operations. As of December 31, 2020 and December 31, 2019, the Company has determined that the fair value of the interest rate swap obligations was $ 993,516 and $ 73,158 , respectively. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in its assessment of fair value. The interest rate swaps are classified as Level 3 liabilities and fair value was obtained from the respective counterparties. NOTE 11 - LINES OF CREDIT On April 18, 2019, the Company, Han Feng, NSF and Kirnland entered into a Credit Agreement with East West Bank (the "EWB Credit Agreement"). The EWB Credit Agreement provided for a $ 25 million secured line of credit available to be used in one or more revolving loans to the Company’s domestic subsidiaries that were parties to the EWB Credit Agreement for working capital and general corporate purposes. Han Feng, NSF and Kirnland (the “Borrowing Subsidiaries”) were the borrowers and the Company and each of its other material subsidiaries were guarantors of all the obligations under the EWB Credit Agreement. The original maturity of the line of credit was August 18, 2021. Under the EWB Credit Agreement, the Borrowing Subsidiaries were to pay interest on the principal amounts drawn on the line of credit at a rate per annum equal to (a) 0.375 % below the Prime Rate in effect from time to time, or (b) 2.20 % above the LIBOR Rate in effect from time to time, depending on the rate elected at the time a borrowing request is made, but in no event less than 4.214 % per annum. The EWB Credit Agreement contained certain financial covenants which, among other things, required Han Feng to maintain certain financial ratios. On November 4, 2019, the outstanding balance of $ 13,864,481 (including accured interest) under the EWB Credit Agreement was fully paid off from borrowings under a Credit Agreement entered into with JPMorgan Chase Bank, N.A. (“JPMorgan”) in connection with the closing of the merger with B&R Global as described below (the "JPM Credit Agreement"). The JPM 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 credit facility 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 JPM Credit Agreement was later superseded by a Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") as described below. 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 as borrowers (collectively with the Company, the “Borrowers”), and certain material subsidiaries of the Company as guarantors, entered into the Second Amended Credit Agreement with JPMorgan, as Administrative Agent, and certain lender parties thereto, including Comerica Bank. The Second Amended Credit Agreement, provides for (i) a $ 100 million asset-secured revolving credit facility maturing on November 4, 2022 (the “Revolving Facility”), and (ii) mortgage-secured term loan of $ 75.6 million ("Term Loan"). 65 Table of Conte n t s The existing revolving credit facility balance of $ 41.2 million under the First Amended Credit Agreement, was rolled over to the Revolving Facility on January 17, 2020. On the same day, B&R Global utilized the $ 75.6 million Term Loan and additional $ 18.7 million drawdown from the Revolving Facility to fund in part the acquisition of ten warehouse facilities owned by the selling BRGR Subsidiaries, which B&R Global had been leasing for its operations in California, Arizona, Utah, Colorado, Washington, and Montana. The Second Amended Credit Agreement contained certain financial covenants and as of December 31, 2020, the Company was in compliance with the covenants. The outstanding principal balance on the line of credit as of December 31, 2020 was $ 18.3 million. NOTE 12 - LONG-TERM DEBT Long-term debt at December 31, 2020 and 2019 is as follows: Bank name Maturity Interest rate at December 31, 2020 As of December 31, 2020 As of December 31, 2019 Bank of America – (a) April 2021 - December 2029 3.73 % ‑ 5.51 % $ 5,905,472 $ 4,263,663 BMO Harris Bank N.A. – (b) April 2022 - January 2024 5.87 % ‑ 5.99 % 280,164 508,564 East West Bank – (c) August 2027 - September 2029 3.83 % ‑ 4.25 % 6,802,271 6,989,016 First Horizon Bank – (d) October 2027 3.85 % 4,773,378 4,967,075 J.P. Morgan Chase – (e) February 2023 - January 2030 2.02 % ‑ 2.15 % 74,687,806 2,702,371 Peoples United Bank – (b) December 2022 - January 2023 6.69 % ‑ 7.53 % 725,282 1,114,993 Other finance institutions – (b) March 2021 - March 2024 3.90 % ‑ 6.14 % 475,689 716,315 Total debt 93,650,062 21,261,997 Less: current portion ( 5,641,259 ) ( 2,726,981 ) Long-term debt $ 88,008,803 $ 18,535,016 The terms of the various loan agreements related to long-term bank borrowings require the Company to comply with certain financial covenants. As of December 31, 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 two subsidiaries of the Company, NSF and BB, and also secured by real property, equipment and fixtures, inventories, receivables and all other personal property owned by NSF. Balloon payment for this long-term debt is $ 1,382,046 . (b) Secured by vehicles. (c) Guaranteed by five subsidiaries of the Company, Han Feng, TT, MFD, R&N Holdings and R&N Lexingto n, in part by one shareholder and spouse, 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 payments of $ 3,007,239 is due in 2029. (d) Guaranteed by one shareholder and spouse, as well as Han Feng. Also secured by a real property owned by HG Realty. Balloon payment for this debt is $ 3,116,687 . (e) Real estate term loan with a principal balance of $ 72,761,598 as of December 31, 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 $ 1,926,208 as of December 31, 2020 is secured by specific vehicles and equipment as defined in loan agreements. The future maturities of long-term debt as of December 31, 2020 are as follows: 66 Table of Conte n t s Twelve months ending December 31, Amount 2021 $ 5,641,259 2022 5,347,017 2023 4,260,965 2024 3,706,449 2025 3,711,793 Thereafter 70,982,579 Total $ 93,650,062 NOTE 13 - LEASES The Company leases office space and warehouses under non-cancelable operating leases, with terms typically ranging from one to five years , as well as operating and finance leases for vehicles and delivery trucks, forklifts and computer equipment with various expiration dates through 2021. The Company determines whether an arrangement is or includes an embedded lease at contract inception. Operating lease assets and lease liabilities are recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term. Lease expense is recognized on a straight-line basis over the lease term. 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 Year Ended December 31, 2020 December 31, 2019 Operating lease cost $ 1,326,746 $ 1,601,678 Weighted Average Remaining Lease Term (Months) Operating leases 39 51 Weighted Average Discount Rate Operating leases 4.0 % 4.0 % Finance Leases The components of lease expense were as follows: For the Year Ended December 31, 2020 December 31, 2019 Finance leases cost: Amortization of right-of-use assets $ 538,188 $ 571,130 Interest on lease liabilities 94,093 110,274 Total finance leases cost $ 632,281 $ 681,404 Supplemental cash flow information related to finance leases was as follows: 67 Table of Conte n t s For the Year Ended December 31, 2020 December 31, 2019 Operating cash flows from finance leases $ 94,093 $ 110,274 Supplemental balance sheet information related to leases was as follows: December 31, 2020 December 31, 2019 Finance Leases Property and equipment, at cost $ 2,793,731 $ 2,793,731 Accumulated depreciation ( 1,831,318 ) ( 1,293,130 ) Property and equipment, net $ 962,413 $ 1,500,601 Weighted Average Remaining Lease Term (Months) Finance leases 43 54 Weighted Average Discount Rate Finance leases 7.56 % 7.51 % Maturities of lease liabilities were as follows: Twelve months ending December 31, Operating Leases Finance Leases 2021 $ 382,047 $ 359,635 2022 336,103 322,456 2023 219,584 312,605 2024 85,797 215,364 2025 66,731 — Total Lease Payments 1,090,262 1,210,060 Less Imputed Interest ( 158,632 ) ( 156,272 ) Total $ 931,630 $ 1,053,788 On July 2, 2018, AnHeart Inc. ("AnHeart"), a former wholly-owned subsidiary of HF Holding, entered into two separate leases for two properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively. The leases were on a triple net basis, meaning AnHeart is required to pay all costs associated with the properties, including taxes, insurance, utilities, maintenance and repairs. HF Holding provided a corporate guaranty for all rent and related costs of the leases, including costs associated with the planned construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue. The Company entered into the leases back then with the planned purpose of expanding its product lines to include Chinese herb supplements, and to use the sites to develop into a hub for such products. The Company has since determined to cease this business expansion in early 2019. On February 23, 2019, HF Holding executed an agreement to divest all of its ownership interest in AnHeart to Ms. Jianping An, a resident of New York, for the sum of $ 20,000 . The transfer of ownership was completed on May 2, 2019. However, the divestment does not release HF Holding’s guaranty of AnHeart’s obligations or liabilities under the original lease agreements. Under the terms of the sale of AnHeart stock to Ms. An, and in consideration of the Company’s ongoing guaranty of AnHeart’s performance of the lease obligations, AnHeart granted to the Company a security interest in all AnHeart assets, together with a covenant that the Company will be assigned the leases, to be exercised if AnHeart defaults on the original lease agreements. Further, Ms. An has tendered an unconditional guaranty of all AnHeart liabilities arising from the leases, in favor of the Company, executed by Minsheng Pharmaceutical Group Company, Ltd., a Chinese manufacturer and distributor of herbal medicines. See Note 19 - Subsequent Events for additional information concerning the AnHeart leases. In January 2021, the Company's subsidiary, Kirnland signed a new 5-year operating lease agreement with a related party, Yoan to continue to lease the warehouse space that Kirnland has been operating in at 36 - 40 Enterprise Blvd, Atlanta, Georgia 68 Table of Conte n t s ("Warehouse Lease"). Pursuant to the Warehouse Lease, effective January 1, 2021 and maturing on December 31, 2025, Kirnland will pay an initial monthly rental rate of $ 23,495 with standard annual rent escalation of 3 % per annum. See Note 19 - Subsequent Events. NOTE 14 - SUPPLEMENTAL CASH FLOWS INFORMATION Supplemental cash flow disclosures and noncash investing and financing activities are as follows: For the Years Ended December 31, 2020 December 31, 2019 Supplemental disclosure of cash flow data: Cash paid for interest $ 4,123,832 $ 1,520,545 Cash paid for income taxes $ 804,147 $ 2,677,205 Supplemental disclosure of non-cash investing and financing activities Right of use assets obtained in exchange for operating lease liabilities $ 331,239 $ 767,323 Property and equipment obtained in exchange for finance lease liabilities $ — $ 1,432,662 Property and equipment purchases from notes payable $ 2,528,554 $ 1,080,153 Notes receivable sold to shareholder in exchange of common stock $ — $ 12,038,030 Common Stock issued for consideration of acquisition of B&R Global $ — $ 576,699,494 Issuance of promissory note for the acquisition of B&R Realty Subsidiaries $ 7,000,000 $ — NOTE 15 - TAXES Corporate Income Taxes (“CIT”) On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign income. The Act also created a new minimum tax on certain future foreign earnings. The Company expects the new federal income tax rate will significantly lower the Company’s income tax expenses going forward. 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 years ended December 31, 2020 and 2019 consists of the following: For the Years Ended December 31, 2020 December 31, 2019 Current: Federal $ 1,138,966 $ 1,907,309 State ( 54,870 ) 540,488 Current income taxes 1,084,096 2,447,797 Deferred income taxes (benefit): Federal ( 2,916,501 ) ( 156,892 ) State ( 2,999,326 ) ( 93,813 ) Deferred income taxes (benefit) ( 5,915,827 ) ( 250,705 ) Total provision (benefit) for income taxes $ ( 4,831,731 ) $ 2,197,092 69 Table of Conte n t s (ii) Temporary differences and carryforwards of the Company that created significant deferred tax assets and liabilities are as follows: As of December 31, 2020 As of December 31, 2019 Deferred tax assets: Allowance for doubtful accounts $ 443,151 $ 373,438 Inventories 481,016 594,628 Federal net operating loss 101,828 228,637 State net operating loss 257,490 80,514 Fair value change in interest rate swap contracts 244,622 — Accrued expenses 268,813 80,100 Total deferred tax assets 1,796,920 1,357,317 Deferred tax liabilities: Property and equipment ( 2,660,874 ) ( 3,270,536 ) Intangibles assets ( 45,461,272 ) ( 50,327,833 ) Total deferred tax liabilities ( 48,122,146 ) ( 53,598,369 ) Net deferred tax liabilities $ ( 46,325,226 ) $ ( 52,241,052 ) The net deferred tax liabilities presented in the Company's Consolidated Balance Sheets were as follows: As of December 31, 2020 As of December 31, 2019 Deferred tax assets $ 57,478 $ 78,993 Deferred tax liabilities ( 46,382,704 ) ( 52,320,045 ) Net deferred tax liabilities $ ( 46,325,226 ) $ ( 52,241,052 ) (iii) Reconciliations of the statutory income tax rate to the effective income tax rate are as follows: For the Years Ended December 31, 2020 December 31, 2019 Federal statutory tax rate 21.0 % 21.0 % State statutory tax rate 0.7 % 4.0 % Impact of goodwill impairment loss – permanent difference ( 20.5 ) % 1.0 % Other 0.2 % 1.2 % Effective tax rate 1.4 % 27.2 % NOTE 16 - RELATED PARTY TRANSACTIONS The Company makes regular purchases from and sales to various related parties. Related party affiliations were attributed to transactions conducted between the Company and those business entities partially or wholly owned by Company officers. The related party affiliations described in this note, including the bona fides and fairness of certain transactions with related parties, are among the issues that are being scrutinized as part of an ongoing internal investigation, and disclosures concerning particular transactions are subject to the outcome of, and conclusions that may ultimately be reached in, this ongoing investigation. Mr. Zhou Min Ni and Mr. Xiao Mou Zhang were the Co-Chief Executive Officers as of December 31, 2020 and 2019. Mr. Ni subsequently resigned from all of his official posts on February 23, 2021. Upon resignation, Mr. Ni owned 10.7 % of outstanding shares of common stock. Mr. Xiao Mou Zhang became the sole Chief Executive Officer on February 23, 2021. (See subsequent event section). The related party transactions as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019 are identified as follows: 70 Table of Conte n t s a. Purchase - related parties Below is a summary of purchases of goods and services from related parties recorded for the year ended December 31, 2020 and 2019, respectively: For the Years Ended Name of Related Party December 31, 2020 December 31, 2019 (a) Allstate Trading Company, Inc. $ 308,865 $ 111,213 (b) Best Food Services, LLC 5,829,680 2,136,388 (c) Eagle Food Service, LLC 100,892 232,566 (d) Eastern Fresh NJ, LLC 4,508,507 6,678,704 (e) Enson Group, Inc. (formerly "Enson Group, LLC") 142,711 174,711 (f) Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”) — 181,985 (g) First Choice Seafood, Inc. 454,606 2,092,599 (h) Fujian RongFeng Plastic Co., Ltd 3,617,121 6,207,379 (i) Hanfeng (Fujian) Information Technology Co., Ltd. 997,395 3,032,984 (j) Hanfeng Information Technology (Jinhua), Inc. 1,134,620 — (k) N&F Logistics, Inc. 368,529 1,428,294 (l) North Carolina Good Taste Noodle, Inc. — 4,607,652 (m) Ocean Pacific Seafood Group, Inc. 567,836 598,286 (n) Revolution Industry, LLC 2,362,131 2,822,561 (o) UGO USA, Inc. 644,410 724,486 (p) Union Foods, LLC 1,246,720 9,003,455 (q) Winfar Foods, Inc. 622,417 — Others 84,965 354,737 Total $ 22,991,405 $ 40,388,000 (a) Mr. Zhou Min Ni owns 40 % equity interest in this entity. (b) Mr. Xiao Mou Zhang previously owns 10.38 % equity interest in this entity indirectly through its parent company as of 10/31/2020. Mr. Zhang's children owns 10.38 % equity interest in this entity indirectly from 11/1/2020. (c) Tina Ni, one of Mr. Zhou Min Ni’s family members, owns 26.5 % equity interest in this entity indirectly through its parent company. (d) Mr. Zhou Min Ni owns 30 % equity interest in this entity. (e) Mr. Zhou Min Ni owns 25 % equity interest in this entity. (f) Mr. Zhou Min Ni owns 50 % equity interest in this entity. (g) Mr. Zhou Min Ni owns 25 % equity interest in this entity indirectly through its parent company. (h) Mr. Zhou Min Ni owns 40 % equity interest in this entity indirectly through its parent company. (i) Mr. Zhou Min Ni owns 100 % equity interest in this entity. (j) Mr. Zhou Min Ni owns 37 % equity interest in this entity. (k) Mr. Zhou Min Ni owns 25 % equity interest in this entity. (l) Mr. Jian Ming Ni, former Chief Financial Officer owns 29 % equity interest in this entity. Mr. Zhou Min Ni previously owned 37.34 % equity in this entity as of 12/31/2019. We have been told that Mr Ni's equity interest was disposed of on 1/1/2020. For comparison purpose, the total purchase in year 2020 was $ 3,986,069 . (m) Mr. Zhou Min Ni owns 26 % equity interest in this entity. (n) Raymond Ni, one of Mr. Zhou Min Ni’s family members, owns 100 % equity interest in this entity. On 2/25/2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment from Revolution Industry, LLC. Going forward, Han Feng takes the egg roll production business in house and ceases vendor relationship with Revolution Industry, LLC. See Footnote 19 Subsequent Events for additional Information. (o) Mr. Zhou Min Ni owns 30 % equity interest in this entity. (p) 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. (q) Mr. Xiao Mou Zhang owns 5.2 % equity interest in this entity indirectly through its parent company. 71 Table of Conte n t s b. Sales - related parties Below is a summary of sales to related parties recorded for the year ended December 31, 2020 and 2019, respectively: For the Years Ended Name of Related Party December 31, 2020 December 31, 2019 (a) ABC Food Trading, LLC $ 1,870,728 $ 416,392 (b) Asahi Food, Inc. 465,069 70,700 (c) Best Food Services, LLC 336,800 — (d) Eagle Food Service, LLC 4,604,894 7,172,063 (e) Eastern Fresh NJ, LLC 1,602,479 4,470,618 (f) Enson Group, Inc. (formerly "Enson Group, LLC") 307,585 635,078 (g) Enson Philadelphia, Inc. 125,684 142,193 (h) Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”) 492,679 1,481,776 (i) First Choice Seafood, Inc. 1,378,207 — (j) Fortune One Foods, Inc. 310,635 787,700 (k) Heng Feng Food Services, Inc. 668,844 1,601,546 (l) N&F Logistics, Inc. 1,027,427 2,364,820 (m) The Big Catch Alhambra, LLC 57,048 60,842 (n) UGO USA, Inc. 66,448 75,393 Others 108,020 73,295 Total $ 13,422,547 $ 19,352,416 (a) Mr. Xiao Mou Zhang previously owns 10.38 % equity interest in this entity indirectly through its parent company as of 10/31/2020. Mr. Zhang's children owns 10.38 % equity interest in this entity indirectly from 11/1/2020. (b) The Company, through its subsidiary MF, owns 49 % equity interest in this entity. (c) Mr. Xiao Mou Zhang previously owns 10.38 % equity interest in this entity indirectly through its parent company as of 10/31/2020. Mr. Zhang's children owns 10.38 % equity interest in this entity indirectly from 11/1/2020. (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. (e) Mr. Zhou Min Ni owns 30 % equity interest in this entity. (f) Mr. Zhou Min Ni owns 25 % equity interest in this entity. (g) Mr. Zhou Min Ni owns 23.33 % equity interest in this entity. (h) Mr. Zhou Min Ni owns 50 % equity interest in this entity. (i) Mr. Zhou Min Ni owns 25 % equity interest in this entity indirectly through its parent company. (j) Mr. Zhou Min Ni owns 17.5 % equity interest in this entity indirectly through its parent company. (k) Mr. Zhou Min Ni owns 45 % equity interest in this entity. (l) Mr. Zhou Min Ni owns 25 % equity interest in this entity. (m) Mr. Xiao Mou Zhang owns 10 % equity interest in this entity. (n) Mr. Zhou Min Ni owns 30 % equity interest in this entity. c. Lease Agreements - Related Parties The Company leases various facilities to related parties. R&N Holdings leases a facility to North Carolina Good Taste Noodle Inc under an operating lease agreement expiring in 2024. Rental income for the year ended December 31, 2019 was 45,600 . We have been told that Mr. Ni disposed his equity interest on January 1, 2020. Therefore, North Carolina Good Taste Noodle Inc is no longer a related party as of January 1, 2020. For comparison purpose, the rental income for the years ended December 31, 2020 was $ 45,600 . 72 Table of Conte n t s R&N Holdings also leases a facility to UGO USA Inc. under an operating lease agreement expiring in 2022. Rental income recorded for the year ended December 31, 2020 and 2019 was $ 161,000 and nil , respectively. Rental income recorded for 2020 represented $ 119,000 of retroactive billing from March 1, 2017 to December 31, 2019, and $ 42,000 for the year ended December 31, 2020. HG Realty leases a warehouse to Enson Seafood GA Inc. (formerly “GA-GW Seafood, Inc.”) under an operating lease agreement expiring on September 21, 2027. Rental income recorded for the years ended December 31, 2020 and 2019 was $ 480,000 and $ 480,000 , respectively. Han Feng leases a production area to Revolution Industry, LLC under a $ 3,000 month-to-month lease agreement. Rental income recorded for the years ended December 31, 2020 and 2019 was $ 39,000 and $ 33,000 , respectively. The lease agreement was terminated as a result of the asset purchase agreement executed on February 25, 2021. See Footnote 19 Subsequent Events for additional Information. 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 to the related parties recorded from January 1, 2020 to January 16, 2020 was $ 187,750 . In 2020, Kirnland renewed a warehouse lease from Yoan Chang Trading, Inc. ("Yoan") under an operating lease agreement expiring on December 31, 2020. Rent incurred to the related party was $ 120,000 and $ 120,000 recorded for the years ended December 31, 2020 and 2019, respectively. In February 2021, Kirnland executed a new 5-year operating lease agreement with Yoan effective January 1, 2021 and expiring on December 31, 2025. See Note 19 - Subsequent Events for more details of the operating lease Related Party Balances a. Accounts receivable - related parties, net Below is a summary of accounts receivable with related parties recorded as of December 31, 2020 and 2019, respectively: Name of Related Party As of December 31, 2020 As of December 31, 2019 (a) ABC Food Trading, LLC $ 18,816 $ 238,513 (b) Asahi Food, Inc. 68,766 34,265 (c) Eagle Food Service, LLC 697,538 979,591 (d) Eastern Fresh NJ, LLC — 1,511,075 (e) Enson Group, Inc. (formerly "Enson Group, LLC") — 341,200 (f) Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”) 325,596 348,833 (g) Fortune One Foods, Inc. 36,250 53,862 (h) Heng Feng Food Services, Inc. — 477,541 (i) N&F Logistics, Inc. 113,247 119,241 (j) The Big Catch Alhambra, LLC 2,292 89,249 Others 4,068 9,500 Total $ 1,266,573 $ 4,202,870 (a) Mr. Xiao Mou Zhang previously owns 10.38 % equity interest in this entity indirectly through its parent company as of 10/31/2020. Mr. Zhang's children owns 10.38 % equity interest in this entity indirectly from 11/1/2020. (b) The Company, through its subsidiary MF, owns 49 % equity interest in this entity. (c) Tina Ni, one of Mr. Zhou Min Ni’s family members, owns 26.5 % equity interest in this entity indirectly through its parent company. (d) Mr. Zhou Min Ni owns 30 % equity interest in this entity. (e) Mr. Zhou Min Ni owns 25 % equity interest in this entity. 73 Table of Conte n t s (f) Mr. Zhou Min Ni owns 50 % equity interest in this entity. (g) Mr. Zhou Min Ni owns 17.5 % equity interest in this entity indirectly through its parent company. (h) Mr. Zhou Min Ni owns 45 % equity interest in this entity. (i) Mr. Zhou Min Ni owns 25 % equity interest in this entity. (j) Mr. Xiao Mou Zhang owns 10 % 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 December 31, 2020 and December 31, 2019. b. Accounts payable - related parties, net All the accounts payable to related parties are payable upon demand without interest. Below is a summary of accounts payable with related parties recorded as of December 31, 2020 and 2019, respectively: Name of Related Party As of December 31, 2020 As of December 31, 2019 (a) Best Food Services, LLC $ 588,920 $ 987,487 (b) Eastern Fresh NJ, LLC 427,795 — (c) Fujian RongFeng Plastic Co., Ltd 69,429 1,684,192 (d) Hanfeng (Fujian) Information Technology Co., Ltd. 175,657 — (e) Hanfeng Information Technology (Jinhua), Inc. 107,258 166,971 (f) Heng Feng Food Services, Inc. 116,436 — (g) North Carolina Good Taste Noodle, Inc. — 992,353 (h) UGO USA, Inc. 211,003 340,087 (i) Union Foods, LLC — 248,901 Others 87,363 101,365 Total $ 1,783,861 $ 4,521,356 (a) Mr. Xiao Mou Zhang previously owns 10.38 % equity interest in this entity indirectly through its parent company as of 10/31/2020. Mr. Zhang's children owns 10.38 % equity interest in this entity indirectly from 11/1/2020. (b) Mr. Zhou Min Ni owns 30 % equity interest in this entity. (c) Mr. Zhou Min Ni owns 40 % equity interest in this entity indirectly through its parent company. (d) Mr. Zhou Min Ni owns 100 % equity interest in this entity. (e) Mr. Zhou Min Ni owns 37 % equity interest in this entity. (f) Mr. Zhou Min Ni owns 45 % equity interest in this entity. (g) Mr. Jian Ming Ni, former Chief Financial Officer owns 29 % equity interest in this entity. Mr. Zhou Min Ni previously owned 37.34 % equity in this entity as of 12/31/2019. We have been told that Mr Ni's equity interest was disposed of on 1/1/2020. For comparison purpose, accounts payable as of 12/31/2020 is $ 554,156 . (h) Mr. Zhou Min Ni owns 30 % equity interest in this entity. (i) 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. c. Advances to suppliers - related parties, net The Company periodically provides purchase advances to various vendors, including the related party suppliers. Below is a summary of advances to related party suppliers recorded as of December 31, 2020 and December 31, 2019, respectively: 74 Table of Conte n t s Name of Related Party As of December 31, 2020 As of December 31, 2019 (a) Ocean Pacific Seafood Group, Inc. $ 7,101 $ 223,303 (b) Revolution Industry, LLC 189,702 521,832 Total $ 196,803 $ 745,135 (a) Mr. Zhou Min Ni 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. On 2/25/2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment from Revolution Industry, LLC. Going forward, Han Feng takes the egg roll production business in house and ceases vendor relationship with Revolution Industry, LLC. See Footnote 19 Subsequent Events for additional Information. d. Promissory note payable - related party 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. e. 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 December 31, 2020. There were no related party rent deposits as of December 31, 2020. f. Notes Receivable - Related Parties The Company had previously made advances or loans to certain entities that are either owned by our former Chairman and Co-CEO of the Company, Mr. Zhou Min Ni or family members of Mr. Ni. On January 1, 2018, the Company entered into a promissory note agreement with Enson Seafood GA Inc. (Enson Seafood) . Pursuant to the promissory note agreement, the total outstanding balance of $ 550,000 due from Enson Seafood as of December 31, 2017 was converted into promissory notes bearing annual interest of 5 % commencing January 1, 2018. The principal plus interest was due no later than December 31, 2019. Interest was computed on the outstanding balance on the basis of the actual number of days elapsed in a year of 360 days. On September 30, 2018, the Company signed a promissory note agreement with Enson Seafood in the principal amount of $ 2,000,000 . The note accrued interest at the rate of 5 % per annum on the unpaid balance, compounded monthly. The principal plus all accrued and unpaid interest was initially due no later than September 30, 2019, with an option to renew, and required Enson Seafood to make monthly payments of $ 171,215 for twelve months. On March 1, 2019, the Company and Enson Seafood extended the expiration date of the note until February 29, 2024 and Mr. Zhou Min Ni agreed to personally guarantee the note. On January 1, 2018, the Company signed a promissory note agreement with Han Feng Global Inc. dba NSG International, Inc. (NSG). Pursuant to the promissory note agreement, the outstanding total outstanding balances of $ 5,993,552 due from NSG as of December 31, 2017 were converted into promissory notes bearing annual interest of 5 % commencing January 1, 2018. The principal plus interest was required to be paid off no later than December 31, 2019. Interest was computed on the outstanding balance on the basis of the actual number of days elapsed in a year of 360 days. On March 1, 2019, the Company entered into a new five year term promissory note agreement with NSG that comprised a restatement and novation and superseded the note dated January 1, 2018. Pursuant to the new promissory note agreement, the outstanding balance of $ 5,941,031 together with interest at the rate of 5 % per annum became payable in monthly installments until principal and accrued interest was paid in full on or before March 1, 2024. On March 1, 2018, the Company entered into a promissory note agreement by which Revolution Automotive, LLC (Revolution Automotive) was loaned $ 483,628 . Pursuant to this promissory note agreement, Revolution Automotive was required to make monthly payments of $ 5,000 for 60 months, including interest, with a final payment of $ 284,453 . The loan bore interest of 5 % 75 Table of Conte n t s per annum. Interest was computed on the outstanding balance on the basis of the actual number of days elapsed in a year of 360 days. The principal plus interest was to be paid off no later than April 30, 2023. On March 1, 2019, the Company and each of Enson Seafood and NSG agreed to extend the expiration date of their notes payable until February 29, 2024, and Mr. Zhou Min Ni agreed to personally guarantee these notes. 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 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. Ni. Following which, the Total Notes Receivable guaranteed by Mr. Ni is considered fully settled. The Company has retired all treasury stock as of December 31, 2020. NOTE 17 - SEGMENT REPORTING ASC 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments. 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 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 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. The following table presents net sales by segment for the years ended December 31, 2020 and 2019, respectively: For the Year Ended December 31, 2020 December 31, 2019 Net revenue HF $ 221,354,504 $ 302,103,038 B&R Global 345,476,571 86,059,243 Total $ 566,831,075 $ 388,162,281 All the Company’s revenue was generated from its business operations in the U.S. For the Year Ended December 31, 2020 HF B&R Global Total Revenue $ 221,354,504 $ 345,476,571 $ 566,831,075 Cost of revenue 178,777,382 287,762,110 466,539,492 Gross profit 42,577,122 57,714,461 100,291,583 Depreciation and amortization 2,971,777 14,896,819 17,868,596 Cash capital expenditures 244,255 420,495 664,750 76 Table of Conte n t s For the Year Ended December 31, 2019 HF B&R Global Total Revenue $ 302,103,038 $ 86,059,243 $ 388,162,281 Cost of revenue 252,078,738 72,875,020 324,953,758 Gross profit 50,024,300 13,184,223 63,208,523 Depreciation and amortization 5,487,027 1,267,481 6,754,508 Cash capital expenditures 4,681,404 154,525 4,835,929 The following table presents total assets by reportable segment as of December 31, 2020 and 2019, respectively: As of December 31, 2020 As of December 31, 2019 Total assets: HF $ 58,620,619 $ 80,514,529 B&R Global 425,664,464 722,329,265 Total Assets $ 484,285,083 $ 802,843,794 All of the Company’s long-lived assets are located in the U.S. 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. 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 December 31, 2020 and 2019. FUSO's case was dismissed on January 25, 2021. No class was certified and no class relief was granted. The individual plaintiff's claims were resolved under the terms of a confidential settlement agreement providing that no party admitted any liability or wrongdoing and that the individual plaintiff would receive a payment in an amount having no material impact on the financial condition or results of operations of the FUSO operating unit and the Company as a whole. 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. These cases are in the earliest stages of litigation and the parties have not commenced discovery. 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 December 31, 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. 2:20-CV-2929-ODW-JPR (C.D. Cal.). On April 30, 2020, plaintiff Walter Ponce-Sanchez (“Ponce-Sanchez”) filed a substantially similar putative shareholder securities class action lawsuit (the “Ponce-Sanchez Lawsuit”) in the United States District Court for the Central District of California against the same defendants named in the Class Action Lawsuit (collectively, the “Ponce-Sanchez Defendants” and with the Class Action Defendants, the “Defendants”) styled Ponce-Sanchez v. HF Foods Group Inc., et al. , Civil Action No. 2:20-CV-3967-ODW-JPR (C.D. Cal.). 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. Additionally, the complaints both allege that the Defendants failed to disclose in public statements that the Company engaged in certain related party transactions, that insiders and related parties were enriching themselves by misusing shareholder funds, and that the Company masked the true number of free-floating shares. Neither complaint quantifies any alleged damages, but, in addition to attorneys’ fees and costs, they seek to recover damages on behalf of themselves and other persons who purchased or otherwise acquired Company stock during the 77 Table of Conte n t s 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 consolidated Class Action Lawsuit. Thereafter, an amended complaint was filed, which purports to expand the putative class period from August 23, 2018 to November 9, 2020. The Defendants filed their motion to dismiss the amended complaint on January 19, 2021, which is pending. The Class Action Lawsuit does not quantify any alleged damages. The Company intends to defend the consolidated Class Action Lawsuit vigorously. On June 15, 2020, Mendoza filed a shareholder derivative lawsuit on behalf of the Company as a nominal defendant (the “Mendoza Derivative Lawsuit”) in the United States District Court for the Central District of California against certain of the Company’s present and former directors and officers (collectively, the “Mendoza Derivative Defendants”) styled Mendoza v. Zhou Min Ni, et al., Civil Action No. 2:20-CV-5300-ODW-JPR (C.D. Cal.). The complaint in the Mendoza Derivative Lawsuit is based largely on the same allegations as set forth in the Class Action Lawsuit discussed above and alleges violations of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties , unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. The Mendoza Derivative Lawsuit does not quantify any alleged damages, but, in addition to attorneys’ fees and costs, Mendoza seeks to recover damages on behalf of the Company for purported financial harm and to have the court order changes in the Company’s corporate governance. The Mendoza Derivative Defendants and the Company intend to defend the Mendoza Derivative Lawsuit vigorously. 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 Defendants’ motion to dismiss the Class Action Lawsuit. 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 consolidated financial statements as of December 31, 2020. On August 21, 2020, plaintiff Jim Bishop ("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. Del.). The Bishop Lawsuit complaint alleges claims that are virtually the same as those alleged in the Mendoza Derivative Lawsuit. The Bishop Lawsuit does not quantify any alleged damages. But in addition to attorneys’ fees and costs, 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 and the Company intend to defend vigorously the allegations in the Bishop Lawsuit, assuming it proceeds. On October 20, 2020, Bishop and the Bishop Defendants filed a Joint Stipulation to Stay Litigation with the Court. On November 19, 2020, the Bishop Lawsuit was transferred to the United Stated District Court for the Central District of California, as case number 2:20-CV-10657-ODW-JPR(C.D.Cal.). Motions to consolidate the Mendoza Derivative Lawsuit and the Bishop Lawsuit, and to designate a lead plaintiff and lead plaintiff’s counsel, are pending in both cases. The Court further ordered that the Bishop Defendants do not need to respond to the complaint until the consolidation and appointment of lead plaintiff's counsel are resolved. This case remains in early procedural stage. 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 consolidated financial statements as of December 31, 2020 . NOTE 19 - SUBSEQUENT EVENTS On February 22, 2021, the Board of Directors approved the terms of a Separation Agreement pursuant to which Zhou Min Ni has voluntarily resigned from his position as co-Chief Executive Officer and director and any position he holds with any of the Company’s subsidiaries, effective February 23, 2021 (“Separation Date”). On February 23, 2021, Xiao Mou Zhang became the sole Chief Executive Officer of the Company (he was previously co-Chief Executive Officer). On February 22, 2021, the Board of Directors of the Company appointed Russell Libby as the new Chair of the Company’s Board of Directors. On February 10, 2021, 273 Co, a newly established Delaware limited liability company and wholly owned subsidiary of the Company, completed the closing of an Assignment and Assumption of Lease Agreement (“Assignment”), dated effective as of January 21, 2021, pursuant to which it has assumed the lease of the premises at 273 Fifth Avenue, New York, New York (the “273 Lease Agreement”) dated as of July 2, 2018, by and between AnHeart, a former subsidiary of the Company, and Premier 273 Fifth, LLC ("Landlord"). On the same date, the closing documents were delivered to effectuate the amendment of the 273 78 Table of Conte n t s Lease Agreement pursuant to an Amendment to Lease (the “Lease Amendment”). The Assignment and the 273 Lease Amendment were negotiated pursuant to guarantee obligations of the Company’s wholly owned subsidiary, HF Holding as guarantor under the Lease Agreement. See Note 13, above, for additional information regarding the AnHeart leases. 273 Co has agreed to observe all the covenants and conditions of the Lease Agreement, as amended, including the payment of all rents due. Under the terms of the Lease Agreement and the Assignment, 273 Co has undertaken to construct, at Company’s expense, a building on the premises, at a minimum cost of $ 2,500,000 . The 273 Lease Agreement and the Lease Amendment provide for a term of 30 years, with option to renew for 10 additional years, at an annual rent starting at $ 325,000 and escalating annually throughout the term, with the annual rent in the final year of the initial term of $ 1,047,974 . The 273 Lease Amendment further granted certain rent abatement to the premises for 2020 and 2021, including a 20 % reduction of annual rent in 2021. The Lease Amendment permits subletting of the premises. In January 2021, one of the Company's subsidiary, Kirnland signed a new 5-year operating lease agreement with a related party, Yoan to continue to lease the warehouse space that Kirnland has been operating in at 36 - 40 Enterprise Blvd, Atlanta, Georgia ("Warehouse Lease"). Pursuant to the Warehouse Lease, effective January 1, 2021 and maturing on December 31, 2025, Kirnland will pay an initial monthly rental rate of $ 23,495 with standard annual rent escalation of 3 % per annum. See Note 13 - Leases. On February 25, 2021, the Company entered into an Asset Purchase Agreement with Revolution Industry, LLC ("Revolution"), a company owned by the son of Company's former Chairman and Co-CEO. Pursuant to the Asset Purchase Agreement, the Company has acquired substantially all of the operating assets used or held for use in such business operation for an amount of $ 250,000 plus the fair market wholesale value of all verified, useable cabbage and egg roll mix inventory of Revolution. Advances due from Revolution at the time of transaction were an offset to the purchase payment made to Revolution. See Note 16 - Related Parties Transaction. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.