What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-09 · 407 added, 677 removed, 754 unchanged (59% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2021 December 31,

8 unchanged sentences

Property and equipment, net 136,043,983 136,869,085

Security deposits - related parties — 591,380

Operating lease right-of-use assets 15,993,197 931,630

7 unchanged sentences

Bank overdraft $ 10,439,475 $ 14,839,747

Lines of credit 25,208,939 41,268,554

Line of credit 16,380,876 18,279,062

Accounts payable 36,504,111 28,391,136

Accounts payable - related parties 1,472,541 1,783,861

Advances from customers - related parties 6,147 —

Current portion of long-term debt, net 5,898,994 5,641,259

11 unchanged sentences

SHAREHOLDERS’ EQUITY:

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

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

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

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

Preferred Stock, $ 0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Common Stock, $ 0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued, and 51,913,411 shares outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 587,579,093 587,579,093

Retained earnings (accumulated deficit) ( 328,742,988 ) 15,823,661

Total shareholders’ equity attributable to HF Foods Group Inc.

Accumulated deficit ( 325,627,466 ) ( 327,150,398 )

TOTAL SHAREHOLDER'S EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.

261,956,818 260,433,886

Noncontrolling interests 4,594,814 4,367,547

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

TOTAL SHAREHOLDERS’ EQUITY 266,551,632 264,801,433

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

2020 2019 2020 2019

For the three months ended March 31

Net revenue - third parties $ 156,991,367 $ 170,640,014

9 unchanged sentences

Interest income — 131

Interest expenses ( 840,851 ) ( 482,099 ) ( 3,116,739 ) ( 1,207,217 )

Interest expense ( 742,141 ) ( 1,951,569 )

Goodwill impairment loss — ( 338,191,407 )

14 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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

Common Stock Treasury Stock Additional

4 unchanged sentences

Shareholders’

Shares Amount Number of

Shares Amount

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

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

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

Net income — — — — — 1,522,932 1,522,932 300,267 1,823,199

Distribution to shareholders — — — — — — — ( 73,000 ) ( 73,000 )

Balance at March 31, 2021 51,913,411 5,191 — — 587,579,093 ( 325,627,466 ) 261,956,818 4,594,814 266,551,632

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

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

Balance at 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) — — — — — ( 339,883,942 ) ( 339,883,942 ) 197,410 ( 339,686,532 )

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

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

Net income — — — — 1,672,813 1,672,813 120,758 1,793,571

Balance at March 31, 2019 22,167,486 2,217 — 22,920,603 12,106,797 35,029,617 1,225,436 36,255,053

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

Distribution to shareholders — — — — — — — ( 125,000 ) ( 125,000 )

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

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

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

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

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

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

Balance at March 31, 2020 53,050,211 $ 5,305 ( 905,115 ) $ ( 12,038,030 ) $ 599,617,009 $ ( 324,060,281 ) $ 263,524,003 $ 4,321,197 $ 267,845,200

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30,

For the three months ended March 31

Cash flows from operating activities:

6 unchanged sentences

Allowance for inventories 56,578 46,687

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

Deferred tax benefit (expense) ( 578,934 ) ( 931,471 )

Income from equity method investment ( 30,200 ) ( 35,061 )

Change in fair value of interest rate swap contracts 1,284,276 —

Unrealized change in fair value of interest rate swap contracts ( 712,293 ) —

Changes in operating assets and liabilities:

2 unchanged sentences

Inventories, net 2,608,350 1,780,693

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

Advances to suppliers - related parties 196,803 ( 119,681 )

Other current assets ( 773,306 ) 540,443

3 unchanged sentences

Accounts payable - related parties ( 311,320 ) ( 783,154 )

Advance from customers - related parties — 213,354

Operating lease liability ( 153,147 ) ( 102,088 )

Income tax payable — 13,343

Accrued expenses and other liabilities 1,185,320 436,529

3 unchanged sentences

Proceeds from disposal of equipment 8,000 90,879

Cash received from 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, net ( 94,004,068 ) —

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

Net cash used in investing activities ( 440,173 ) ( 94,073,441 )

1 unchanged sentence

Repayment of bank overdraft ( 4,400,272 ) ( 1,477,738 )

Proceeds from lines of credit 411,386,096 15,364,481

Repayment of lines of credit ( 427,544,110 ) ( 11,694,146 )

Proceeds from line of credit 155,897,706 174,101,782

Repayment of line of credit ( 157,828,692 ) ( 172,301,798 )

Proceeds from long-term debt — 75,600,000

Repayment of long-term debt ( 1,477,381 ) ( 1,346,136 )

Repayment of long-term debt - related parties — ( 730,998 )

Repayment of promissory note payable - related party ( 500,000 ) —

Repayment of obligations under finance leases ( 72,804 ) ( 122,498 )

Cash distribution to shareholders ( 73,000 ) ( 125,000 )

Net cash provided by financing activities 44,584,579 5,670,080

Net cash provided by (used in) financing activities ( 8,454,443 ) 73,597,614

Net increase (decrease) in cash 1,672,668 ( 1,848,021 )

12 unchanged sentences

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 11 entities contributed their respective stocks to HF Holding in exchange for all of HF Holding’s outstanding shares.

HF Group Holding Corporation (“HF Holding”) was incorporated in the State of North Carolina on October 11, 2017 as a holding company to acquire and consolidate the various operating entities under one roof.

On January 1, 2018, HF Holding entered into a Share Exchange Agreement (the “Exchange Agreement”) with the controlling shareholders of the 11 entities listed below 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.

11 unchanged sentences

• 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 11 entities prior to the execution of the Agreement.

The consolidated financial statements of the Company have been prepared to report results of operations for the period in which the transfer occurred as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period presented, in this case January 1, 2018.

Results of operations for the period presented comprise those of the previously separate entities combined from the beginning of the period to the end of the period.

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

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

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

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

In accordance with Financial Accounting Standards Board’s (“FASB") Accounting Standards Codification (“ASC”) 805-50-25, the transaction consummated through the Exchange Agreement has been accounted for as a transaction among entities under common control since the same shareholders controlled all these 11 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.

6 unchanged sentences

by HF Group Principal activities

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

HF Holding October 11, 2017 North Carolina, USA 100 % Holding Company

Subsidiaries:

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

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

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

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

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

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

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

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

NSF December 17, 2008 Florida 100 % Food service distributor

BB September 12, 2001 Florida 100 % Logistic service provider

Kirnland April 11, 2006 Georgia 66.67 % Food service distributor

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

Han Feng January 14, 1997 North Carolina, USA 100 % Foodservice distributor

Kirnland April 11, 2006 Georgia, USA 66.7 % Foodservice distributor

NSF December 17, 2008 Florida, USA 100 % Foodservice distributor

HF Foods Industrial, L.L.C.

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

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

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

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

BB September 12, 2001 Florida, USA 100 % Logistic service provider

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

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

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

R&N Charlotte, LLC

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

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

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 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 “Atlantic Closing”), (i) the stockholders of HF Holding became the holders of a majority of the shares of common stock of Atlantic, and (ii) Atlantic changed its name to HF Foods Group Inc.

On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in HF Holding became the surviving entity (the “Atlantic Merger”) and a wholly owned subsidiary of Atlantic (the “Atlantic Acquisition”).

The stockholders of HF Holding bec the majority shareholders of Atlantic, and the Company changed its name to HF Foods Group, Inc.

(Collectively, these transactions are referred to as the “Atlantic Transactions”).

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.

At closing, 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-Transaction stockholders of Atlantic owned the remaining 11.5 % of the issued and outstanding shares of common stock of the combined entity.

8 unchanged sentences

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

Business Combination with B&R Global

Effective November 4, 2019, HF Group consummated the transactions contemplated by a merger agreement (the “B&R Merger Agreement”), dated as of June 21, 2019, by and among the Company, B&R Merger Sub Inc., a Delaware corporation (“Merger Sub”), B&R Global 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 ownership interest of B&R Global, in exchange for 30,700,000 shares of HF Group Common Stock.

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 Holdings Inc.

("B&R Global")

On November 4, 2019, HF Group consummated a merger transaction resulting in B&R Global becoming a wholly owned subsidiary of the Company.

At closing, the Company acquired 100 % of the controlling interest of B&R Global, in exchange for the issuance of 30,700,000 shares of Common Stock of the Company to the shareholders of B&R Global.

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 food items to approximately 6,800 restaurants across 11 Western states, and combined with HF Group, creates what the Company believes is the largest food distributor to Asian restaurants in the United States.

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

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

B&R Global was formed in 2014 as a holding company to acquire and consolidate the various operating entities (listed below) under one roof.

Through its subsidiaries, B&R Global supplies foodservice items to approximately 5,000 restaurants across 11 Western states.

The merger with HF Group, created 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 serves over 10,000 restaurants across 22 states with a fleet of over 300 refrigerated vehicles, a workforce of over 780 employees and subcontractors.

The Company is also supported by two call centers in China which provide round-the-clock sales and service supports 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:

5 unchanged sentences

Subsidiaries:

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

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

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

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

R & C Trading L.L.C.

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

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

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

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

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

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

Min Food, Inc.

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

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

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

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

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

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

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

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

R & C Trading L.L.C.

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

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

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

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

Kami Trading, Inc.

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

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

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

Fuso Trucking Corp.

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

GM Food Supplies, Inc.

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

Golden Well, Inc.

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

Happy FM Group, Inc.

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

Hayward Trucking, Inc.

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

KYL Group, Inc.

(“KYL”) April 18, 2014 Nevada, 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

MF Food Services, Inc.

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

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 September 30, 2020, B&R Global consolidates FUSO, which is considered as a variable interest entity (“VIE”) under U.S.

Royal Trucking Services, Inc.

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

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

* At the acquisition date and as of March 31, 2021, 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.

1 unchanged sentence

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

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

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

Pursuant to the Purchase Agreement, B&R Global acquired all equity membership interests in the BRGR Subsidiaries, which own 10 warehouse facilities that were being leased by the Company for its operations in California, Arizona, Utah, Colorado, Washington, and Montana for purchase consideration of $ 101,269,706 .

Consideration for Realty

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

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

3 unchanged sentences

ownership by B&R Global Principal activities

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

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

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

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

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

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

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

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

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

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

4 unchanged sentences

These financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended December 31, 2020 and 2019.

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

Operating results for the three month periods ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

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

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

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

As of March 31, 2021 and December 31, 2020, FUSO is considered to be a VIE.

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

2 unchanged sentences

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

September 30,

2021 December 31,

5 unchanged sentences

Total liabilities $ 697,262 $ 535,709

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

2020 2019 2020 2019

For the three months ended March 31

Net revenue $ 453,174 $ 666,428

Net income $ 26,095 $ 64,778

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

2020 2019 2020 2019

For the three months ended March 31

Net cash provided by operating activities $ 86,743 $ 314,224

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

Net cash provided by (used in) financing activities 16,441 ( 222,137 )

Net increase in cash and cash equivalents $ 103,184 $ 92,087

2 unchanged sentences

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

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

As of March 31, 2021 and December 31, 2020, noncontrolling interests consisted of the following:

Name of Entity Percentage of

noncontrolling

interest ownership September 30,

interest ownership March 31,

2021 December 31,

8 unchanged sentences

Actual results could differ from those estimates.

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

Cash and Cash Equivalents

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

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

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

Accounts Receivable

As of March 31, 2021 and December 31, 2020, the Company had no cash equivalents.

Accounts Receivable, net

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 unaudited condensed consolidated balance sheets.

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.

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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 September 30, 2020 and December 31, 2019, the allowances for doubtful accounts were $ 1,373,921 and $ 623,970 , respectively.

As of March 31, 2021 and December 31, 2020, allowances for doubtful accounts were $ 830,306 and $ 909,182 , respectively.

Inventories, net

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

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

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

Property and Equipment

As of March 31, 2021 and December 31, 2020, the valuation allowance was $ 202,655 and $ 146,078 , respectively.

Property and Equipment, net

Property and equipment are stated at cost, less accumulated depreciation and amortization.

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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 unaudited condensed consolidated statements of operations in other income or expenses.

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 operations in other income or expenses.

Business Combinations

The Company accounts for its business combinations using the purchase method of accounting in accordance with ASC Topic 805 (“ASC 805”), 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 noncontrolling 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.

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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.

The Company opted to 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.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination.

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

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 for 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

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

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

The Company did no t record any impairment loss on its long-term investments as of March 31, 2021 and December 31, 2020.

Impairment of Long-lived Assets Other Than Goodwill

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

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

The Company did no t record any impairment loss on its long-lived assets as of March 31, 2021 and December 31, 2020.

Revenue Recognition

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Sales taxes invoiced to customers and remitted to government authorities are excluded from net sales.

The Company follows ASU 2014-9, Revenue from Contracts with Customers (“ASC Topic 606”) .

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.

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

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

For the three month periods ended March 31, 2021 and 2020, revenue recognized from performance obligations related to prior periods was insignificant.

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

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

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

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

For the Three Months Ended

2021 March 31,

Arizona $ 11,139,602 $ 10,011,749

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

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

Shipping and handling costs were $ 1,925,773 and $ 2,558,233 for the three months ended March 31, 2021 and 2020, respectively.

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

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

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

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

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

Based on this guidance the Company did 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 condensed consolidated statements of operations.

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

The Company does not believe that there were any uncertain tax positions at March 31, 2021 and December 31, 2020.

The Company adopted ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , on January 1, 2021.

ASU 2019-12 is intended to simplify various aspects related to managerial accounting for income taxes.

The adoption had no material impact on the Company's consolidated financial statements.

The Company accounts for leases following ASU 2016-02, Leases (Topic 842) ("Topic 842").

As a result of the Realty Acquisition (see Note 7 for additional information), nine leases previously included in the operating lease asset and liabilities balance were eliminated during consolidation.

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

As of March 31, 2021, the balances for operating lease assets were $ 15,993,197 and liabilities were $ 16,096,714 .

As of December 31, 2020, the balances for operating lease assets were $ 931,630 and liabilities were $ 931,630 .

See Note 12 for additional information.

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.

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.

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

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

There is no anti-dilutive effect for the three month periods ended March 31, 2021 and 2020.

Fair Value of Financial Instruments

The Company follows the provisions of ASC Topic 820 (“ASC 820”), Fair Value Measurements and Disclosures .

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:

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

Net amounts received or paid under the interest rate swap contracts are recognized as an increase or

decrease to interest expense when such amounts are incurred.

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

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

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Concentration risk

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

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

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

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

There were no receivables from any one customer representing more than 10% of the Company’s consolidated gross accounts receivable at March 31, 2021 and December 31, 2020.

For the three months ended March 31, 2021 and 2020, no supplier accounted for more than 10 % of the total cost of revenue.

As of March 31, 2021, there were two suppliers that accounted for 24 % and 11 % of total outstanding advance payments, and no supplier that accounted for advance payments to related parties.

As of December 31, 2020, two suppliers accounted for 22 % and 18 % of total outstanding advance payments, and one supplier accounted for 96 % of advance payments to related parties, respectively.

Recent Accounting Pronouncements

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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 September 30,

As of March 31,

2021 As of December 31,

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Movement of allowance for doubtful accounts is as follows:

For the Nine Months Ended

September 30,

2020 September 30,

For the Three Months Ended

2021 March 31,

Beginning balance $ 909,182 $ 623,970

Provision for doubtful accounts 2,024,471 ( 50,090 )

Increase (decrease) in provision for doubtful accounts ( 82,551 ) 231,274

write off/ (recovery) 3,675 ( 35,437 )

Ending balance $ 830,306 $ 819,807

NOTE 4 - NOTES RECEIVABLE

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

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

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

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

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

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

On September 30, 2019, the Company and Mr.

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

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

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

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

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

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

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

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

NOTE 4 - LONG-TERM INVESTMENTS

Long-term investments consisted of the following:

Ownership as of September 30,

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

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

Ownership as of March 31,

2021 As of March 31, 2021 As of December 31, 2020

Asahi Food, Inc.

49 % $ 607,364 $ 577,164

Long-term investments $ 2,361,888 $ 2,296,276

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

Total $ 2,407,364 $ 2,377,164

The investment in Pt.

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

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

The Company believes there was no impairment as of March 31, 2021 and December 31, 2020 for these investments.

NOTE 5 - PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

As of September 30,

As of March 31,

2021 As of December 31,

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See Note 7 for additional information.

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

Depreciation expense was $ 1,526,691 and $ 1,651,505 for the three month periods ended March 31, 2021 and 2020, respectively .

NOTE 6 - BUSINESS COMBINATION WITH B&R GLOBAL

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

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

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

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

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

Cash $ 7,017,467

Accounts receivable, net 30,934,831

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

Total 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

Total tangible liabilities assumed 148,288,538

Net tangible liabilities assumed ( 15,565,854 )

Identifiable intangible assets 188,503,000

Goodwill 406,703,348

Intangible assets acquired 595,206,348

Noncontrolling interests 2,941,000

Total consideration $ 576,699,494

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

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

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

For the three months ended September 30,

2020 For the nine months ended September 30,

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

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

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

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

Statutory rates were used to calculate income taxes.

For the three months ended September 30,

2019 For the nine months ended September 30,

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

Pro forma net income $ 1,931,220 (1) $ 6,516,015 (1)

Pro forma net income attributable to HF Group $ 1,531,202 (1) $ 5,580,237 (1)

Pro forma earnings per common share - basic and diluted $ 0.03 $ 0.11

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

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

NOTE 7 - 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.

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.

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Impairment loss — — —

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

Balance at March 31, 2021 $ — $ 68,511,941 $ 68,511,941

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

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The Company determined that the B&R Global reporting unit was very sensitive to these declines and that it was more likely than not that an impairment may exist.

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

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

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.

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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.

Volatility had primarily been due to concerns about demand for food distribution services, as restaurant activity in much of the country had 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.

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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.

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

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

The company will complete its annual impairment test in the fourth quarter of fiscal 2020.

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 March 31, 2021.

Acquired Intangible Assets

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The components of the intangible assets are as follows:

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

As of March 31, 2021 As of December 31, 2020

Amount Accumulated

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Total $ 188,503,000 $ ( 15,427,925 ) $ 173,075,075 $ 188,503,000 $ ( 12,705,350 ) $ 175,797,650

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

COVID-19 has had an adverse impact on the Company’s customers, which was a triggering event, the Company performed interim long-lived asset quantitative impairment tests as of March 31, 2021.

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

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

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

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

As such, no impairment was recorded for the finite lived assets as of March 31, 2021.

HF Group’s amortization expense for intangible assets was $ 2,722,575 and $ 2,722,575 for the three month periods ended March 31, 2021 and March 31, 2020, respectively.

Estimated future amortization expense for intangible assets is presented below:

Twelve months ending September 30, Amount

Twelve months ending March 31, Amount

2022 $ 10,890,300

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

The Company has existing term loans as of September 30, 2020 of approximately $ 73.5 million which was pegged to a floating rate of 1-month LIBOR plus 1.875 % per annum, as well as a revolving line of credit with an outstanding balance of $ 25.2 million as of September 30, 2020 that was pegged to 1-month LIBOR plus 1.375 % per annum.

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

On March 3, 2021, the Company unwound 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 Sept 30, 2020 and December 31, 2019, the Company has determined that the fair value of the interest rate swap obligations was $ 1,357,434 and $ 73,158 , respectively.

As of March 31, 2021 and December 31, 2020, the Company has determined that the fair value of the interest rate swap obligations was $ 281,223 and $ 993,516 , respectively.

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

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

NOTE 11 - LINES OF CREDIT

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

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

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

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

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

On April 18, 2019, this $ 5,156,018 obligation was repaid in full with proceeds from the Credit Agreement with East West Bank entered into on April 18, 2019, as described below.

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

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

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

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

The principal and all accrued unpaid interest were originally due in January 2018 and subsequently extended to February 2020.

Interest was based on the LIBOR rate plus 2.75 %.

On April 18, 2019, this $ 954,984 obligation was paid off in full with proceeds from the Credit Agreement with East West Bank entered into on April 18, 2019, as described below.

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

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

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

The original maturity of the line of credit was August 18, 2021.

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

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

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

to maintain certain financial ratios.

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

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

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

(“JP Morgan”).

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

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

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

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

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

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

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

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

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

The outstanding principal balance on the line of credit as of September 30, 2020 was $ 25.2 million.

NOTE 10 - LINE OF CREDIT

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").

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 March 31, 2021, the Company was in compliance with the covenants under the Second Amended Credit Agreement.

The outstanding principal balance on the line of credit as of March 31, 2021 was $ 16.4 million.

NOTE 11 - LONG-TERM DEBT

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

Bank name Maturity Interest rate as of September 30,

2020 As of September 30,

Long-term debt at March 31, 2021 and December 31, 2020 is as follows:

Bank name Maturity Interest rate as of March 31,

2021 As of March 31,

2021 As of December 31,

East West Bank – (a) August 2027 - September 2029 3.83 % — 4.25 % $ 6,866,540 $ 6,989,016

Capital Bank – (b) October 2027 3.85 % 4,822,768 4,967,075

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

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

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

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

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

Bank of America – (a) April 2021 - December 2029 3.73 % — 5.51 % $ 5,903,576 $ 5,905,472

BMO Harris Bank N.A.

– (b) April 2022 - January 2024 5.87 % —% 5.99 % 239,334 280,164

East West Bank – (c) August 2027 - September 2029 3.83 % — 4.25 % 6,752,747 6,802,271

First Horizon Bank – (d) October 2027 3.85 % 4,722,997 4,773,378

Morgan Chase – (e) February 2023 - January 2030 1.99 % — 2.12 % 73,745,065 74,687,806

Peoples United Bank – (b) December 2022 - January 2023 6.69 % — 7.53 % 642,965 725,282

Other finance institutions – (b) July 2022 - March 2024 3.90 % — 6.14 % 430,750 475,689

Total debt 92,437,434 93,650,062

2 unchanged sentences

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

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

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

As of March 31, 2021 and December 31, 2020, the Company was in compliance.

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

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

(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 payment of $ 3,007,239 is due in 2029.

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

(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 .

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

Balloon payment is $ 1,382,046 .

(d) Real estate term loan with a principal balance of $ 73,510,296 as of September 30, 2020 is secured by assets held by nine subsidiaries of the Company, AK, BRR, BSR, FL, GSR, HP, LF, LR, and MP.

Equipment term loan with a principal balance of $ 2,120,252 as of September 30, 2020 is secured by specific vehicles and equipment as defined in loan agreements.

(e) Secured by vehicles.

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

Twelve months ending September 30, Amount

(e) Real estate term loan with a principal balance of $ 72,012,901 as of March 31, 2021 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 $ 1,732,164 as of March 31, 2021 is secured by specific vehicles and equipment as defined in loan agreements.

The future maturities of long-term debt as of March 31, 2021 are as follows:

Twelve months ending March 31, Amount

2022 $ 5,898,994

6 unchanged sentences

NOTE 12 - 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 leases office space, warehouses and vacant land for building development under non-cancelable operating leases, with terms typically ranging from one to thirty years , as well as operating and finance leases for vehicles and delivery trucks, forklifts and computer equipment with various expiration dates through 2050.

The Company determines whether an arrangement is or includes an embedded lease at contract inception.

4 unchanged sentences

The components of lease expense were as follows:

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

For the Three Months Ended

2021 March 31,

Operating lease cost $ 572,135 $ 503,057

5 unchanged sentences

The components of lease expense were as follows:

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

For the Three Months Ended

2021 March 31,

Finance leases cost:

3 unchanged sentences

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

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

For the Three Months Ended

2021 March 31,

Operating cash flows from finance leases $ 20,625 $ 27,903

Supplemental balance sheet information related to leases was as follows:

September 30,

2021 December 31,

8 unchanged sentences

Maturities of lease liabilities were as follows:

Twelve months ending September 30, Operating

Twelve months ending March 31, Operating

Leases Finance

4 unchanged sentences

2026 723,859 —

Thereafter 17,466,321 —

Total Lease Payments 21,849,272 1,198,996

2 unchanged sentences

On July 2, 2018, AnHeart Inc.

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

("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 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.

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 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.

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.

3 unchanged sentences

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.

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

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

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 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.

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.

NOTE 13 - SUPPLEMENTAL CASH FLOWS INFORMATION

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

For the Nine Months Ended

September 30,

2020 September 30,

For the Three Months Ended

2021 March 31,

Supplemental disclosure of cash flow data

2 unchanged sentences

Supplemental disclosure of non-cash investing and financing activities

Right of use assets obtained in exchange for operating lease liabilities $ 15,318,231 $ —

Property and equipment purchases from notes payable $ 257,450 $ 1,633,614

7 unchanged sentences

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 three and nine months ended September 30, 2020 and 2019 consists of the following :

For the Three Months Ended For the Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

(i) The provision for income taxes of the Company for the three months ended March 31, 2021 and 2020 consists of the following :

For the Three Months Ended

2021 March 31,

Current income taxes:

8 unchanged sentences

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

As of September 30,

As of March 31,

2021 As of December 31,

13 unchanged sentences

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

As of September 30,

As of March 31,

2021 As of December 31,

3 unchanged sentences

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

For the Nine Months Ended

September 30,

2020 September 30,

For the Three Months Ended

2021 March 31,

Federal statutory tax rate 21.0 % 21.0 %

1 unchanged sentence

Impact of goodwill impairment loss - permanent difference — % ( 20.8 ) %

permanent difference 0.1 % — %

Others 1.7 % — %

1 unchanged sentence

NOTE 15 - RELATED PARTY TRANSACTIONS

The Company records transactions with various related parties.

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

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 and major shareholders.

Certain related party transactions described in this note 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.

Zhou Min Ni and Mr.

Xiao Mou Zhang were the Co-Chief Executive Officers as of December 31, 2020.

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 of the Company.

Xiao Mou Zhang became the sole Chief Executive Officer on February 23, 2021.

Ni and his immediate family members are treated as related parties for purposes of this report because Mr.

Ni continued as an officer and director of the Company during a substantial portion of the three month period ending March 31, 2021 and Mr.

Ni is a holder of more than 10 % of the Company's securities.

The related party transactions as of March 31, 2021 and December 31, 2020 and for the three month periods ended March 31, 2021 and 2020 are identified as follows:

Related Party Sales and Purchases Transactions

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

The Company makes regular sales to and purchases from various related parties.

Purchase - related parties

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

Below is a summary of purchases of goods and services from related parties recorded for the three months ended March 31, 2021 and 2020, respectively:

Name of Related Party Three Months Ended

September 30, 2020 Three Months Ended

September 30, 2019

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

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

(d) Enson Seafood GA, Inc.

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

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

(f) Fujian RongFeng Plastic Co., Ltd.

753,997 1,337,292

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

(h) N&F Logistic, Inc.

(i) North Carolina Good Taste Noodle, Inc.

1,039,162 1,127,902

(j) Ocean Pacific Seafood Group Inc.

150,035 77,957

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

(l) UGO USA, Inc.

208,333 191,944

(m) Union Foods, LLC — 941,057

Others 129,741 8,655

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

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

(b) Tina Ni, one of Mr.

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

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

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

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

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

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

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

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

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

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

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

(k) Raymond Ni, one of Mr.

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

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

(m) Tina Ni, one of Mr.

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

Anthony Zhang, one of Mr.

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

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

Name of Related Party Nine Months Ended

September 30, 2020 Nine Months Ended

September 30, 2019

March 31, 2021 Three Months Ended

March 31, 2020

(a) Allstate Trading Company, Inc.

1 unchanged sentence

(b) Best Food Services, LLC 990,459 2,099,563

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

(e) Enson Seafood GA, Inc.

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

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

(g) Fujian RongFeng Plastic Co., Ltd.

(d) First Choice Seafood, Inc.

83,121 336,739

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

(i) N&F Logistic, Inc.

(e) Fujian RongFeng Plastic Co., Ltd 799,917 1,020,353

(f) Hanfeng (Fujian) Information Technology Co., Ltd.

270,328 712,025

(j) North Carolina Good Taste Noodle, Inc.

(g) N&F Logistics, Inc.

2,646 361,914

(k) Ocean Pacific Seafood Group Inc.

(h) North Carolina Good Taste Noodle, Inc.

(i) Ocean Pacific Seafood Group, Inc.

130,578 181,032

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

(m) UGO USA, Inc.

Tamron Akuatik Produk Industri — 1,012,588

(k) Revolution Industry, LLC 259,257 503,792

(l) UGO USA, Inc.

241,640 187,389

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

(m) Union Foods, LLC — 1,083,904

(n) Winfar Foods, Inc.

Others 130,883 63,039

Total $ 4,599,044 $ 10,492,252

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

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

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

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

Xiao Mou Zhang owned 10.38 % equity interest in this entity indirectly through its parent company as of October 31, 2020.

Zhang's children own 10.38 % equity interest in this entity indirectly from November 1, 2020.

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

3 unchanged sentences

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

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

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

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

Jian Ming Ni, former Chief Financial Officer owns 29 % equity interest in this entity.

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

Mr Zhou Min Ni's equity interest was disposed of on January 1, 2020.Purchase amount disclosed for the three months ended March 31, 2020 was for information purpose.

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

(l) Raymond Ni, one of Mr.

(j) B&R Global has 12 % equity interest in this entity.

Entity is not considered as a related party due to lack of control.

Purchase amount disclosed for the three months ended March 31, 2020 for information purpose.

(k) Raymond Ni, one of Mr.

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

On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment from Revolution Industry, LLC.

Han Feng 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 original wholesale purchase 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.

Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with Revolution Industry, LLC.

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

(n) Tina Ni, one of Mr.

(m) Tina Ni, one of Mr.

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

1 unchanged sentence

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

Xiao Mou Zhang owns 5.2 % equity interest in this entity indirectly through its parent company.

Sales - related parties

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

Below is a summary of sales to related parties recorded for the three months ended March 31, 2021 and 2020, respectively:

Name of Related Party Three Months Ended

September 30, 2020 Three Months Ended

September 30, 2019

March 31, 2021 Three Months Ended

March 31, 2020

(a) ABC Food Trading, LLC $ 713,906 $ 879,153

(b) Asahi Food, Inc.

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

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

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

(g) Enson Seafood GA, Inc.

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

(h) Fortune One Foods, Inc.

117,755 117,805

(i) Heng Feng Food Service, Inc.

113,546 352,000

(j) N&F Logistic, Inc.

293,100 523,807

(k) UGO USA, Inc.

15,440 16,500

Others 3,000 11,892

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

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

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

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

(d) Tina Ni, one of Mr.

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

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

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

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

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

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

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

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

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

Name of Related Party Nine Months Ended

September 30, 2020 Nine Months Ended

September 30, 2019

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

(b) Asahi Food, Inc.

1 unchanged sentence

(e) Eastern Fresh NJ, LLC 23,193 941,473

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

(g) Enson Philadelphia, Inc.

125,684 117,595

(h) Enson Seafood GA, Inc.

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

(i) First Choice Seafood, Inc.

(j) Fortune one Foods, Inc.

(f) Enson Group, Inc.

(formerly "Enson Group, LLC") 26,512 148,873

(g) First Choice Seafood, Inc.

74,530 232,224

(k) Heng Feng Food Service, Inc.

(h) Fortune One Foods, Inc.

92,467 150,091

(l) N&F Logistic, Inc.

(i) Heng Feng Food Services, Inc.

39,976 371,481

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

(n) UGO USA, Inc.

(j) N&F Logistics, Inc.

206,666 381,027

1 unchanged sentence

Total $ 2,390,461 $ 5,163,322

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

Xiao Mou Zhang owned 10.38 % equity interest in this entity indirectly through its parent company as of October 31, 2020.

Zhang's children own 10.38 % equity interest in this entity indirectly from November 1, 2020.

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

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

Xiao Mou Zhang owned 10.38 % equity interest in this entity indirectly through its parent company as of October 31, 2020.

Zhang's children own 10.38 % equity interest in this entity indirectly from November 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.

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

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

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

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

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

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

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

Lease Agreements - Related Parties

The Company leases various facilities to related parties.

R&N Holdings leases a facility to UGO USA Inc.

under an operating lease agreement expiring in 2022.

Rental income for the three months ended March 31, 2021 and 2020 was $ 10,500 and $ 10,500 , respectively.

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 for the three months ended March 31, 2021 and 2020 was $ 120,000 and $ 120,000 , 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 three months ended March 31, 2021 and 2020 was $ 6,000 and $ 9,000 , respectively.

The lease agreement was terminated as a result of the asset purchase agreement executed on February 25, 2021.

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

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

In 2020, Kirnland renewed a warehouse lease from Yoan Chang Trading, Inc.

("Yoan") under an operating lease agreement expiring on December 31, 2020.

In February 2021, Kirnland executed a new 5 -year operating lease agreement with Yoan effective January 1, 2021 and expiring on December 31, 2025.

Rent incurred to the related party was $ 70,485 and $ 30,000 for the three months ended March 31, 2021 and 2020, respectively.

Related Party Balances

Accounts receivable - related parties, net

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

Name of Related Party As of September 30,

Below is a summary of accounts receivable with related parties recorded as of March 31, 2021 and December 31, 2020, respectively:

Name of Related Party As of March 31,

2021 As of December 31,

2 unchanged sentences

110,253 68,766

(d) Eastern Fresh NJ, LLC — 1,511,075

(e) Enson Group, LLC — 341,200

(d) Eagle Food Service, LLC 333,535 697,538

(e) Eastern Fresh NJ, LLC 24,693 —

(f) Enson Seafood GA, Inc.

(formerly “GA-GW Seafood, Inc.”) 128,631 325,596

(g) Heng Feng Food Service, Inc.

(h) N&F Logistic, Inc.

(g) Fortune One Foods, Inc.

14,275 36,250

(h) Heng Feng Food Services, Inc.

(i) N&F Logistics, Inc.

90,109 113,247

Others 17,543 5,110

Total $ 1,162,466 $ 1,266,573

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

Xiao Mou Zhang owned 10.38 % equity interest in this entity indirectly through its parent company as of October 31, 2020.

Zhang's children own 10.38 % equity interest in this entity indirectly from November 1, 2020..

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

Xiao Mou Zhang owned 10.38 % equity interest in this entity indirectly through its parent company as of October 31, 2020.

Zhang's children own 10.38 % equity interest in this entity indirectly from November 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.

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

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

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

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

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

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

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

No allowance is deemed necessary as of March 31, 2021 and December 31, 2020.

Accounts payable - related parties, net

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

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

Name of Related Party As of September 30,

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 March 31, 2021 and December 31, 2020, respectively:

Name of Related Party As of March 31,

2021 As of December 31,

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(b) Eastern Fresh NJ, LLC 550,750 427,795

(formerly "Enson Group, LLC") 51,783 25,368

(d) Fujian RongFeng Plastic Co., Ltd 352,818 69,429

(e) Golden Poultry, LLC — 248,901

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

445,751 166,971

(g) North Carolina Good Taste Noodle, Inc.

781,752 992,353

(h) UGO USA, Inc.

(e) Hanfeng (Fujian) Information Technology Co., Ltd.

(f) Hanfeng Information Technology (Jinhua), Inc.

(g) Heng Feng Food Services, Inc.

(h) Revolution Industry, LLC 129,257 —

(i) UGO USA, Inc.

75,616 211,003

1 unchanged sentence

Total $ 1,472,541 $ 1,783,861

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

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

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

Xiao Mou Zhang owned 10.38 % equity interest in this entity indirectly through its parent company as of October 31, 2020.

Zhang's children own 10.38 % equity interest in this entity indirectly from November 1, 2020.

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

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

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

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

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

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

Xiao Mou Zhang's family member.

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

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

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

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

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

(h) Raymond Ni, one of Mr.

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

On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment from Revolution Industry, LLC.

Advances due from Revolution at the time of transaction were an offset to the purchase payment made to Revolution.

Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with Revolution Industry, LLC.

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

Advances to suppliers - related parties, net

The Company periodically provides purchase advances to various vendors, including the related party suppliers.

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

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

Name of Related Party As of September 30,

Below is a summary of advances to related party suppliers recorded as of March 31, 2021 and December 31, 2020, respectively:

Name of Related Party As of March 31,

2021 As of December 31,

(a) Ocean Pacific Seafood Group, Inc.

$ 7,506 $ 223,303

(b) Revolution Industry, LLC — 189,702

Total $ — $ 196,803

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

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.

Advances from customers - related parties, net

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

These advances are interest free and due upon demand.

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

Subordinated debt - related parties

On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment from Revolution Industry, LLC.

Advances due from Revolution at the time of transaction were an offset to the purchase payment made to Revolution.

Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with Revolution Industry, LLC.

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.

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

Security deposit - related parties

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

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

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

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

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

Lease Agreements with Related Parties

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

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

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

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

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

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

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

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

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

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

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

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

Rent incurred to the related party was $ 30,000 and $ 30,000 for the three months ended September 30, 2020 and 2019, respectively, and $ 90,000 and $ 90,000 for the nine months ended September 30, 2020 and 2019, respectively.

Notes Receivable from Related Parties

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

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

At March 31, 2021, outstanding balance was $ 6.5 million and accrued interest payable was nil .

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.

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.

Pursuant to the Loan Sale Agreement, all notes receivable from Enson Seafood GA Inc, Han Feng Global, Inc.

dba NSG Interntional Inc., and Revolution Automotive LLC, with 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.

5 unchanged sentences

Ni is considered fully settled.

The Company has retired all treasury stock in October 2020.

NOTE 16 - SEGMENT REPORTING

2 unchanged sentences

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

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

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

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

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

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

For the Three Months Ended For the Nine Months Ended

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

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

B&R Global 81,539,397 — 258,348,564 —

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

On February 23, 2021, former co-CEO Zhou Min Ni resigned and Xiao Mou Zhang assumed the role of sole CEO.

As a result, the Company reassessed its performance evaluation process and determined two relevant reporting segments - sales to independent restaurants and wholesale.

Frequency, volume and profit margins are uniquely different between the two reporting segments.

Segment reporting for the three months ended March 31, 2020 were re-presented below.

All the Company's revenue was generated from its business operation in the U.S.

The following table presents net sales by segment for the three month periods ended March 31, 2021 and 2020, respectively:

For the Three Months Ended

March 31, 2021 March 31, 2020

Sales to independent restaurants $ 153,555,563 $ 167,271,935

Wholesales 5,826,265 8,531,401

Total $ 159,381,828 $ 175,803,336

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

For the Three Months Ended September 30, 2020

HF B&R Global Total

Revenue $ 58,379,545 $ 81,539,397 $ 139,918,942

Cost of revenue $ 47,253,270 $ 67,502,814 $ 114,756,084

Gross profit $ 11,126,275 $ 14,036,583 $ 25,162,858

Depreciation and amortization $ 760,706 $ 3,708,936 $ 4,469,642

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

For the Three Months Ended September 30, 2019

HF B&R Global Total

Revenue $ 75,698,877 $ — $ 75,698,877

Cost of revenue $ 63,506,729 $ — $ 63,506,729

Gross profit $ 12,192,148 $ — $ 12,192,148

Depreciation and amortization $ 738,904 $ — $ 738,904

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

For the Nine Months Ended September 30, 2020

HF B&R Global Total

For the Three Months Ended March 31, 2021

Sales to independent restaurants Wholesales Total

Revenue $ 153,555,563 $ 5,826,265 $ 159,381,828

2 unchanged sentences

Depreciation and amortization $ 4,388,281 $ 166,502 $ 4,554,783

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

For the Nine Months Ended September 30, 2019

HF B&R Global Total

Cash capital expenditures $ 431,790 $ 16,383 $ 448,173

For the Three Months Ended March 31, 2020

Sales to independent restaurants Wholesales Total

Revenue $ 167,271,935 $ 8,531,401 $ 175,803,336

2 unchanged sentences

Depreciation and amortization $ 4,306,625 $ 219,652 $ 4,526,277

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

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

As of September 30,

Cash capital expenditures $ 152,475 $ 7,777 $ 160,252

The following table presents total assets by reportable segment as of March 31, 2021 and December 31, 2020, respectively:

As of March 31,

2021 As of December 31,

Total assets:

HF $ 59,948,040 $ 80,514,529

B&R Global 429,940,974 722,329,265

Sales to independent restaurants $ 482,493,622 $ 460,783,650

Wholesales 18,306,961 23,501,433

Total Assets $ 500,800,583 $ 484,285,083

1 unchanged sentence

NOTE 17 - COMMITMENT AND CONTINGENCIES

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

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

the allegations.

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

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

These allegations all have been denied.

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

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

On March 29, 2020, plaintiff Jesus Mendoza (“Mendoza”) filed a putative shareholder securities class action lawsuit (the Class Action Lawsuit”) in the United States District Court for the Central District of California against the Company and certain of its present and former officers (collectively, the “Class Action Defendants”) for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 styled Mendoza v.

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

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

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

HF Foods Group Inc., et al.

, Civil Action No.

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

The Ponce-Sanchez Lawsuit has now been consolidated with the Class Action Lawsuit and 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 putative class period from August 23, 2018 through March 23, 2020 at allegedly inflated prices and purportedly suffered financial harm as a result.

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

Yee as lead plaintiff and approved Mr.

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

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

The Class Action Lawsuit does not quantify any alleged damages.

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

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

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

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

The complaint in the Mendoza Derivative Lawsuit is based largely on the same allegations as set forth in the Class Action Lawsuit discussed above and alleges violations of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties , unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets.

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

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

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

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

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

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

Zhou Min Ni, et al.

, Civil Action No.

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

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

The Bishop Lawsuit does not quantify any alleged damages.

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

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

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

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

On October 20, 2020, Mr.

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

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

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

This case remains in early procedural posture.

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

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

From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business.

When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure.

In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated.

Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability.

If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material.

The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available.

With respect to our outstanding legal matters, we believe that the amount or estimable range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.

However, the outcome of litigation is inherently uncertain.

Therefore, if one or more of these ordinary-course legal matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period, could be materially adversely affected.

Beginning on March 29, 2020, two putative class actions and two derivative actions were filed against us, our directors, and/or certain of our officers alleging violation of securities laws or breach of fiduciary duties in connection with allegations that we 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, These cases seek unspecified damages and other forms of relief.

We intend to continue to vigorously defend these lawsuits.

These cases now are all pending in the U.S.

District Court for the Central District of California.

A motion to dismiss the amended securities fraud complaint was filed on January 19, 2021, which is pending.

The derivative actions are stayed pending the outcome of that motion to dismiss.

In addition, the events alleged in the lawsuits became the subject of an investigation by the Securities and Exchange Commission, with which we are cooperating.

There have been no changes to the status of these proceedings as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

NOTE 18 - SUBSEQUENT EVENTS

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

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

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

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

The Company evaluated subsequent events through May 10, 2021, which is the date the financial statements were available to be issued.

CAUTIONARY NOTE ABOUT FORWARD LOOKING STATEMENTS

16 unchanged sentences

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

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

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

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

• Our ability to attract, train and retain employees;

21 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements