What changed in this filing

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Item 1. Financial Statements

2021-11-15 compared with 2021-08-09 · 483 added, 343 removed, 920 unchanged (47% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2021 December 31,

2 unchanged sentences

Accounts receivable, net 34,103,832 24,857,322

Accounts receivable - related parties, net 1,921,415 1,261,463

Inventories, net 64,061,582 58,535,040

Advances to suppliers - related parties, net — 196,803

Accounts receivable - related parties 954,230 1,261,463

Inventories 77,239,478 58,535,040

Advances to suppliers - related parties — 196,803

Other current assets 2,640,233 4,614,164

5 unchanged sentences

Goodwill 68,511,941 68,511,941

Deferred tax assets 59,079 57,478

Other long-term assets 1,145,167 694,490

11 unchanged sentences

TOTAL CURRENT LIABILITIES 97,804,292 76,701,776

Long-term debt, net 85,142,465 88,008,803

Long-term debt, net of current portion 83,708,244 88,008,803

Promissory note payable - related party 5,000,000 7,000,000

4 unchanged sentences

SHAREHOLDERS’ EQUITY

Preferred Stock, $ 0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

Common Stock, $ 0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

Preferred Stock, $ 0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Common Stock, $ 0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 583,928,639 587,579,093

Accumulated deficit ( 314,179,103 ) ( 327,150,398 )

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

TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.

269,754,727 260,433,886

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2021 2020 2021 2020

7 unchanged sentences

Distribution, selling and administrative expenses 30,972,019 25,050,419 89,003,273 79,549,580

Goodwill impairment loss — — — 338,191,407

TOTAL OPERATING EXPENSES 30,972,019 25,050,419 89,003,273 417,740,987

INCOME (LOSS) FROM OPERATIONS 10,939,949 112,439 17,472,590 ( 342,990,300 )

2 unchanged sentences

Interest expense ( 703,845 ) ( 840,851 ) ( 2,155,328 ) ( 3,116,739 )

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

Other income 558,138 270,452 1,470,887 940,832

4 unchanged sentences

NET INCOME (LOSS) 8,209,112 ( 396,939 ) 13,537,350 ( 344,397,661 )

net income (loss) attributable to non-controlling interests ( 91,557 ) ( 255,287 ) 208,710 ( 57,877 )

net income attributable to non-controlling interests 357,345 226,865 566,055 168,988

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

1 unchanged sentence

Earnings (loss) per common share - basic and diluted $ 0.15 $ ( 0.01 ) $ 0.25 $ ( 6.61 )

Weighted average shares - basic and diluted 51,913,411 52,145,096 51,913,411 52,145,096

Weighted average shares - basic 51,913,411 52,145,096 51,913,411 52,145,096

Weighted average shares - diluted 51,932,712 52,145,096 51,919,932 52,145,096

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

14 unchanged sentences

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 income — — — — 3,596,596 3,596,596 ( 91,557 ) 3,505,039

Net income (loss) — — — — — 3,596,596 3,596,596 ( 91,557 ) 3,505,039

Acquisition of non-controlling interest — — — — ( 3,855,887 ) — ( 3,855,887 ) ( 1,144,113 ) ( 5,000,000 )

1 unchanged sentence

Balance at June 30, 2021 51,913,411 5,191 — — 583,723,206 ( 322,030,870 ) 261,697,527 3,281,594 264,979,121

Net income — — — — — 7,851,767 7,851,767 357,345 8,209,112

Distribution to shareholders — — — — — — — ( 61,750 ) ( 61,750 )

Stock-based compensation — — — — 205,433 — 205,433 — 205,433

Balance at September 30, 2021 51,913,411 $ 5,191 — $ — $ 583,928,639 $ ( 314,179,103 ) $ 269,754,727 $ 3,577,189 $ 273,331,916

Balance at January 1, 2020 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

4 unchanged sentences

Balance at June 30, 2020 53,050,211 5,305 ( 905,115 ) ( 12,038,030 ) 599,617,009 ( 328,119,184 ) 259,465,100 4,065,910 263,531,010

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

Balance at September 30, 2020 53,050,211 $ 5,305 ( 905,115 ) $ ( 12,038,030 ) $ 599,617,009 $ ( 328,742,988 ) $ 258,841,296 $ 4,292,775 $ 263,134,071

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 Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from operating activities:

5 unchanged sentences

Allowance for doubtful accounts ( 374,431 ) 2,024,471

Allowance for inventories 66,609 43,496

Deferred tax benefit ( 2,125,690 ) ( 3,172,293 )

1 unchanged sentence

Unrealized change in fair value of interest rate swap contracts ( 652,351 ) 1,284,276

Stock-based compensation 205,433 —

Changes in operating assets and liabilities:

Accounts receivable, net ( 5,428,372 ) 23,751,669

Accounts receivable - related parties, net ( 659,952 ) 3,153,318

Inventories, net ( 5,593,151 ) 10,705,175

Accounts receivable ( 8,872,079 ) 23,306,471

Accounts receivable - related parties 307,233 3,319,539

Inventories ( 18,704,438 ) 15,840,459

Advances to suppliers - related parties 196,803 447,287

Other current assets 1,973,931 ( 294,372 )

Security deposit - related parties — 58,880

Security deposit — 58,880

Other long-term assets ( 475,487 ) ( 3,512 )

13 unchanged sentences

Repayment of bank overdraft — ( 9,403,540 )

Proceeds from line of credit 358,185,458 275,070,371

Repayment of line of credit ( 357,418,298 ) ( 284,450,866 )

Net proceed (repayment) from (of) line of credit 4,642,652 ( 16,158,014 )

Proceeds from long-term debt — 75,600,006

3 unchanged sentences

Cash distribution to shareholders ( 212,300 ) ( 125,000 )

Net cash provided by (used in) financing activities ( 3,830,621 ) 55,732,235

Net cash provided by financing activities 2,247,791 44,584,579

Net increase (decrease) in cash 5,962,324 ( 5,357,972 )

15 unchanged sentences

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

On January 17, 2020, B&R Global acquired all the subsidiaries' equity membership interests under B&R Group Realty Holding, LLC ("BRGR"), which owned warehouse facilities that were being leased to B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.

On January 17, 2020, B&R Global acquired all the equity membership interests of the subsidiaries under B&R Group Realty Holding, LLC ("BRGR"), which owned warehouse facilities that were being leased to B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.

See further transaction details below.

Formation of HF Holding

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.

HF Holding was incorporated in the State of North Carolina on October 11, 2017 as a holding company to acquire and consolidate the various pre-merger 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.

4 unchanged sentences

• R&N Holdings, LLC (“R&N Holdings”)

• R&N Lexington, LLC (“R&N Lexington”)

• R&N Lexington, L.L.C.

(“R&N Lexington”)

• Kirnsway Manufacturing, Inc.

5 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 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.

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

1 unchanged sentence

If the carrying amounts of the assets and liabilities transferred differ from the historical cost of the parent of the entities under common control, then the financial statements of the receiving entity should reflect the transferred assets and liabilities at the historical cost of the parent of the entities under common control.

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

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

Reverse Acquisition of HF Holding

17 unchanged sentences

On May 28, 2021, the Company, through its subsidiary HF Group Holding, purchased the 33.33 % non-controlling interest of the stock in Kirnland from the previous minority shareholder.

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

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

Name Date of Formation /

22 unchanged sentences

Pursuant to the B&R Merger Agreement, the aggregate fair value of the consideration paid by the Company 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.

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

B&R Global was formed in 2014 as a holding company to acquire and consolidate the various related 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.

48 unchanged sentences

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

* On November 4, 2019 and as of June 30, 2021, B&R Global consolidated 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.

* On November 4, 2019 and as of September 30, 2021, B&R Global consolidated FUSO, which is considered as a variable interest entity (“VIE”) under U.S.

GAAP, due to its pecuniary and contractual interest in this entity.

Acquisition of Real Estate Companies

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

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

Consideration for the Realty Acquisition was funded by

(i) $ 75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 10 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.

Before the acquisition of the BRGR Subsidiaries, the CEO of the Company, Xiao Mou Zhang, managed and owned 8.91 % interest in BRGR.

Consideration for the

Realty Acquisition was funded by (i) $ 75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 10 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:

12 unchanged sentences

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

The combined entity, resulting from the merger of B&R Global and HF Group, 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 combined entity, resulting from the merger of B&R Global and HF Group, 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, and 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 support to its customers, who mainly converse in Mandarin or Chinese dialects.

Independent Investigation Update

In March 2020, an analyst report suggested certain improprieties in the Company’s operations.

These allegations became the subject of two putative stockholder class actions filed on or after March 29, 2020 in the United States District Court for the Central District of California generally alleging the Company, and certain of its current and former directors and officers violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements (the “Class Actions”).

After the second putative stockholder class action was filed, the Class Actions were consolidated.

In response to the allegations in the analyst report, the Company's Board of Directors appointed a Special Committee of Independent Directors to conduct an independent investigation with the assistance of counsel (the “Special Committee”).

In addition, the SEC initiated a formal, non-public investigation of the Company, and the SEC informally requested, and later issued a subpoena for, documents and other information.

The subpoena relates to but is not necessarily limited to the matters identified in the Class Actions.

The Special Committee and the Company are cooperating with the SEC.

The SEC and the Special Committee investigations are ongoing.

To date, the Special Committee has reached no final conclusions in conjunction with its investigation.

The investigation is focused primarily on related party transactions that occurred in periods prior to December 31, 2020 with entities that are/were owned by certain former executives and officers (including family members), of the Company, as well as other matters.

It is possible that future findings of the independent investigation could result in a determination that acts occurred, which might impact the Company’s historical consolidated financial statements and/or associated disclosures.

Such impacts could potentially include, but are not limited to, historical misstatement of assets, liabilities, equity and earnings, the evaluation and potential consolidation of variable interest entities into the Company’s consolidated financial statements, the recording of additional compensation expense and related payroll taxes associated with certain of the Company’s former executive officers.

Even if these impacts occur, they may or may not have been material.

As with any SEC investigation, there is also the possibility of potential fines and penalties.

At this time, however, the Special Committee has not made any conclusions about what, if any, conduct occurred and the impact, if any, of that conduct on historical consolidated financial statements.

Please refer to Note 17 – Commitments and Contingencies – for additional information.

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 six month periods ended June 30, 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.

The VIE has been accounted for at historical cost and prepared on the basis as if common control had been established as of the beginning of the first period presented in the accompanying unaudited condensed consolidated financial statements.

Operating results for the three and nine month periods ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

All inter-company balances and transactions have been eliminated upon consolidation.

3 unchanged sentences

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

As of June 30, 2021 and December 31, 2020, FUSO is considered to be a VIE.

As of September 30, 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 $ 369,356 $ 535,709

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2021 2020 2021 2020

Net revenue $ 681,539 $ 531,194 $ 1,882,544 $ 1,612,999

Net income $ 150,584 $ 34,667 $ 176,679 $ 99,445

For the Three Months Ended June 30, For the Six Months Ended June 30,

Net income (loss) $ ( 78,454 ) $ 16,157 $ 98,224 $ 115,602

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2021 2020 2021 2020

5 unchanged sentences

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

On May 28, 2021, the Company, through its subsidiary HF Group Holding, purchased the 33.33 % noncontrolling interest of the stock in Kirnland for $ 5,000,000 .

On May 28, 2021, the Company, through its subsidiary HF Group Holding, purchased the 33.33 % noncontrolling interest of the stock in Kirnland for $ 5,000,000 , making Kirnland a wholly owned subsidiary.

In accordance with ASC 810-10-45-23, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions.

1 unchanged sentence

As a result of this transaction, noncontrolling interests were reduced by $ 1,144,113 and the remaining difference of $ 3,855,887 was charged to additional paid-in capital.

As of June 30, 2021 and December 31, 2020, non-controlling interests consisted of the following:

As of September 30, 2021 and December 31, 2020, non-controlling interests consisted of the following:

Name of Entity Percentage of

Non-controlling

Interest Ownership June 30,

Interest Ownership September 30,

2021 December 31,

Kirnland — % $ — $ 1,384,780

HFFI 40.00 % ( 977 ) —

MIN 39.75 % 1,268,809 889,596

6 unchanged sentences

Actual results could differ from those estimates.

price allocation and fair value of non-controlling 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 months or shorter to be cash equivalents.

As of June 30, 2021 and December 31, 2020, the Company had no cash equivalents, respectively.

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

The Company considers all highly liquid investments purchased with an original maturity of three months or shorter to be cash equivalents.

As of September 30, 2021 and December 31, 2020, the Company had no cash equivalents.

Accounts Receivable, net

5 unchanged sentences

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

As of June 30, 2021 and December 31, 2020, allowances for doubtful accounts were $ 723,918 and $ 909,182 , respectively.

Inventories, net

As of September 30, 2021 and December 31, 2020, allowances for doubtful accounts were $ 349,311 and $ 909,182 , respectively.

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

Inventory costs, including the purchase price of the product and freight charges to deliver it to the Company’s warehouses, are net of certain cash or non-cash consideration received from vendors.

The Company assesses the need for valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory age, specifically identified items, and overall economic conditions.

The Company adjusts its inventory balances for slow-moving, excess and obsolete inventories to their net realizable value based upon inventory category,

inventory age, specifically identified items, and overall economic conditions.

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

As of June 30, 2021 and December 31, 2020, the valuation allowance was $ 232,946 and $ 146,078 , respectively.

Property and Equipment, net

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

The Company tests goodwill for impairment at least annually, in the fourth quarter, or whenever events or changes in circumstances indicate that goodwill might be impaired.

The Company reviews the carrying values of goodwill and identifiable intangibles whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually for goodwill and indefinite lived intangible assets as required by ASC Topic 350 (“ASC 350”), Intangibles — Goodwill and Other .

The Company tests goodwill for impairment at least annually, as of December 31, or whenever events or changes in circumstances indicate that goodwill might be impaired.

The Company reviews the carrying value of goodwill whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually for goodwill and indefinite lived intangible assets as required by ASC Topic 350

(“ASC 350”), Intangibles — Goodwill and Other .

This guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

1 unchanged sentence

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

Intangible assets are carried at cost and amortized on a straight-line basis over their estimated useful lives.

Intangible assets are amortized on a straight-line basis over their estimated useful lives.

The Company determines the appropriate useful life of its intangible assets by measuring the expected cash flows of acquired assets.

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Long-term Investments

The Company’s investments in unconsolidated entities consist of equity investment and investment without readily determinable fair value.

The Company’s investments in unconsolidated entities consist of an equity investment and an investment without readily determinable fair value.

The Company follows ASC Topic 321 (“ASC 321”), Investments – Equity Securities , using the measurement alternative to measure investments in investees that do not have readily determinable fair value and over which the Company does not have significant influence at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.

8 unchanged sentences

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

The Company did no t record any impairment loss on its long-term investments as of June 30, 2021 and December 31, 2020.

The Company did no t record any impairment loss on its long-term investments as of September 30, 2021 and December 31, 2020.

Impairment of Long-lived Assets Other Than Goodwill

The Company assesses its long-lived assets such as property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

The Company assesses its long-lived assets such as property and equipment and intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable.

Factors which may indicate potential impairment include a significant underperformance related to the historical or projected future operating results or a significant negative industry or economic trend.

Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate.

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

The Company did no t record any impairment loss on its long-lived assets as of June 30, 2021 and December 31, 2020.

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 or asset group exceeds their fair value.

The Company did no t record any impairment loss on its long-lived assets other than goodwill as of September 30, 2021 and December 31, 2020.

Revenue Recognition

6 unchanged sentences

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

For the three and six month periods ended June 30, 2021 and 2020, revenue recognized from performance obligations related to prior periods was insignificant.

For the three and nine month periods ended September 30, 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 customers by geographic locations:

For the Three Months Ended For the Six Months Ended

2021 June 30,

2020 June 30,

2021 June 30,

For the Three Months Ended For the Nine Months Ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Arizona $ 13,241,260 $ 8,418,352 $ 36,757,835 $ 25,344,389

9 unchanged sentences

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 $ 4,399,210 and $ 3,526,249 for the six months ended June 30, 2021 and 2020, and $ 2,473,438 and $ 968,016 for the three months ended June 30, 2021 and 2020, respectively.

Shipping and handling costs were $ 7,103,131 and $ 5,167,163 for the nine months ended September 30, 2021 and 2020, and $ 2,703,921 and $ 1,640,914 for the three months ended September 30, 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.

4 unchanged sentences

If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

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

The Company does not believe that there were any uncertain tax positions at June 30, 2021 and December 31, 2020.

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, 2021 and December 31, 2020.

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

4 unchanged sentences

As a result of the Realty Acquisition (see Note 6 for additional information), nine leases previously included in the operating lease asset and liabilities balance were eliminated during consolidation.

As of June 30, 2021, the balances for operating lease assets were $ 16,326,011 and liabilities were $ 16,540,991 .

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

See Note 11 for additional information.

As of September 30, 2021, the balances for operating lease assets were $ 2,551,286 and liabilities were $ 2,697,704 .

As of December 31, 2020, the balances for operating lease assets were $ 931,630 and liabilities were $ 931,630 (see Note 11 for additional information).

The Company determines if an arrangement is a lease at inception.

10 unchanged sentences

Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period.

Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later.

Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, warrants and stock based compensation) as if they had been converted at the beginning of the periods presented, or issuance date, if later.

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

There is no anti-dilutive effect for the three and six month periods ended June 30, 2021 and 2020.

There were 6,687 potential common shares that were excluded from the calculation of diluted EPS for the three month period ended September 30, 2021 because their effect would have been anti-dilutive.

There are no anti-dilutive potential common shares for the nine month periods ended September 30, 2021 and 2020, and the three month period ended September 30, 2020.

Fair Value of Financial Instruments

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

The carrying value of long-term debt approximates fair value because of the variability of interest costs associated with these instruments and the consistency in market conditions since the loans were entered into.

Derivative Financial Instrument

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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 June 30, 2021 and December 31, 2020.

For the six months ended June 30, 2021 and 2020, no supplier accounted for more than 10% of the total cost of revenue.

As of June 30, 2021, there were four suppliers that accounted for a combined 53 % of total outstanding advance payments, and no supplier that accounted for advance payments to related parties.

There were no receivables from any one customer representing more than 10% of the Company’s consolidated gross accounts receivable at September 30, 2021 and December 31, 2020.

For the nine months ended September 30, 2021 and 2020, no supplier accounted for more than 10% of the total cost of revenue.

As of September 30, 2021, there were two suppliers that accounted for a combined 33 % of total outstanding advance payments.

As of December 31, 2020, two suppliers accounted for a combined 40 % of total outstanding advance payments, and one supplier accounted for 96 % of advance payments to related parties, respectively.

Reclassifications

Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation.

These reclassifications have no impact on previously reported net loss.

Immaterial Revision to Prior Period Financial Statements

During the three months ended September 30, 2021, the Company identified errors in its accounting for the January 21, 2021 lease described in Note 10 as the 273 Lease Agreement.

In its original accounting, the Company concluded that the lease was an operating lease and used an incorrect discount rate to calculate the Right of Use Asset and Obligation under operating lease balances.

The Company subsequently changed the discount rate on the lease and classified the lease as a finance lease as the present value of the future cash flows associated with the lease exceeded substantially all of the fair value of the property.

The Company adjusted the balances associated with the lease from Operating Lease Right-of-Use Assets to Property and Equipment and from Obligations Under Operating Leases to Obligations Under Finance Leases.

The revision to the March 31, 2021 and June 30, 2021 condensed consolidated balance sheets, condensed consolidated statements of operations and condensed consolidated statement of cash flows were as follows:

• The Operating lease right of use asset was reduced by $ 13,675,884 from $ 15,993,197 to $ 2,317,313 as of March 31, 2021 and reduced by $ 13,582,834 from $ 16,326,011 to $ 2,743,177 as of June 30, 2021.

• Property and equipment, net was increased by $ 7,770,225 from $ 136,043,983 to $ 143,814,208 as of March 31, 2021 and increased by $ 7,698,938 from $ 134,755,748 to $ 142,454,686 as of June 30, 2021.

• The impact to total assets was a reduction of $ 5,905,659 from $ 500,800,583 to $ 494,894,924 as of March 31, 2021 and a reduction of $ 5,883,896 from $ 507,220,995 to $ 501,337,099 as of June 30, 2021.

• The impact to the current portion of obligations under finance lease and current portion of obligations under operating lease are insignificant as of March 31, 2021 and June 30, 2021.

• Obligations under finance lease, non-current was an increase of $ 7,834,773 from $ 703,648 to $ 8,538,421 as of March 31, 2021 and an increase of $ 7,860,634 from $ 630,774 to $ 8,491,408 as of June 30, 2021.

• Obligations under operating lease, non-current was a reduction of $ 13,764,121 from $ 15,459,667 to $ 1,695,546 as of March 31, 2021 and a reduction of $ 13,745,066 from $ 15,930,735 to $ 2,185,669 as of June 30, 2021.

• The impact to total liabilities was a reduction of $ 5,937,684 from $ 234,248,951 to $ 228,311,267 as of March 31, 2021 and a reduction of $ 5,915,347 from $ 242,241,874 to $ 236,326,527 as of June 30, 2021.

• The impact to Net cash provided by operating activities and Net cash provided by financing activities is insignificant as of March 31, 2021 and June 30, 2021.

Revisions were also made to the lease footnote in the condensed consolidated financial statements.

Operating lease costs for the three months ended March 31, 2021, three months ended June 30, 2021 and six months ended June 30, 2021 were revised to $ 410,561 , $ 340,551 , and $ 751,112 , respectively.

The revised weighted average remaining lease term, in months, for operating leases was 48 months and 50 months as of March 31, 2021 and June 30, 2021 respectively.

The revised weighted average discount rate for operating leases as of March 31, 2021 and June 30, 2021 was 2.80 % and 3.15 %, respectively.

Finance lease costs for the three months ended March 31, 2021, three months ended June 30, 2021 and six months ended June 30, 2021 were revised to $ 234,849 , $ 288,599 , and $ 523,448 , respectively.

Gross Property and equipment under finance lease as of March 31, 2021 and June 30, 2021 was revised to $ 10,611,480 with accumulated depreciation being revised to $ 1,966,019 and $ 2,118,289 as of March 31, 2021 and June 30, 2021, respectively.

The weighted average remaining lease term, in months, for finance leases was revised to 295 as of March 31, 2021 and June 30, 2021.

The weighted average discount rate for finance leases was revised to 6.18 % as of March 31, 2021 and June 30, 2021.

Lastly, the revised maturities are as follows:

Operating Leases

Twelve months ending As reported March 31, 2021 As revised March 31, 2021 As reported June 30, 2021 As revised June 30, 2021

2022 $ 999,730 $ 717,230 $ 1,011,964 $ 706,964

2023 985,718 629,468 1,139,353 776,853

2024 856,936 475,686 964,309 576,809

2025 816,708 410,458 987,997 575,497

2026 723,859 292,609 791,576 354,076

Thereafter 17,466,321 — 17,396,355 42,534

Total Lease Payments 21,849,272 2,525,451 22,291,554 3,032,733

Less Imputed Interest ( 5,752,558 ) ( 201,194 ) ( 5,750,563 ) ( 267,723 )

Total $ 16,096,714 $ 2,324,257 $ 16,540,991 $ 2,765,010

Finance Leases

Twelve months ending As reported March 31, 2021 As revised March 31, 2021 As reported June 30, 2021 As revised June 30, 2021

2022 $ 424,308 $ 805,558 $ 336,501 $ 724,001

2023 320,868 739,618 322,569 747,569

2024 288,572 732,322 274,426 724,426

2025 165,248 625,373 96,496 559,996

2026 — 473,929 — 477,405

Thereafter — 16,307,267 — 16,187,916

Total Lease Payments 1,198,996 19,684,067 1,029,992 19,421,313

Less Imputed Interest ( 218,012 ) ( 10,868,310 ) ( 126,570 ) ( 10,657,257 )

Total $ 980,984 $ 8,815,757 $ 903,422 $ 8,764,056

In addition, the Company also identified an error in the classification of the Goodwill impairment loss recorded during the nine months ended September 30, 2020 of $ 338,191,407 and adjusted it from the section Other Income (Expenses) to Total Operating Expenses in the condensed consolidated statements of operations.

The Company has assessed the materiality of these errors considering both the qualitative and quantitative factors and determined that as of and for the year ended December 31, 2020, the three-month period ended March 31, 2021, and the six-month period ended June 30, 2021, the adjustments were not material.

The Company has decided to correct the prior period presentation to provide comparability to the 2020 financial statements.

Corresponding footnotes have been adjusted accordingly.

The adjustments had no impacted on the consolidated statements of income and shareholders’ equity for the periods discussed.

Recent Accounting Pronouncements

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Accounts receivable, net consisted of the following:

As of June 30,

As of September 30,

2021 As of December 31,

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Movement of allowance for doubtful accounts is as follows:

For the Six Months Ended

2021 June 30,

For the Nine Months Ended

September 30,

2021 September 30,

Beginning balance $ 909,182 $ 623,970

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Long-term investments consisted of the following:

Ownership as of June 30,

2021 As of June 30, 2021 As of December 31, 2020

Ownership as of September 30,

2021 As of September 30, 2021 As of December 31, 2020

Asahi Food, Inc.

49 % $ 643,885 $ 577,164

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

Tamron Akuatik Produk Industri ("Tamron") 12 % 1,800,000 1,800,000

Total $ 2,443,885 $ 2,377,164

The investment in Pt.

Tamron Akuatik Produk Industri is accounted for using the measurement alternative under ASC 321, which is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments, if any.

The investment in Tamron is accounted for using the measurement alternative under ASC 321, which is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments, if any.

The investment in Asahi Food, Inc.

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

The Company believes there was no impairment as of June 30, 2021 and December 31, 2020 for these investments.

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

The Company determined there was no impairment as of September 30, 2021 and December 31, 2020 for these investments.

NOTE 5 - PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

As of June 30,

As of September 30,

2021 As of December 31,

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See Note 6 for additional information.

Depreciation expense was $ 3,012,537 and $ 3,264,862 for the six month periods ended June 30, 2021 and 2020, respectively, and $ 1,485,846 and $ 1,607,452 for the three months ended June 30, 2021 and 2020, respectively.

Depreciation expense was $ 4,489,389 and $ 4,870,523 for the nine months ended September 30, 2021 and 2020, respectively, and $ 1,476,852 and $ 1,605,661 for the three months ended September 30, 2021 and 2020, respectively.

NOTE 6 - 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.

Before the acquisition of BRGR Subsidiaries, CEO of the Company, Xiao Mou Zhang, managed and owned an 8.91 % interest in BRGR.

On January 17, 2020, B&R Global acquired 100 % of the equity membership interests of the then 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.

Before the acquisition of BRGR Subsidiaries, the CEO of the Company, Xiao Mou Zhang, managed and owned an 8.91 % interest in BRGR.

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

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

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

Consideration for the acquisition was funded by (i) $ 75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 10 for additional information), (ii) issuance by B&R Global of a $ 7.0 million Unsecured Subordinated Promissory Note to BRGR maturing on January 17, 2030, and (iii) payment of $ 18.7 million from funds drawn from the Company’s revolving credit facility.

The reissuance of the mortgage-backed term loans released BRGR from its

obligations to the lenders under the First Amended Credit Agreement (See Note 10 for additional information) and predecessor financing arrangements.

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

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

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NOTE 7 - GOODWILL AND ACQUIRED INTANGIBLE ASSETS

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

HF B&R Global Total

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

Balance at December 31, 2020 $ 68,511,941

Impairment loss —

Balance at June 30, 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.

Balance at September 30, 2021 $ 68,511,941

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

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

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

The Company's policy is to test goodwill for impairment at least annually, as of December 31, or whenever events or changes in circumstances indicate that goodwill might be impaired.

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

Towards the end of first quarter of fiscal year 2020, the Company experienced a significant decline in business volume due to mandatory stay-at-home orders issued by governmental authorities in response to the intensification of the COVID-19 pandemic.

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

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

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

The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital

("WACC"), future revenue, profitability, perpetual growth rates and fair values of assets and liabilities.

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

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

The Company also observed that the WACC applied on March 31, 2020 increased significantly from the original WACC value as of the acquisition date, mainly driven by the increased risk and

volatility observed in the market.

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 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.

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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.

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 June 30, 2021.

The Company performed a qualitative goodwill impairment assessment and concluded no further impairment is required as of September 30, 2021.

Acquired Intangible Assets

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The components of the intangible assets are as follows:

As of June 30, 2021 As of December 31, 2020

As of September 30, 2021 As of December 31, 2020

Amount Accumulated

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Total $ 188,503,000 $ ( 20,873,075 ) $ 167,629,925 $ 188,503,000 $ ( 12,705,350 ) $ 175,797,650

T he Company performed interim long-lived asset impairment evaluation as of June 30, 2021.

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

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

The Company performed long-lived impairment assessment and concluded no further impairment is required as of June 30, 2021.

HF Group’s amortization expense for intangible assets was $ 2,722,575 and $ 5,445,150 for the three and six month periods respectively ended June 30, 2021 and June 30, 2020, respectively.

The Company performed a qualitative long-lived asset impairment assessment and concluded no further impairment is required as of September 30, 2021.

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, 2021 and September 30, 2020, respectively.

Estimated future amortization expense for intangible assets is presented below:

Twelve months ending June 30, Amount

Twelve months ending September 30, Amount

2022 $ 10,890,300

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NOTE 8 - DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes interest rate swaps for the sole purpose of mitigating interest rate fluctuation risk associated to floating rate debt instruments (as defined in Note 9 Line of Credit, and Note 10 Long-Term Debt).

The Company utilizes interest rate swaps ("IRS") for the sole purpose of mitigating interest rate fluctuation risk associated to floating rate debt instruments (as defined in Note 9 Line of Credit, and Note 10 Long-Term Debt).

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

On August 20, 2019, HF Group entered into two IRS contracts with East West Bank (the "EWB IRS") for initial notional amounts of $ 1.05 million and $ 2.63 million, respectively.

The EWB IRS contracts were entered into in conjunction with two

mortgage term loans of corresponding amount that were priced at USD 1-month LIBOR (London Interbank Offering Rate) plus 2.25 % per annum for the entire duration of the term loans.

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

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

The EWB IRS contracts fixed the two term loans at 4.40 % per annum until maturity in September 2029.

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

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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 recorded a gain of approximately $ 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 June 30, 2021 and December 31, 2020, the Company has determined that the fair value of the interest rate swap obligations was $ 393,479 and $ 993,516 , respectively.

As of September 30, 2021 and December 31, 2020, the Company has determined that the fair value of the interest rate swap obligations was $ 341,165 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.

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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 BRGR and BRGR Subsidiaries, which BRGR Subsidiaries were subsequently acquired by the Company on January 17, 2020 (See Note 6 for additional information).

The revolving credit facility carries a floating interest rate that is pegged to 1-Month LIBOR + 1.375 % per annum, and was collateralized by all assets of the Company and was also guaranteed by BRGR and the BRGR Subsidiaries, which BRGR Subsidiaries were subsequently acquired by the Company on January 17, 2020 (See Note 6 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 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) a 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 June 30, 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 June 30, 2021 was $ 19.1 million.

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 the BRGR Subsidiaries which owned the ten warehouse facilities 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 September 30, 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 September 30, 2021 was $ 23.0 million.

NOTE 10 - LONG-TERM DEBT

Long-term debt at June 30, 2021 and December 31, 2020 is as follows:

Bank name Maturity Interest rate as of June 30,

2021 As of June 30,

Long-term debt at September 30, 2021 and December 31, 2020 is as follows:

Bank name Maturity Interest rate as of September 30,

2021 As of September 30,

2021 As of December 31,

Bank of America – (a) November 2021 - December 2029 3.73 % — 5.51 % $ 5,622,528 $ 5,905,472

Bank of America – (a) October 2021 - December 2029 3.73 % — 5.80 % $ 5,374,589 $ 5,905,472

BMO Harris Bank N.A.

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

As of June 30, 2021 and December 31, 2020, the Company was in compliance.

As of September 30, 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 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 .

(a) Loan balance consists of real estate term loan, equipment term loans, and vehicle term loans.

Collateral is provided by one real property owned by RNCH, specific equipment and vehicles owned by HFFI, RNCH, and BB.

(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.

(d) Guaranteed by one shareholder and spouse, as well as Han Feng.

(c) Real estate term loans with East West Bank are collateralized by four real properties owned by R&N Holdings, R&N Lexingto n, and NSF.

The loan to R&N Holdings is guaranteed b y four subsidiaries of the Company, Han Feng, TT, MFD, and R&N Lexington.

The loan to R&N Lexington is guaranteed by four subsidiaries of the Company, Han Feng, TT, MFD, and R&N Holdings.

The NSF loans are guaranteed by the Company.

The R&N Holdings and R&N Lexington loans are also guaranteed by one shareholder and spouse.

Balloon payments of 2,208,797 and 2,948,495 are due at maturity in 2027 and 2029, respectively.

(d) Guaranteed by Han Feng and the Company.

Also secured by a real property owned by HG Realty.

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

(e) Real estate term loan with a principal balance of $ 71,264,205 as of June 30, 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 $ 1,538,120 as of June 30, 2021 is secured by specific vehicles and equipment as defined in loan agreements.

The future maturities of long-term debt as of June 30, 2021 are as follows:

Twelve months ending June 30, Amount

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

(e) Real estate term loan with a principal balance of $ 70,515,521 as of September 30, 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 $ 1,243,500 as of September 30, 2021 is secured by specific vehicles and equipment as defined in loan agreements.

The future maturities of long-term debt as of September 30, 2021 are as follows:

Twelve months ending September 30, Amount

2022 $ 5,677,453

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NOTE 11 - LEASES

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 leases office space, warehouses and vacant land for building development under non-cancelable operating leases, with terms 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.

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The components of lease expense were as follows:

For the Three Months Ended For the Six Months Ended

2021 June 30,

2020 June 30,

2021 June 30,

For the Three Months Ended For the Nine Months Ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Operating lease cost $ 648,979 $ 301,734 $ 1,120,526 $ 1,058,611

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The components of lease expense were as follows:

For the Three Months Ended For the Six Months Ended

2021 June 30,

2020 June 30,

2021 June 30,

For the Three Months Ended For the Nine Months Ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Finance leases cost

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

For the Three Months Ended For the Six Months Ended

2021 June 30,

2020 June 30,

2021 June 30,

For the Three Months Ended For the Nine Months Ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Operating cash flows from finance leases $ 16,687 $ 21,647 $ 54,030 $ 72,767

Supplemental balance sheet information related to leases was as follows:

September 30,

2021 December 31,

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Maturities of lease liabilities were as follows:

Twelve months ending June 30, Operating

Twelve months ending September 30, Operating

Leases Finance

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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, entered into an Assignment and Assumption of Lease Agreement (“Assignment”), dated effective as of January 21, 2021, with AnHeart and Premier 273 Fifth, LLC ("Landlord"), pursuant to which it has assumed the lease of the premises at 273 Fifth Avenue, New York, New York signed on July 2, 2018 (the “273 Lease Agreement”).

On February 10, 2021, 273 Co, a newly established Delaware limited liability company and wholly owned subsidiary of the Company, entered into an Assignment and Assumption of Lease Agreement (“Assignment”), dated effective as of January 21, 2021, with AnHeart and Premier 273 Fifth, LLC ("Landlord"), pursuant to which it assumed the lease of the premises at 273 Fifth Avenue, New York, New York signed on July 2, 2018 (the “273 Lease Agreement”).

At the same time, 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.

The Assignment and the 273 Lease Amendment were negotiated in light of 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 subject to meeting certain conditions.

Under the terms of the Lease Agreement and the Assignment, 273 Co has undertaken to construct, at its own 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 an 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 granted certain rent abatement to the premises for 2020 and 2021, including a 20 % reduction of annual rent in 2021 subject to meeting certain conditions.

The Lease Amendment permits subletting of the premises.

The lease agreement related to 275 Fifth Avenue in the name of AnHeart and guaranteed by HF Holding, has a lease term of 15 years with the option to renew for 5 years on the 16th year and the 21st year at 3 % annual rent increment.

Annual rent started at $ 462,000 and escalating throughout the term, with annual rent in the final year of the initial term of $ 760,878 .

Annual property tax was estimated to be about $ 81,530 .

A total of $ 81,000 rent abatement related to Covid-19 was granted from April 2020 to December 2020.

NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION

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

For the Six Months Ended

2021 June 30,

For the Nine Months Ended

September 30,

2021 September 30,

Supplemental disclosure of cash flow data

3 unchanged sentences

Right of use assets obtained in exchange for operating lease liabilities $ 2,161,442 $ —

Property acquired via a finance lease $ 7,627,652 $ —

Property and equipment purchases from notes payable $ 257,450 $ 2,528,554

8 unchanged sentences

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

(i) The provision for income taxes of the Company for the three and six months ended June 30, 2021 and 2020 consists of the following :

For the Three Months Ended For the Six Months Ended

2021 June 30,

2020 June 30,

2021 June 30,

(i) The provision for income taxes of the Company for the three and nine months ended September 30, 2021 and 2020 consists of the following :

For the Three Months Ended For the Nine Months Ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

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 June 30,

As of September 30,

2021 As of December 31,

5 unchanged sentences

Fair value change in interest rate swap contracts 81,628 244,622

Leases 104,503 —

Accrued expenses 265,407 268,813

3 unchanged sentences

Intangibles assets ( 43,318,258 ) ( 45,461,272 )

Right of Use Asset ( 152,934 ) —

Total deferred tax liabilities ( 45,632,897 ) ( 48,122,146 )

Net deferred tax liabilities $ ( 44,199,536 ) $ ( 46,325,226 )

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

As of June 30,

2021 As of December 31,

Deferred tax assets $ 59,079 $ 57,478

Deferred tax liabilities ( 45,078,908 ) ( 46,382,704 )

Net deferred tax liabilities $ ( 45,019,829 ) $ ( 46,325,226 )

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

For the Six Months Ended

2021 June 30,

For the Nine Months Ended

September 30,

2021 September 30,

Federal statutory tax rate 21.0 % 21.0 %

17 unchanged sentences

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

The Company had recently evaluated Mr.

The Company has recently evaluated Mr.

Zhang's ownership interest and his relationship with certain entities that were previously classified as related parties in prior financial statements.

The Company noted that four entities with ownership ranging from 5.0 % to 10 % and are mainly restaurants, were deemed to be non related party in nature.

The Company noted that Mr.

Zhang or his family members do not manage or participate in daily operations and holds no influence over those entities.

The Company noted that four entities with ownership ranging from 5.0 % to 10 %, mainly restaurants, were deemed not to be related parties.

The Company noted that neither Mr.

Zhang nor his family members manage or participate in daily operations of those entities, and exercise no influence over them.

Hence, the Company concluded that those entities do not fall under the definition of related party and were excluded from the classification accordingly.

The Company also determined that its 12 % ownership in PT.

Tamron Akuatik Produk Industri ("Tamron"), accounted for using alternative measurement under ASC 321, did not meet the definition of related party due to the fact that the Company does not participate in Tamron's daily operations and holds no influence over it.

The Company also determined that its 12 % ownership in Tamron (Note 4), accounted for using alternative measurement under ASC 321, did not meet the definition of related party due to the fact that the Company does not participate in Tamron's daily operations and holds no influence over it.

Further, the Company evaluated Mr.

Ni's ownership interest and his relationship with certain entities that were previously classified as related parties in prior financial statement.

The Company noted that two entities that were previously owned by Mr.

Ni, 37.67 % and 100 % respectively, were no longer deemed to be related party in nature.

The Company noted Mr.

Ni had disposed off the equity interest on January 1, 2020 and September 29, 2020, respectively.

Ni or his family members do not manage or participate in daily operations and holds no influence over those entities after the disposal.

Hence, the Company concluded that those entities do not fall under the definition of related party anymore, and were excluded from the classification accordingly.

As a result of the Company's evaluation described above, certain related party transactions and balances for the three and six months ended June 30, 2021 and June 30, 2020, and as of June 30, 2021 and December 31, 2020 were reclassified and removed from related party disclosure to conform to current reporting period's presentation.

Other than the reclassification, there are no financial impact to the prior financial statements.

The related party transactions as of June 30, 2021 and December 31, 2020 and for the three and six month periods ended June 30, 2021 and 2020 are identified as follows:

Ni's ownership interest and his relationship with certain entities that were previously classified as related parties in prior financial statements.

The Company was informed that two entities that were previously owned by Mr.

Ni, North Carolina Good Taste Noodle, Inc.( 37.67 %) and Hanfeng (Fujian) Information Technology Co., Ltd.

( 100 %), were no longer related parties in nature.

The Company was informed that (a) Mr.

Ni had disposed of all his equity interests in North Carolina Good Taste Noodle, Inc.

on January 1, 2020, and Hanfeng (Fujian) Information Technology Co., Ltd.

on September 29, 2020, and (b) neither Mr.

Ni nor his family members manage or participate in daily operations of those entities and exercise no influence over them after the disposal.

Hence, the Company concluded that those entities no longer fall under the definition of a related party and were excluded from the classification accordingly.

However, the Company has determined it is appropriate to disclose transactions with these entities until the conclusion of the independent investigation.

Total purchases made by the Company from North Carolina Good Taste Noodle, Inc.

during the three months ended September 30, 2021 and 2020, were $ 1.3 million and $ 1.0 million, respectively, and total purchases were $ 3.9 million and $ 2.7 million for the nine months ended September 30, 2021 and 2020, respectively.

Accounts payable at September 30, 2021 and December 31, 2020 to North Carolina Good Taste Noodle, Inc.

were $ 0.4 million and $ 0.6 million, respectively.

The related party transactions as of September 30, 2021 and December 31, 2020 and for the three and nine month periods ended September 30, 2021 and 2020 are identified as follows:

Related Party Sales and Purchases Transactions

1 unchanged sentence

Purchase - related parties

Below is a summary of purchases of goods and services from related parties recorded for the three months ended June 30, 2021 and 2020, respectively:

Below is a summary of purchases of goods and services from related parties recorded for the three months ended September 30, 2021 and 2020, respectively:

Name of Related Party Three Months Ended

June 30, 2021 Three Months Ended

June 30, 2020

(a) Best Food Services, LLC $ 2,353,900 $ 873,122

(b) Eastern Fresh NJ, LLC 1,473,617 445,572

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

(e) Ocean Pacific Seafood Group, Inc.

September 30, 2021 Three Months Ended

September 30, 2020

(a) Allstate Trading Company, Inc.

(b) Best Food Services, LLC 2,737,885 1,231,399

(d) Fujian RongFeng Plastic Co., Ltd 807,665 753,997

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

(f) Ocean Pacific Seafood Group, Inc.

113,886 150,035

(f) Revolution Industry, LLC — 541,910

(g) Union Food, LLC — 162,816

(g) Revolution Industry, LLC — 655,789

(h) UGO USA, Inc.

Others 161,408 107,359

Total $ 5,277,467 $ 4,872,445

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

The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children with immediate effect on November 1, 2020.

Ni owns 40 % equity interest in this entity.

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

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

This equity interest was transferred to three Irrevocable Trusts for the benefit of Mr.

Zhang's children effective November 1, 2020.

Ni owns a 30 % equity interest in this entity.

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

Ni previously owned 100 % equity interest in this entity.

Mr Ni disposed off the ownership and ended his legal representation of this entity on September 29, 2020.

Ni owns 26 % equity interest in this entity.

(f) Raymond Ni, one of Mr.

Mr Ni disposed of his equity interest on September 29, 2020.

Purchases for the three months ended September 30, 2021 were $ 0.4 million.

Ni owns a 26 % equity interest in this entity.

(g) Raymond Ni, one of Mr.

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 ("RIL").

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 RIL.

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

On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment of Revolution Industry, LLC ("RIL").

Han Feng has acquired substantially all of the operating assets used or held for use in such business operation for the amount of $ 250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of RIL.

Advances due from RIL at the time of the transaction were an offset to the purchase price paid to RIL.

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

(g) Tina Ni, one of Mr.

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 six months ended June 30, 2021 and 2020, respectively:

Name of Related Party Six Months Ended June 30, 2021 Six Months Ended June 30, 2020

Ni owns a 30 % equity interest in this entity.

Below is a summary of purchases from related parties for the nine months ended September 30, 2021 and 2020, respectively:

Name of Related Party Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020

(a) Allstate Trading Company, Inc.

18 unchanged sentences

Total $ 14,514,850 $ 16,598,798

Ni owns 40 % equity interest in this entity.

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

The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children with immediate effect on November 1, 2020.

Ni owns 30 % equity interest in this entity.

Ni owns 25 % equity interest in this entity.

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

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

Ni previously owned 100 % equity interest in this entity.

Mr Ni disposed off the ownership and ended his legal representation of this entity on September 29, 2020.

Ni owns 25 % equity interest in this entity.

Ni owns 26 % equity interest in this entity.

Ni owns a 40 % equity interest in this entity.

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

This equity interest was transferred to three Irrevocable Trusts for the benefit of Mr.

Zhang's children effective November 1, 2020.

Ni owns a 30 % equity interest in this entity.

Ni owns a 25 % equity interest in this entity.

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

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

Ni previously owned a 100 % equity interest in this entity.

Mr Ni disposed of his equity interest on September 29, 2020.

Purchases for the nine months ended September 30, 2021 were $ 1.1 million.

Ni owns a 25 % equity interest in this entity.

Ni owns a 26 % equity interest in this entity.

(j) Raymond Ni, one of Mr.

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 ("RIL").

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

On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment of Revolution Industry, LLC ("RIL").

Advances due from RIL at the time of transaction were an offset to the purchase price paid to RIL.

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

Ni owns 30 % equity interest in this entity.

Ni owns a 30 % equity interest in this entity.

(l) Tina Ni, one of Mr.

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

Ni’s family members, owns a 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.

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

Sales - related parties

Below is a summary of sales to related parties recorded for the three months ended June 30, 2021 and 2020, respectively:

Below is a summary of sales to related parties recorded for the three months ended September 30, 2021 and 2020, respectively:

Name of Related Party Three Months Ended

June 30, 2021 Three Months Ended

June 30, 2020

September 30, 2021 Three Months Ended

September 30, 2020

(a) ABC Food Trading, LLC $ 714,819 $ 371,162

9 unchanged sentences

(h) First Choice Seafood, Inc.

7,615 1,145,984

(i) Heng Feng Food Services, Inc.

4 unchanged sentences

Total $ 2,363,341 $ 2,287,377

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

The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children with immediate effect on November 1, 2020.

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

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

The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children with immediate effect on November 1, 2020.

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

This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr.

Zhang's children effective November 1, 2020.

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

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

This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr.

Zhang's children effective November 1, 2020.

(d) Tina Ni, one of Mr.

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

Ni owns 30 % equity interest in this entity.

Ni owns 25 % equity interest in this entity.

Ni owns 50 % equity interest in this entity.

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

Ni owns 45 % equity interest in this entity.

Ni owns 25 % equity interest in this entity.

Below is a summary of sales to related parties recorded for the six months ended June 30, 2021 and 2020, respectively:

Name of Related Party Six Months Ended June 30, 2021 Six Months Ended June 30, 2020

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

Ni owns a 30 % equity interest in this entity.

Ni owns a 25 % equity interest in this entity.

Ni owns a 50 % equity interest in this entity.

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

Ni owns a 45 % equity interest in this entity.

Ni owns a 25 % equity interest in this entity.

Below is a summary of sales to related parties recorded for the nine months ended September 30, 2021 and 2020, respectively:

Name of Related Party Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020

(a) ABC Food Trading, LLC $ 1,935,031 $ 1,419,460

16 unchanged sentences

Total $ 7,839,509 $ 10,835,878

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

The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children with immediate effect on November 1, 2020.

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

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

The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children with immediate effect on November 1, 2020.

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

This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr.

Zhang's children effective November 1, 2020.

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

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

This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr.

Zhang's children effective November 1, 2020.

(d) Tina Ni, one of Mr.

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

Ni owns 30 % equity interest in this entity.

Ni owns 25 % equity interest in this entity.

Ni owns 50 % equity interest in this entity.

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

Ni owns 45 % equity interest in this entity.

Ni owns 25 % equity interest in this entity.

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

Ni owns a 30 % equity interest in this entity.

Ni owns a 25 % equity interest in this entity.

Ni owns a 50 % equity interest in this entity.

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

Ni owns a 45 % equity interest in this entity.

Ni owns a 25 % equity interest in this entity.

Lease agreements - related parties

2 unchanged sentences

under an operating lease agreement which was mutually terminated by both parties effective April 1, 2021.

Rental income for the three months ended June 30, 2021 and 2020 was nil and $ 10,500 , respectively, and the six months ended June 30, 2021 and 2020 was $ 7,000 and $ 21,000 , respectively.

Rental income for the three months ended September 30, 2021 and 2020 was nil and $ 10,500 , respectively, and the nine months ended September 30, 2021 and 2020 was $ 7,000 and $ 31,500 , 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 June 30, 2021 and 2020 was $ 120,000 and $ 120,000 , respectively, and the six months ended June 30, 2021 and 2020 was $ 240,000 and $ 240,000 , respectively.

Rental income for the three months ended September 30, 2021 and 2020 was $ 120,000 and $ 120,000 , respectively, and the nine months ended September 30, 2021 and 2020 was $ 360,000 and $ 360,000 , respectively.

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

Before the acquisition of the BRGR Subsidiaries, the CEO of the Company, Xiao Mou Zhang,

managed and owned 8.91 % interest in BRGR.

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

2 unchanged sentences

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 $ 77,428 and $ 30,000 for the three months ended June 30, 2021 and 2020, respectively, and $ 154,856 and $ 60,000 for the six months ended June 30, 2021 and 2020, respectively.

Rent incurred to the related party was $ 77,428 and $ 40,000 for the three months ended September 30, 2021 and 2020, respectively, and $ 232,284 and $ 100,000 for the nine months ended September 30, 2021 and 2020, respectively.

Related Party Balances

Accounts receivable - related parties, net

Below is a summary of accounts receivable with related parties recorded as of June 30, 2021 and December 31, 2020, respectively:

Name of Related Party As of June 30,

Below is a summary of accounts receivable with related parties recorded as of September 30, 2021 and December 31, 2020, respectively:

Name of Related Party As of September 30,

2021 As of December 31,

9 unchanged sentences

48,352 36,250

(h) Heng Feng Food Services, Inc.

(i) N&F Logistics, Inc.

(h) N&F Logistics, Inc.

56,891 113,247

Others 28,379 —

Total $ 954,230 $ 1,261,463

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

The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children with immediate effect on November 1, 2020.

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

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

The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children with immediate effect on November 1, 2020.

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

This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr.

Zhang's children effectiveNovember 1, 2020.

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

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

This equity interest was transferred to 3 Irrevocable Trusts for the benefit of Mr.

Zhang's children effective November 1, 2020.

(d) Tina Ni, one of Mr.

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

Ni owns 30 % equity interest in this entity.

Ni owns 50 % equity interest in this entity.

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

Ni owns 45 % equity interest in this entity.

Ni owns 25 % equity interest in this entity.

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

Ni owns a 30 % equity interest in this entity.

Ni owns a 50 % equity interest in this entity.

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

Ni owns a 25 % equity interest in this entity.

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

No allowance is deemed necessary as of June 30, 2021 and December 31, 2020.

No allowance is deemed necessary as of September 30, 2021 and December 31, 2020.

Accounts payable - related parties, net

All the accounts payable to related parties are payable upon demand without interest.

Below is a summary of accounts payable with related parties recorded as of June 30, 2021 and December 31, 2020, respectively:

Name of Related Party As of June 30,

Below is a summary of accounts payable with related parties recorded as of September 30, 2021 and December 31, 2020, respectively:

Name of Related Party As of September 30,

2021 As of December 31,

9 unchanged sentences

Total $ 2,499,872 $ 1,572,427

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

The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children with immediate effect on November 1, 2020.

Ni owns 30 % equity interest in this entity.

Ni owns 25 % equity interest in this entity.

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

Ni owns 37 % equity interest in this entity.

Ni owns 45 % equity interest in this entity.

Ni owns 30 % equity interest in this entity.

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

Thod equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr.

Zhang's children effective November 1, 2020.

Ni owns a 30 % equity interest in this entity.

Ni owns a 25 % equity interest in this entity.

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

Ni owns a 37 % equity interest in this entity.

Ni owns a 45 % equity interest in this entity.

Ni owns a 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.

Below is a summary of advances to related party suppliers recorded as of June 30, 2021 and December 31, 2020, respectively:

Name of Related Party As of June 30,

Below is a summary of advances to related party suppliers recorded as of September 30, 2021 and December 31, 2020, respectively:

Name of Related Party As of September 30,

2021 As of December 31,

2 unchanged sentences

Total $ — $ 196,803

Ni owns 26 % equity interest in this entity.

Ni owns a 26 % equity interest in this entity.

(b) Raymond Ni, one of Mr.

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 ("RIL").

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

On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment of Revolution Industry, LLC ("RIL").

Advances due from Revolution at the time of transaction were an offset to the purchase price paid to RIL.

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

Promissory note payable - related party

B&R Global issued a $ 7.0 million Unsecured Subordinated Promissory Note to BRGR in January 2020 as part of the payment for the acquisition of BRGR (Refer to Note 6).

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

At June 30, 2021, outstanding balance was $ 5.5 million and accrued interest payable was nil .

B&R Global issued a $ 7.0 million Unsecured Subordinated Promissory Note to BRGR in January 2020 as part of the payment for the acquisition of the BRGR Subsidiaries (Refer to Note 6).

The note matures in January 2030 and carries a fixed interest rate of 6 % per annum.

There is no requirement to make principal repayments until maturity.

There is no prepayment penalty should the Company elect to prepay the principal prior to maturity, subject to meeting certain repayment provisions as defined in the JPM Credit Agreement.

At September 30, 2021, the outstanding balance was $ 5.0 million and accrued interest payable was nil .

Principal and interest payments made were $ 500,000 and $ 84,333 for the three months ended September 30, 2021, and $ 2,000,000 and $ 281,825 for the nine months ended September 30, 2021, respectively.

NOTE 15 - STOCK-BASED COMPENSATION

The Company has a stock-based employee compensation plan, known as the HF Foods Group Inc.

2018 Omnibus Equity Incentive Plan (the “2018 Incentive Plan”).

The 2018 Incentive Plan caters for up to 3,000,000 shares of common stock reserved for issuance of awards to employees, non-employee directors, and consultants.

The Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, other stock awards, and performance awards that may be settled in stock, or other property.

The Company began issuing awards under the Plan in July of 2021.

As of September 30, 2021, the Company had 350,439 time-based vesting restricted stock units (“RSUs”) outstanding, 143,277 performance-based restricted stock units (“PSUs”) outstanding, and 2,506,284 shares remaining available for future awards under the Plan.

RSUs granted to employees vest over time based on continued service (vesting over a period between one to three years in equal installments).

PSUs granted to employees vest based on (i) the attainment of certain financial metrics, as defined by the Company's compensation committee (“Financial PSUs”) and (ii) total shareholder return of the Company’s common stock (“TSR PSUs”).

Both types of PSUs vest over 3 equal installments beginning from April 1, 2022 to April 1, 2024 based on the performance metrics established for each year and also require continued service for vesting.

A summary of RSU and PSU activity for the three-month period ended September 30, 2021 is as follows:

Shares Weighted Average Grant Date Fair Value

Unvested RSUs at June 30, 2021 — $ —

Granted 352,761 5.17

Forfeited 2,322 5.17

Unvested RSUs at September 30, 2021 350,439 $ 5.17

Shares Weighted Average Grant Date Fair Value

Unvested PSUs at June 30, 2021 — $ —

Granted 143,277 3.82

Forfeited — —

Unvested PSUs at September 30, 2021 143,277 $ 3.82

The Company accounts for stock-based compensation in accordance with ASC 718 Compensation - Stock Compensation (“ASC 718”).

ASC 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans and stock incentive shares.

The fair value of the RSUs and Financial PSUs are measured using the closing price of the Company’s common stock on NASDAQ Global Capital Market on the date preceding grant date.

The fair value of the TSR PSUs are determined using the Monte-Carlo simulation model.

The assumptions used to estimate the fair value of the TSR PSUs granted during the three months ended September 30, 2021 and valued under the Monte Carlo simulation model were as follows:

PSUs awarded July 8, 2021 PSUs awarded September 8, 2021

Risk-free interest rate 0.32 % - 0.34 %

Expected dividend yield — %

Expected term (years) 2.56 - 2.73

Expected volatility (1) 64.26 % - 65.74 %

(1) Expected volatility is based on a 50/50 blending of (i) the average historical volatility of a select group of industry peers with a look-back period equal to the expected term, and (ii) the historical volatility of the Company with a look-back period of 1.17 years, the time from the valuation date to the date six months after the completion of the merger with B&R Global, using daily stock prices.

The expected volatility of peer companies was 62.42 % – 63.45 %.

The expected volatility of our common stock was 66.10 % – 68.03 %.

We amortize the fair value of RSUs on a straight-line basis over the requisite service period for each award.

For the PSUs, the Company recognizes stock-based compensation expenses on a straight-line basis for each vesting tranche over the longer of the derived, explicit, or implicit service period for the vesting tranche.

As of interim and annual reporting periods, the Financial PSUs stock-based compensation expense is adjusted based on expected achievement of performance targets, while TSR PSUs stock-based compensation expense is not adjusted.

The Company recognizes forfeitures as they occur.

Stock-based compensation is included in distribution, selling and administrative expenses in our Condensed Consolidated Statements of Operations.

The components of stock-based compensation for the three-month periods ended September 30, 2021 and 2020 were as follows:

Three Months Ended

September 30, 2021 Three Months Ended

September 30, 2020

Stock-based compensation (RSUs) expense Ocean Pacific Seafood Group, Inc.

$ 159,078 $ —

Stock-based compensation (PSUs) expense Revolution Industry, LLC 46,355 —

Total stock-based compensation expense $ 205,433 $ —

Tax Benefit of stock-based compensation expense $ 50,282 $ —

As of September 30, 2021, there was $ 2,045,560 of total unrecognized compensation cost related to all non-vested outstanding RSUs and PSUs outstanding under the Plan.

Of the total unrecognized compensation cost, $ 1,544,447 is related to RSUs with time-based vesting provisions and $ 501,113 is related to PSUs with performance and market-based vesting provisions.

NOTE 16 - SEGMENT REPORTING

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

Segment reporting for the three and six months ended June 30, 2020 were re-presented below.

Segment reporting for the three and nine months ended September 30, 2020 were recast 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 and six month periods ended June 30, 2021 and 2020, respectively:

For the Three Months Ended For the Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

The following table presents net sales by segment for the three and nine month periods ended September 30, 2021 and 2020, respectively:

For the Three Months Ended For the Nine Months Ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Sales to independent restaurants $ 207,559,475 $ 134,167,324 $ 548,116,720 $ 400,060,302

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Total $ 215,542,049 $ 139,918,942 $ 568,470,113 $ 420,282,374

For the Three Months Ended June 30, 2021

For the Three Months Ended September 30, 2021

Sales to Independent Restaurants Wholesale Total

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Cost of revenue $ 166,638,813 $ 6,991,268 $ 173,630,081

Gross profit (loss) $ 35,232,452 $ ( 98,148 ) $ 35,134,304

Gross profit $ 40,920,662 $ 991,306 $ 41,911,968

Depreciation and amortization $ 4,879,618 $ 187,666 $ 5,067,284

Cash capital expenditures $ 825,473 $ 31,747 $ 857,220

For the Three Months Ended June 30, 2020

For the Three Months Ended September 30, 2020

Sales to Independent Restaurants Wholesale Total

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Cash capital expenditures $ 192,089 $ 8,235 $ 200,324

For the Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

Sales to Independent Restaurants Wholesale Total

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Cash capital expenditures $ 1,465,877 $ 55,010 $ 1,520,887

For the Six Months Ended June 30, 2020

For the Nine Months Ended September 30, 2020

Sales to Independent Restaurants Wholesale Total

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Cash capital expenditures $ 391,216 $ 19,072 $ 410,288

The following table presents total assets by reportable segment as of June 30, 2021 and December 31, 2020, respectively:

As of June 30,

The following table presents total assets by reportable segment as of September 30, 2021 and December 31, 2020, respectively:

As of September 30,

2021 As of December 31,

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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.

As previously disclosed, an analyst report published in March 2020 suggested certain improprieties in the Company’s operations, many of which later became the subject of allegations in two putative class actions and two derivative actions that were filed on or after March 29, 2020 against the Company, the Company's then current directors, and/or certain of the Company’s then current officers, alleging violation of securities laws or breach of fiduciary duties in connection with claims that the Company 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 (the “Class Actions”).

The Company intends 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 response to the analyst report, the Company's Board of Directors appointed a Special Committee of Independent Directors to conduct an internal independent investigation with the assistance of counsel (“Special Committee”).

As previously disclosed and also highlighted in Note 1, in March 2020, a short-seller report suggested certain improprieties in the Company’s operations.

These allegations became the subject of two putative stockholder class actions filed on or after March 29, 2020 in the United States District Court for the Central District of California generally alleging the Company and certain of its current and former directors and officers violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements (the “Class Actions”).

After the second putative stockholder class action was filed, the Class Actions were consolidated.

On January 19, 2021, the Company and the director and officer defendants filed a Motion to Dismiss the consolidated Class Actions.

On August 25, 2021, the Court granted the Motion to Dismiss with leave to amend the complaint.

The Plaintiff elected not to amend his complaint, and the Court entered Judgment in favor of the Company and the director and officer defendants on September 20, 2021.

The Court’s decision was not appealed, and the Class Actions are now closed.

The Company was likewise named a nominal defendant and certain of the Company's current and former directors and officers were named as defendants in a shareholder derivative lawsuit filed on June 15, 2020, in the United States District Court for the Central District of California.

The complaint makes similar allegations as the Class Actions 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.

A second virtually identical shareholder derivative lawsuit was filed on August 21, 2020 in the United States District Court for the District of Delaware.

On November 19, 2020, the District Court for the District of Delaware transferred the second-filed derivative lawsuit to the District Court for the Central District of California.

The derivative lawsuits were stayed pending the deadline to file a notice of appeal in the Class Actions.

The Company intends to vigorously defend the derivative lawsuits.

See Note 18-Subsequent Events

In response to the allegations in the March 2020 short-seller report, the Company's Board of Directors appointed a Special Committee of Independent Directors to conduct an internal independent investigation with the assistance of counsel (the “Special Committee”).

In addition, the SEC initiated a formal, non-public investigation of the Company, and the SEC informally requested, and later issued a subpoena for, documents and other information.

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

Refer to Independent Investigation Update in Note 1.

While the Special Committee has reached no final conclusions in conjunction with its investigation, it has made a number of recommendations to management regarding improvements to Company operations and structure, including but not limited to its dealings with related parties.

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The Company now has an independent Chairman of the Board.

In addition, the Company recently hired an in-house General Counsel and Chief Compliance Officer, who will report to the Chief Executive Officer and the Chairman of the Board.

(See Note 17, Subsequent Events)

In addition, the Company hired an in-house General Counsel and Chief Compliance Officer who joined the Company on September 8, 2021 and who reports to the Chief Executive Officer and the Chairman of the Board.

NOTE 18 - SUBSEQUENT EVENTS

The Company evaluated subsequent events through August 9, 2021, which is the date the financial statements were available to be issued.

On August 2, 2021, the Company appointed Ms.

Christine Chang to become the General Counsel and Chief Compliance Officer of the Company, effective as of September 8, 2021.

The Company evaluated subsequent events through November 15, 2021, which is the date the financial statements were available to be issued.

On November 5, 2021, the first of the two derivative shareholder lawsuits described in Note 17, above, was dismissed voluntarily by the plaintiff.

On November 12, 2021, the stay of the proceedings in the second shareholder derivative case was lifted by the District Court and the case will move forward with the filing of defendants' response to the complaint.

The Company intends to vigorously defend the shareholder derivative lawsuit.

CAUTIONARY NOTE ABOUT FORWARD LOOKING STATEMENTS

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

• The effects of the COVID-19 pandemic;

• The effects of the COVID-19 or other pandemic;

• Difficulties in integrating operations, personnel, and assets of acquired businesses that may disrupt our business, dilute stockholder value, and adversely affect our operating results;

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

What changed 10-Q

Item 1. Financial Statements