Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2020~~

2021

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~________________~~ _______________________ to ~~__________________.~~

_______________________.

Commission File Number: 001-38180

HF FOODS GROUP INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)			81-2717873 (I.R.S. Employer Identification No.)

19319 Arenth Avenue, City of Industry, CA 91748
(Address of principal executive offices) (Zip Code)

(626) 338-1090

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

HFFG

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~Yes ☒ NONo ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~YES~~Yes ☒ NONo ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~Yes ☐ NONo ☒

As of May ~~15, 2020,~~7, 2021, the registrant had ~~52,145,096~~51,913,411 shares of common stock ~~issued and~~ outstanding.

Table of Contents

HF FOODS GROUP INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021

~~HF Foods group inc.~~
~~form 10-q for the quarter ended SEPTEMBER 30, 2019~~

TABLE OF CONTENTS

~~Description~~	~~Page~~
Description			Page
~~PART I.~~			~~FINANCIAL INFORMATION~~
PART I.		FINANCIAL INFORMATION
		Item 1 Financial Statements	1
		Condensed Consolidated Balance Sheets (Unaudited)	1
		Condensed Consolidated Statements of ~~Income~~Operations (Unaudited)	2
		Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	3
		Condensed Consolidated Statements of Cash Flows (Unaudited)	4
		Notes to Unaudited Condensed Consolidated Financial Statements	5
		Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	31 34
		Item 3 Quantitative and Qualitative Disclosures about Market Risk	40 43
		Item 4 Controls and Procedures	40 43

PART II.		OTHER INFORMATION
		Item 1 Legal Proceedings	41 45
		Item 1A Risk Factors	41 45
		Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	41 45
		Item 3 Defaults Upon Senior Securities	41 45
		Item 4 Mine Safety Disclosures	41 45
		Item 5 Other Information	41 46
		Item 6 Exhibits	42 46

SIGNATURE PAGE			43 47

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

~~HF FOODS GROUP INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(UNAUDITED)~~

As of

March 31

December 31

2020

2019

ASSETS

CURRENT ASSETS:

Cash
$ 12,690,265 $ 14,538,286
Accounts receivable, net
26,210,460 50,027,134
Accounts receivable - related parties, net
5,987,632 4,202,870
Inventories, net
75,704,474 77,531,854
Advances to suppliers - related parties, net
864,816 745,135
Other current assets
3,872,326 4,374,338
TOTAL CURRENT ASSETS
125,329,973 151,419,617

Property and equipment, net
139,941,393 37,538,147
Security deposits-related parties
- 591,380
Operating lease right-of-use assets
883,552 17,155,584
Long-term investments
2,331,337 2,296,276
Intangible assets, net
183,965,375 186,687,950
Goodwill
68,511,941 406,703,348
Deferred tax assets
69,236 78,993
Other long-term assets
379,599 372,499
TOTAL ASSETS
$ 521,412,406 $ 802,843,794

CURRENT LIABILITIES:

Bank overdraft
$ 13,474,772 $ 14,952,510
Lines of credit
43,101,338 41,268,554
Accounts payable
32,456,258 39,689,911
Accounts payable - related parties
3,738,202 4,521,356
Advances from customers - related parties
213,354 -
Current portion of long-term debt, net
6,941,738 2,726,981
Current portion of obligations under finance leases
288,101 280,243
Current portion of obligations under operating leases
333,180 4,322,503
Accrued expenses and other liabilities
2,960,084 2,683,696
TOTAL CURRENT LIABILITIES
103,507,027 110,445,754

Long-term debt, net
90,151,208 18,535,016
Promissory note payable - related party
7,000,000 -
Obligations under finance leases, non-current
979,782 1,053,166
Obligations under operating leases, non-current
550,372 12,833,081
Deferred tax liabilities
51,378,817 52,320,045
TOTAL LIABILITIES
253,567,206 195,187,062

SHAREHOLDERS’ EQUITY:

Preferred Stock, $0.0001 par value, 1,000,000 shares authorized , no shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
- -
Common Stock, $0.0001 par value, 100,000,000 shares authorized, 53,050,211 shares issued, and 52,145,096 shares outstanding as of March 31, 2020 and December 31, 2019, respectively
5,305 5,305
Treasury Stock, at cost, 905,115 shares as of March 31, 2020 and December 31, 2019, respectively
(12,038,030 ) (12,038,030 )
Additional paid-in capital
599,617,009 599,617,009
Retained earnings (accumulated deficit)
(324,060,281 ) 15,823,661

Total shareholders’ equity attributable to HF Foods Group, Inc.
263,524,003 603,407,945
Noncontrolling interest
4,321,197 4,248,787
TOTAL SHAREHOLDERS’ EQUITY
267,845,200 607,656,732
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$ 521,412,406 $ 802,843,794

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

~~HF FOODS GROUP INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~
~~(UNAUDITED)~~

For the three months Ended Mar 31,

2020

2019

Net revenue - third parties
170,640,014 $ 70,303,911
Net revenue - related parties
5,163,322 4,497,111
TOTAL NET REVENUE
175,803,336 74,801,022

Cost of revenue - third parties
141,904,237 57,725,355
Cost of revenue - related parties
4,924,054 4,368,811
TOTAL COST OF REVENUE
146,828,291 62,094,166

GROSS PROFIT
28,975,045 12,706,856

DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES
29,406,593 10,365,172

INCOME (LOSS) FROM OPERATIONS
(431,548 ) 2,341,684

Other Income (Expenses)

Interest income
131 151,949
Interest expense and bank charges
(1,951,569 ) (336,958 )
Goodwill impairment loss (338,191,407 ) -
Other income
405,650 284,535
Total Other Income (Expenses), net
(339,737,195 ) 99,526

INCOME (LOSS) BEFORE INCOME TAX PROVISION
(340,168,743 ) 2,441,210

PROVISION (BENEFIT) FOR INCOME TAXES
(482,211 ) 647,639

NET INCOME (LOSS)
(339,686,532 ) 1,793,571

Less: net income attributable to noncontrolling interest
197,410 120,758

NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.
(339,883,942 ) $ 1,672,813

Earnings (loss) per common share - basic and diluted
(6.52 ) $ 0.08

Weighted average shares - basic and diluted
52,145,096 22,167,486

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

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY~~

~~For the three month Ended Mar 31, 2020 and 2019~~

~~(UNAUDITED)~~

Common Stock

Additional

Retained
Earnings

Total Shareholders’ Equity
Attributable
Total

Number of Treasury Paid-in (Accumulated to HF Noncontrolling Shareholders’

Shares

Amount
Stock Capital Deficit) Group Inc. Interest Equity
Balance at December 31, 2019
52,145,096 $ 5,305 $ (12,038,030 ) $ 599,617,009 $ 15,823,661 $ 603,407,945 $ 4,248,787 $ 607,656,732
Net income (loss)
- - - - (339,883,942 ) (339,883,942 ) 197,410 (339,686,532 )
Distribution to shareholders
- - - - - - (125,000 ) (125,000 )
Balance at March 31, 2020
52,145,096 5,305 (12,038,030 ) 599,617,009 (324,060,281 ) 263,524,003 4,321,197 267,845,200

Balance at December 31, 2018
22,167,486 2,217 - 22,920,603 10,433,984 33,356,804 1,104,678 34,461,482
Net income
- - - - 1,672,813 1,672,813 120,759 1,793,572
Balance at March 31, 2019
22,167,486 $ 2,217 $ - $ 22,920,603 $ 12,106,797 $ 35,029,617 $ 1,225,437 $ 36,255,054

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

~~HF FOODS GROUP INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(UNAUDITED)~~

For the three months Ended Mar 31,

2020

2019

Cash flows from operating activities:

Net Income (loss)
$ (339,686,532 ) $ 1,793,571
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense
4,526,277 872,148
Goodwill impairment loss 338,191,407 -
Gain from disposal of equipment
(20,349 ) (39,609 )
Allowance for doubtful accounts
154,365 (103,051 )
Allowance for inventories
46,687 -
Deferred tax expenses (benefit)
(931,471 ) 115,769
Income from equity method investment
(35,061 ) -
Changes in operating assets and liabilities:

Accounts receivable, net
23,477,270 (867,080 )
Accounts receivable - related parties, net
(1,784,762 ) 147,090
Inventories
1,780,693 (1,501,368 )
Advances to suppliers - related parties, net
(119,681 ) 364,892
Other current assets
540,443 331,891
Security deposit - related parties
58,880 -
Other long-term assets
(15,900 ) 44,366
Accounts payable
(7,319,101 ) 2,266,388
Accounts payable - related parties
(783,154 ) (1,099,978 )
Advance from customers - related parties
213,354 (46,543 )
Operating lease liability
(102,088 ) (164,752 )
Income tax payable
- 296,773
Accrued expenses
436,529 110,871
Net cash provided by operating activities
18,627,806 2,521,378

Cash flows from investing activities:

Purchase of property and equipment
(160,252 ) (1,344,555 )
Proceeds from disposal of equipment
90,879 176,800
Payment made for notes receivable
- (108,750 )
Proceeds from long-term notes receivable to related parties
- 13,750
Payment made for long-term notes receivable to related parties
- (117,732 )
Payment made for acquisition of B&R Realty (94,004,068 ) -
Net cash used in investing activities
(94,073,441 ) (1,380,487 )

Cash flows from financing activities:

Repayment of bank overdraft
(1,477,738 ) -
Proceeds from lines of credit
174,101,782 1,500,000
Repayment of lines of credit
(172,301,798 ) (2,600,000 )
Proceeds from long-term debt
75,600,000 2,144,555
Repayment of long-term debt
(1,346,136 ) (594,985 )
Repayment of long-term debt - related parties (730,998 ) -
Repayment of obligations under finance leases
(122,498 ) (182,511 )
Cash distribution to shareholders
(125,000 ) -
Net cash provided by financing activities
73,597,614 267,059

Net increase (decrease) in cash
(1,848,021 ) 1,407,950
Cash at beginning of the period
14,538,286 5,489,404
Cash at end of the period
$ 12,690,265 $ 6,897,354

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

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	As of
	March 31, 2021		December 31, 2020
ASSETS
CURRENT ASSETS:
Cash	$	11,253,521	$	9,580,853
Accounts receivable, net	30,267,205		24,852,212
Accounts receivable - related parties, net	1,162,466		1,266,573
Inventories, net	55,870,112		58,535,040
Advances to suppliers - related parties, net	0		196,803
Other current assets	5,387,470		4,614,164
TOTAL CURRENT ASSETS	103,940,774		99,045,645
Property and equipment, net	136,043,983		136,869,085
Operating lease right-of-use assets	15,993,197		931,630
Long-term investments	2,407,364		2,377,164
Intangible assets, net	173,075,075		175,797,650
Goodwill	68,511,941		68,511,941
Deferred tax assets	45,837		57,478
Other long-term assets	782,412		694,490
TOTAL ASSETS	$	500,800,583	$	484,285,083

CURRENT LIABILITIES:
Bank overdraft	$	10,439,475	$	14,839,747
Line of credit	16,380,876		18,279,062
Accounts payable	36,504,111		28,391,136
Accounts payable - related parties	1,472,541		1,783,861
Current portion of long-term debt, net	5,898,994		5,641,259
Current portion of obligations under finance leases	277,336		286,903
Current portion of obligations under operating leases	637,047		308,148
Accrued expenses and other liabilities	7,363,464		6,178,144
Obligations under interest rate swap contracts	281,223		993,516
TOTAL CURRENT LIABILITIES	79,255,067		76,701,776
Long-term debt, net	86,538,440		88,008,803
Promissory note payable - related party	6,500,000		7,000,000
Obligations under finance leases, non-current	703,648		766,885
Obligations under operating leases, non-current	15,459,667		623,482
Deferred tax liabilities	45,792,129		46,382,704
TOTAL LIABILITIES	234,248,951		219,483,650
SHAREHOLDERS’ EQUITY:
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	0		0
Common Stock, $0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued, and 51,913,411 shares outstanding as of March 31, 2021 and December 31, 2020, respectively	5,191		5,191
Additional paid-in capital	587,579,093		587,579,093
Accumulated deficit	(325,627,466)		(327,150,398)
TOTAL SHAREHOLDER'S EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.	261,956,818		260,433,886
Noncontrolling interests	4,594,814		4,367,547
TOTAL SHAREHOLDERS’ EQUITY	266,551,632		264,801,433
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	500,800,583	$	484,285,083

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

Table of Contents

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	For the three months ended March 31
	2021		2020

Net revenue - third parties	$	156,991,367	$	170,640,014
Net revenue - related parties	2,390,461		5,163,322
TOTAL NET REVENUE	159,381,828		175,803,336

Cost of revenue - third parties	127,639,358		141,904,237
Cost of revenue - related parties	2,312,879		4,924,054
TOTAL COST OF REVENUE	129,952,237		146,828,291

GROSS PROFIT	29,429,591		28,975,045

DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES	28,127,495		29,406,593

INCOME (LOSS) FROM OPERATIONS	1,302,096		(431,548)

Other Income (Expenses)
Interest income	0		131
Interest expense	(742,141)		(1,951,569)
Goodwill impairment loss	0		(338,191,407)
Other income	439,559		405,650
Change in fair value of interest rate swap contracts	1,430,892		0
Total Other Income (Expenses), net	1,128,310		(339,737,195)

INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT)	2,430,406		(340,168,743)

PROVISION (BENEFIT) FOR INCOME TAXES	607,207		(482,211)
NET INCOME (LOSS)	1,823,199		(339,686,532)
Less: net income attributable to noncontrolling interests	300,267		197,410
NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.	$	1,522,932	$	(339,883,942)

Earnings (loss) per common share - basic and diluted	$	0.03	$	(6.52)
Weighted average shares - basic and diluted	51,913,411		52,145,096

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

Table of Contents

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity Attributable to HF Foods Group Inc.		Noncontrolling Interests		Total Shareholders’ Equity
	Number of Shares	Amount		Number of Shares	Amount
Balance at December 31, 2020	51,913,411	$	5,191	0	$	0	$	587,579,093	$	(327,150,398)	$	260,433,886	$	4,367,547	$	264,801,433
Net income	—	—		—	—		—		1,522,932		1,522,932		300,267		1,823,199
Distribution to shareholders	—	—		—	—		—		—		—		(73,000)		(73,000)
Balance at March 31, 2021	51,913,411	5,191		0	0		587,579,093		(325,627,466)		261,956,818		4,594,814		266,551,632





Balance at December 31, 2019	53,050,211	5,305		(905,115)	(12,038,030)		599,617,009		15,823,661		603,407,945		4,248,787		607,656,732
Net income (loss)	—	—		—	—		—		(339,883,942)		(339,883,942)		197,410		(339,686,532)
Distribution to shareholders	—	—		—	—		—		—		—		(125,000)		(125,000)
Balance at March 31, 2020	53,050,211	$	5,305	(905,115)	$	(12,038,030)	$	599,617,009	$	(324,060,281)	$	263,524,003	$	4,321,197	$	267,845,200

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

Table of Contents

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the three months ended March 31
	2021		2020
Cash flows from operating activities:
Net Income (Loss)	$	1,823,199	$	(339,686,532)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	4,554,783		4,526,277
Goodwill impairment loss	0		338,191,407
Gain from disposal of equipment	(3,966)		(20,349)
Allowance for doubtful accounts	(82,551)		154,365
Allowance for inventories	56,578		46,687
Deferred tax benefit (expense)	(578,934)		(931,471)
Income from equity method investment	(30,200)		(35,061)
Unrealized change in fair value of interest rate swap contracts	(712,293)		0
Changes in operating assets and liabilities:
Accounts receivable, net	(5,332,442)		23,477,270
Accounts receivable - related parties, net	104,107		(1,784,762)
Inventories, net	2,608,350		1,780,693
Advances to suppliers - related parties	196,803		(119,681)
Other current assets	(773,306)		540,443
Security deposit - related parties	0		58,880
Other long-term assets	(96,672)		(15,900)
Accounts payable	8,112,975		(7,319,101)
Accounts payable - related parties	(311,320)		(783,154)
Advance from customers - related parties	0		213,354
Operating lease liability	(153,147)		(102,088)
Accrued expenses and other liabilities	1,185,320		436,529
Net cash provided by operating activities	10,567,284		18,627,806

Cash flows from investing activities:
Purchase of property and equipment	(448,173)		(160,252)
Proceeds from disposal of equipment	8,000		90,879
Payment made for acquisition of B&R Realty	0		(94,004,068)
Net cash used in investing activities	(440,173)		(94,073,441)

Cash flows from financing activities:
Repayment of bank overdraft	(4,400,272)		(1,477,738)
Proceeds from line of credit	155,897,706		174,101,782
Repayment of line of credit	(157,828,692)		(172,301,798)
Proceeds from long-term debt	0		75,600,000
Repayment of long-term debt	(1,477,381)		(1,346,136)
Repayment of long-term debt - related parties	0		(730,998)
Repayment of promissory note payable - related party	(500,000)		0
Repayment of obligations under finance leases	(72,804)		(122,498)
Cash distribution to shareholders	(73,000)		(125,000)
Net cash provided by (used in) financing activities	(8,454,443)		73,597,614

Net increase (decrease) in cash	1,672,668		(1,848,021)
Cash at beginning of the period	9,580,853		14,538,286
Cash at end of the period	$	11,253,521	$	12,690,265

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

Table of Contents

HF FOODS GROUP INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1- ORGANIZATION AND BUSINESS DESCRIPTION

Organization and General

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

The Company was originally incorporated in Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp. (“Atlantic”), in order to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with, one or more businesses or entities.

Reorganization of HF Holding

HF Group Holding Corporation (“HF Holding”) was incorporated in the State of North Carolina on October 11, ~~2017. Effective~~2017 as a holding company to acquire and consolidate the various operating entities under one roof. On January 1, 2018, HF Holding entered into a Share Exchange Agreement (the ~~“Agreement”~~“Exchange Agreement”) ~~whereby~~with the controlling shareholders of the ~~following~~ 11 entities ~~contributed their respective stocks to HF Holding~~listed below in exchange for all of HF Holding’s outstanding shares. Upon completion of the share exchanges, these entities became either wholly-owned or majority-owned subsidiaries of HF Holding.

●

~~Han Feng, Inc. (“Han Feng”)~~

●

~~Truse Trucking, Inc. (“TT”)~~

●

~~Morning First Delivery, Inc. (“MFD”)~~

●

~~R&N Holdings, LLC (“R&N Holdings”)~~

●

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

●

~~Kirnsway Manufacturing, Inc. (“Kirnsway”)~~

●

~~Chinesetg, Inc. (“Chinesetg”)~~

●

~~New Southern Food Distributors, Inc. (“NSF”)~~

●

~~B&B Trucking Services, Inc. (“BB”)~~

●

~~Kirnland Food Distribution, Inc. (“Kirnland”)~~

●

~~HG Realty LLC (“HG Realty”)~~

•Han Feng, Inc. (“Han Feng”)

•Truse Trucking, Inc. (“TT”)

•Morning First Delivery, Inc. (“MFD”)

•R&N Holdings, LLC (“R&N Holdings”)

•R&N Lexington, LLC (“R&N Lexington”)

•Kirnsway Manufacturing, Inc. (“Kirnsway”)

•Chinesetg, Inc. (“Chinesetg”)

•New Southern Food Distributors, Inc. (“NSF”)

•B&B Trucking Services, Inc. (“BB”)

•Kirnland Food Distribution, Inc. (“Kirnland”)

•HG Realty LLC (“HG Realty”)

In accordance with Financial Accounting Standards Board’s (“~~FASB)~~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. The consolidated financial statements of the Company have been prepared to report results of operations for the period in which the transfer occurred as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period presented, in this case January 1, 2018. Results of operations for the period presented comprise those of the previously separate entities combined from the beginning of the period to the end of the period. By eliminating the effects of intra-entity transactions in determining the results of operations for the period before the combination, those results were on substantially the same basis as the results of operations for the period after the date of combination. The effects of intra-entity transactions on current assets, current liabilities, revenue, and cost of sales for periods presented and on retained earnings at the beginning of the periods presented are eliminated to the extent possible. Furthermore, ASC 805-50-45-5 indicates that the financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

In accordance with ASC 805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests should initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of the transfer. If the carrying amounts of the assets and liabilities transferred differ from the historical cost of the parent of the entities under common control, then the financial statements of the receiving entity should reflect the transferred assets and liabilities at the historical cost of the parent of the entities under common control. Accordingly, the Company has recorded the assets and liabilities transferred from the above entities at their carrying amount.

~~On July 10, 2019, the Company, through its subsidiary Han Feng, Inc., formed a new real estate holding company, R & N Charlotte, LLC (“R&N Charlotte”). R&N Charlotte owns a 4.66 acre tract~~

Table of ~~land with appurtenant 115,570 square foot office/warehouse/industrial facility located in Charlotte, North Carolina.~~

Contents

The following table summarizes all the existing entities under HF ~~Foods Group Inc.~~Holding after the above-mentioned ~~reorganization:~~

reorganization, together with new entities formed after the Atlantic Transactions as described below:

~~Name~~

Name

Date of formation /

incorporation

Place of formation /

incorporation

Percentage

of legal

ownership

by HF

Group

Principal

activities

Parent:

HF Holding

October 11, 2017

North Carolina,

USA

100%

Holding ~~company~~

Company

Subsidiaries:

~~Subsidiaries:~~

Han Feng

January 14, 1997

North Carolina,

USA

100%

~~Food service~~Foodservice distributor

Kirnland

~~August 6, 2002~~

April 11, 2006

~~North Carolina~~

Georgia, USA

~~100%~~

66.7%

~~Logistic service provider~~

Foodservice distributor

~~MFD~~

NSF

~~April15, 1999~~

December 17, 2008

~~North Carolina~~

Florida, USA

100%

~~Logistic service provider~~

Foodservice distributor

~~R&N Holdings~~

HF Foods Industrial, L.L.C. ("HF Foods Industrial")

~~November 21, 2002~~

December 10, 2019

North Carolina,

USA

~~100%~~

60%

~~Real estate holding~~Food processing company

~~R&N Lexington~~

Chinesetg

~~May 27, 2010~~

July 12, 2011

~~North Carolina~~

New York, USA

100%

~~Real estate holding company~~

~~R&N Charlotte~~

~~July 10, 2019~~

~~North Carolina~~

~~100%~~

~~Real estate holding company~~

~~Kirnsway~~

~~May 24, 2006~~

~~North Carolina~~

~~100%~~

Design and printing services provider

~~Chinesetg~~

Kirnsway

~~July 12, 2011~~

May 24, 2006

North Carolina,

USA

100%

Design and printing services provider

~~NSF~~

~~December 17, 2008~~

~~Florida~~

~~100%~~

~~Food service distributor~~

September 12, 2001

Florida,

USA

100%

Logistic service provider

~~Kirnland~~

MFD

April ~~11, 2006~~

15, 1999

~~Georgia~~

North Carolina, USA

~~66.7%~~

100%

~~Food~~Logistic service ~~distributor~~

provider

August 6, 2002

North Carolina, USA

100%

Logistic service provider

HG Realty

May 11, 2012

Georgia,

USA

100%

Real estate holding company

R&N Charlotte, LLC
("R&N Charlotte")

July 10, 2019

North Carolina, USA

100%

Real estate holding company

R&N Holdings

November 21, 2002

North Carolina, USA

100%

Real estate holding company

R&N Lexington

May 27, 2010

North Carolina, USA

100%

Real estate holding company

273 Fifth Avenue, L.L.C. ("273 Co")

October 10, 2020

Delaware, USA

100%

Real estate lease holding company

Reverse Acquisition of HF Holding

~~Effective~~

On August 22, 2018, Atlantic consummated ~~the transactions contemplated by~~ a merger agreement (the “Atlantic Merger Agreement”), dated as of March 28, 2018, by and among Atlantic, HF Group Merger Sub Inc., a Delaware subsidiary formed by Atlantic, HF Holding, the stockholders of HF Holding, and Zhou Min Ni, as representative of the stockholders of HF Holding. Pursuant to the Atlantic Merger Agreement, HF Holding merged with HF Merger Sub andreverse acquisition transaction resulting in HF Holding became the surviving entity (the “Atlantic Merger”) and a wholly owned subsidiary of Atlantic (the “Atlantic Acquisition”). ~~Additionally, upon the closing of the transactions contemplated by the Atlantic Merger Agreement (the “Atlantic Closing”), (i) the~~The stockholders of HF Holding ~~became~~bec the ~~holders of a~~ majority ~~of the shares of common stock~~shareholders of Atlantic, and ~~(ii) Atlantic~~the Company changed its name to HF Foods Group, Inc. (Collectively, these transactions are referred to as the “Atlantic Transactions”).

At closing, ~~on August 22, 2018,~~ Atlantic issued the HF Holding stockholders an aggregate of 19,969,831 shares of its common stock, equal to approximately 88.5% of the aggregate issued and outstanding shares of Atlantic’s common stock. The ~~pre- Transaction~~pre-Transaction stockholders of Atlantic owned the remaining 11.5% of the issued and outstanding shares of common stock of the combined entity.

Following the consummation of the Atlantic Transactions on August 22, 2018, there were 22,167,486 shares of common stock issued and outstanding, consisting of (i) 19,969,831 shares issued to HF Holding’s stockholders pursuant to the Atlantic Merger Agreement, (ii) 400,000 shares redeemed by one of Atlantic’s shareholders in conjunction with the Atlantic Transactions, (iii) 10,000 restricted shares issued to one of Atlantic’s shareholders in conjunction with the Atlantic Transactions, and (iv) 2,587,655 shares originally issued to the pre-Transactions stockholders of Atlantic.

The Atlantic Acquisition was treated as a reverse acquisition under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For accounting purposes, HF Holding was considered to be acquiring Atlantic in this transaction. Therefore, the aggregate consideration paid in connection with the business combination was allocated to Atlantic’s tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of Atlantic were consolidated into the results of operations of HF Holding as of the completion of the business combination.

HF Holding Entities Organized Post-Atlantic Merger

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On July 10, 2019, the Company, through its subsidiary Han Feng, formed a new real estate holding company, R&N Charlotte. R&N Charlotte owns a 4.66 acre tract of land with appurtenant 115,570 square foot office/warehouse/industrial facility located in Charlotte, North Carolina.
On December 10, 2019, the Company, through its subsidiary Han Feng, formed a new food processing company, HF Foods Industrial, as owner of 60% of member interests.
On October 1, 2020, the Company, through its subsidiary HF Group Holding, formed a wholly-owned new real estate lease holding company, 273 Co.

Business Combination with B&R Global

~~Effective~~ Holdings Inc. ("B&R Global")

On November 4, 2019, HF Group consummated ~~the transactions contemplated by~~ a merger agreement (the “B&R Merger Agreement”), dated as of June 21, 2019, by and among the Company, B&R Merger Sub Inc., a Delaware corporation (“Merger Sub”), B&R Global, the stockholders of B&R Global (the ”B&R Global Stockholders”), and Xiao Mou Zhang, as representative of the stockholders (the “Business Combination”). Upon the closing of the transactions contemplated by the B&R Merger Agreement (the “Closing”), Merger Sub merged with and into B&R Global,transaction resulting in B&R Global becoming a wholly owned subsidiary of ~~HF Group. HF Group~~the Company. At closing, the Company acquired 100% of the controlling interest of B&R Global, in exchange for the issuance of 30,700,000 shares of ~~HF Group~~ Common ~~Stock.~~Stock of the Company to the shareholders of B&R Global. Pursuant to the B&R Merger Agreement, the aggregate fair value of the consideration paid by HF Group in the ~~business combination~~Business Combination was $576,699,494, based on the closing share price of the Company’s common stock at the date of Closing.

~~Founded~~

B&R Global was formed in ~~1999,~~2014 as a holding company to acquire and consolidate the various operating entities (listed below) under one roof. Through its subsidiaries, B&R Global supplies foodservice items to approximately ~~6,800~~5,000 restaurants across 11 Western ~~states, and combined~~states. The merger with HF Group, ~~creates~~created what ~~we believe~~the Company believes is the largest food ~~distributors~~distributor to Asian restaurants in the United States. The combined entity now has 1413 distribution centers strategically located in ~~nine~~8 states across the ~~East~~Southeast, Pacific and Mountain West ~~Coasts~~regions of the United States and serves over 10,000 restaurants across 22 states with a fleet of over ~~340~~300 refrigerated ~~vehicles. With 960~~vehicles, a workforce of over 780 employees and subcontractors. The Company is also supported by ~~two~~2 call centers in China ~~HF Group now serves over 10,000 restaurants in 21 states and provides~~which provide round-the-clock sales and service ~~support~~supports to its customers, who mainly converse in Mandarin or Chinese dialects.

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

~~Name~~

Name

Date of formation /

incorporation

Place of formation /

incorporation

Percentage
of legal

ownership
by B&R

Global

Principal activities

Parent:

B&R Global

January 3, 2014

Delaware, USA

—

Holding Company

Subsidiaries:

~~Rongcheng~~B&L Trading, LLC (“~~RC”~~BNL”)

~~January 31, 2006~~

July 18, 2013

~~California,~~Washington, USA

100%

~~Food service~~Foodservice distributor

Capital Trading, LLC (“UT”)

March 10, 2003

Utah, USA

100%

~~Food service~~Foodservice distributor

~~Win Woo Trading,~~Great Wall Seafood LA, LLC ~~(‘WW”~~(“GW”)

~~January 23, 2004~~

March 7, 2014

California, USA

100%

~~Food service~~Foodservice distributor

Min Food, Inc. (“MIN”)

May 29, 2014

California, USA

60.25%

Foodservice distributor

Monterey Food Service, LLC (“MS”)

September 14, 2017

California, USA

65%

Foodservice distributor

Mountain Food, LLC (“MF”)

May 2, 2006

Colorado, USA

100%

~~Food service~~Foodservice distributor

Ocean West Food Services, LLC (“OW”)

December 22, 2011

California, USA

67.5%

Foodservice distributor

R & C Trading L.L.C. (“RNC”)

November 26, 2007

Arizona, USA

100%

~~Food service~~Foodservice distributor

~~Great Wall Seafood LA, LLC (“GW”)~~

~~March 7, 2014~~

~~California, USA~~

~~100%~~

~~Food service distributor~~

~~B&L~~Rongcheng Trading, LLC (“~~BNL”~~RC”)

~~July 18, 2013~~

January 31, 2006

~~Washington,~~California, USA

100%

~~Food service~~Foodservice distributor

~~Min Food,~~Win Woo Trading, LLC (‘WW”)

January 23, 2004

California, USA

100%

Foodservice distributor

Irwindale Poultry, LLC (“IP”)

December 27, 2017

California, USA

100%

Poultry processing company

Lin’s Farms, LLC (“LNF”)

July 2, 2014

Utah, USA

100%

Poultry processing company

Kami Trading, Inc. (“~~MIN”~~KAMI”)

~~May 29, 2014~~

November 20, 2013

California, USA

~~60.25%~~

100%

~~Food~~Import service ~~distributor~~

provider

American Fortune Foods, Inc. (“AF”)

February 19, 2014

California, USA

100%

Logistic and import service provider

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

July 17, 2014

Delaware, USA

100%

~~Food~~Logistic service ~~distributor~~

provider

~~Ocean West Food Services, LLC (“OW”)~~

~~December 22, 2011~~

~~California, USA~~

~~67.5%~~

~~Food service distributor~~

~~Monterey Food Service, LLC (“MS”)~~

~~September 14, 2017~~

~~California, USA~~

~~65%~~

~~Food service distributor~~

~~Irwindale Poultry, LLC (“IP”)~~

~~December 27, 2017~~

~~California, USA~~

~~100%~~

~~Poultry processing~~

Best Choice Trucking, LLC (“BCT”)

January 1, 2011

California, USA

100%

Logistic service provider

~~KYL Group, Inc.~~Fuso Trucking Corp. (“~~KYL”~~FUSO”)

~~April 18, 2014~~

January 20, 2015

~~Nevada,~~California, USA

~~100%~~

VIE*

Logistic service provider

~~American Fortune Foods~~GM Food Supplies, Inc. (“~~AF”~~GM”)

~~February 19, 2014~~

March 22, 2016

California, USA

100%

Logistic ~~and import~~ service provider

Golden Well, Inc. (“GWT”)

November 8, 2011

California, USA

100%

Logistic service provider

Happy FM Group, Inc. (“HFM”)

April 9, 2014

California, USA

100%

Logistic service provider

~~GM Food Supplies,~~Hayward Trucking, Inc. (“~~GM”~~HRT”)

~~March 22, 2016~~

September 5, 2012

California, USA

100%

Logistic service provider

KYL Group, Inc. (“KYL”)

April 18, 2014

Nevada, USA

100%

Logistic service provider

Lin’s Distribution Inc., Inc. (“LIN”)

~~February2,~~February 2, 2010

Utah, USA

100%

Logistic service provider

~~Lin’s Farms, LLC~~MF Food Services, Inc. (“~~LNF”~~MFS”)

~~July 2, 2014~~

December 21, 2017

~~Utah,~~California, USA

100%

~~Poultry processing~~

Logistic service provider

New Berry Trading, LLC (“NBT”)

September 5, 2012

California, USA

100%

Logistic service provider

~~Hayward Trucking,~~Royal Service, Inc. (“~~HRT”~~RS”)

~~September 5, 2012~~

December 29, 2014

~~California,~~Oregon, USA

100%

Logistic service provider

~~Fuso~~Royal Trucking ~~Corp.~~Services, Inc. (“~~FUSO”~~RTS”)

~~January 20,~~May 19, 2015

~~California,~~Washington, USA

VIE*

100%

Logistic service provider

Yi Z Service, LLC (“YZ”)

~~October2,~~October 2, 2017

California, USA

100%

Logistic service provider

~~Golden Well Inc. (“GWT”)~~

~~November 8, 2011~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~Kami Trading Inc. (“KAMI”)~~

~~November 20, 2013~~

~~California, USA~~

~~100%~~

~~Import service provider~~

~~Royal Trucking Services, Inc. (“RTS”)~~

~~May 19, 2015~~

~~Washington, USA~~

~~100%~~

~~Logistic service provider~~

~~Royal Service Inc. (“RS”)~~

~~December 29, 2014~~

~~Oregon, USA~~

~~100%~~

~~Logistic service provider~~

~~MF Food Services Inc. (“MFS”)~~

~~December 21, 2017~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

*At the acquisition date and as of March 31, ~~2020,~~2021, B&R Global consolidates FUSO, which is considered as a variable interest entity (“VIE”) under U.S. GAAP, due to its pecuniary and contractual interest in this entity as a result of the funding arrangements outlined in the entity.

Acquisition of Real Estate Companies

On January 17, 2020, the Company completed the transactions contemplated by that certain membership interest purchase agreement dated the same date (the “Purchase Agreement”) by and among its subsidiary B&R Global, B&R Group Realty Holding, LLC ("~~B&R Group Realty"~~BRGR"), and ~~nine~~9 subsidiary limited liability companies wholly owned by ~~B&R Group Realty~~BRGR (the ~~“B&R Realty~~“BRGR Subsidiaries”) (the “Realty Acquisition”). Pursuant to the Purchase Agreement, B&R Global acquired all equity membership interests in the ~~B&R Realty~~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

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Acquisition was funded by (i) $75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement ~~(Note 10)~~(see Note 11 for additional information), (ii) issuance by B&R Global of a $7.0 million Unsecured Subordinated Promissory Note (the “Note”) to ~~B&R Group Realty,~~BRGR, and (iii) payment of $18.7 million from funds drawn from the Company’s revolving credit facility.

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

~~Name~~

Name

Date of formation /

incorporation

Place of formation /

incorporation

Percentage of legal

ownership by B&R

Global

Principal activities

A & Kie, LLC

("AK")

March 26, ~~2020~~

2010

Arizona,

USA

100%

Real estate holding company

B & R Realty, LLC

("BRR")

August 28, 2013

California,

USA

100%

Real estate holding company

Big Sea Realty, LLC

("BSR")

April 3, 2013

Washington,

USA

100%

Real estate holding company

Fortune Liberty, LLC

("FL")

November 22, 2006

Utah,

USA

100%

Real estate holding company

Genstar Realty, LLC

("GSR")

February 27, 2012

California,

USA

100%

Real estate holding company

Hardin St Properties, LLC

("HP")

December 5, 2012

Montana,

USA

100%

Real estate holding company

Lenfa Food, LLC

("LF")

February 14, 2002

Colorado,

USA

100%

Real estate holding company

Lucky Realty, LLC

("LR")

September 3, 2003

California,

USA

100%

Real estate holding company

Murray Properties, LLC

("MP")

February 27, 2013

Utah,

USA

100%

Real estate holding company

NOTE 2-2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. ~~GAAP.~~ GAAP for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended December 31, 2020 and 2019. Operating results for the three month periods ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The unaudited condensed consolidated financial statements include the financial statements of HF Group, its subsidiaries and the VIE. 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. All inter-company balances and transactions have been eliminated upon consolidation.

U.S. GAAP provides guidance on the identification of VIE and financial reporting for entities over which control is achieved through means other than voting interests. The Company evaluates each of its interests in an entity to determine whether or not the investee is a VIE and, if so, whether the Company is the primary beneficiary of such VIE. In determining whether the Company is the primary beneficiary, the Company considers if the Company (1) has power to direct the activities that most significantly affect the economic performance of the VIE, and (2) receives the economic benefits of the VIE that could be significant to the VIE. If deemed the primary beneficiary, the Company consolidates the VIE.

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, FUSO is considered to be a VIE. FUSO was established solely to provide exclusive services to the Company. The entity lacks sufficient equity to finance its activities without additional subordinated financial support from the Company, and the Company has the power to direct the ~~VIEs’~~VIE's activities. In addition, the Company receives the economic benefits from the entity and has concluded that the Company is a primary beneficiary.

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

March 31,
2020

December 31,
2019

Current assets
$ 211,641 $ 158,184
Non-current assets
262,009 301,803
Total assets
$ 473,650 $ 459,987
Current liabilities
$ 765,080 $ 805,666
Non-current liabilities
58,792 69,321
Total liabilities
$ 823,872 $ 874,987

For the three months ended March 31

2020

2019

Net revenue
$ 666,428 $ -
Net income
$ 64,778 $ -

For the three months ended March 31

2020

2019

Net cash provided by operating activities
$ 314,224 $ -
Net cash used in financing activities
(222,137
)
-
Net increase in cash and cash equivalents
$ 92,087 $ -

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	March 31, 2021		December 31, 2020
Current assets	$	242,014	$	47,822
Non-current assets	109,390		115,934
Total assets	$	351,404	$	163,756

Current liabilities	$	664,128	$	496,234
Non-current liabilities	33,134		39,475
Total liabilities	$	697,262	$	535,709

For the three months ended March 31
2021 2020
Net revenue $ 453,174 $ 666,428
Net income $ 26,095 $ 64,778

For the three months ended March 31
2021 2020
Net cash provided by operating activities $ 86,743 $ 314,224
Net cash provided by (used in) financing activities 16,441 (222,137)
Net increase in cash and cash equivalents $ 103,184 $ 92,087

Noncontrolling Interests

U.S. GAAP requires that noncontrolling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the amounts attributable to the net income (loss) of those subsidiaries are reported separately in the consolidated statements of operations.

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, noncontrolling ~~interest~~interests consisted of the following:


Name of Entity	Percentage of noncontrolling interest		Ownership	March 31, 2020		December 31, 2019		Name of Entity	Percentage of noncontrolling interest ownership	March 31, 2021		December 31, 2020
Kirnland		33.30	%	$	1,333,963	$	1,292,623	Kirnland	33.33%	$	1,516,750	$	1,384,780
MIN								MIN	39.75%	974,044		889,596
MS								MS	35.00%	457,107		459,816
OW		32.50	%		1,581,654		1,600,058	OW	32.50%	1,646,913		1,633,355
MS		35.00	%		487,005		459,126
MIN		39.75	%		918,575		896,980
Total				$	4,321,197	$	4,248,787	Total		$	4,594,814	$	4,367,547

Uses of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during each reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include, but are not limited to, allowance for doubtful accounts, useful lives of property and equipment, lease assumptions, impairment of long-lived assets, long-term investments, goodwill, the purchase price allocation and fair value of noncontrolling interests with respect to business combinations, realization of deferred tax assets, and uncertain income tax positions.

Cash ~~and Cash Equivalents~~

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The Company considers all highly liquid investments purchased with a maturity of three or fewer months to be cash equivalents. As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had no0 cash equivalents.

Accounts Receivable,

net

Accounts receivable represent amounts due from customers in the ordinary course of business and are recorded at the invoiced amount and do not bear interest. Receivables are presented net of the allowance for doubtful accounts in the accompanying ~~unaudited condensed~~ consolidated balance sheets. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. When the Company is aware of a customer’s inability to meet its financial obligation, a specific allowance for doubtful accounts is recorded, reducing the receivable to the net amount the Company reasonably expects to collect. In addition, allowances are recorded for all other receivables based on historic collection trends, write-offs and the aging of receivables. The Company uses specific criteria to determine uncollectible receivables to be written off, including, e.g., bankruptcy filings, the referral of customer accounts to outside parties for collection, and the length that accounts remain past due. As of March 31, ~~2020~~2021 and December 31, ~~2019, the~~2020, allowances for doubtful accounts were ~~$819,807~~$830,306 and ~~$623,970,~~$909,182, respectively.

Inventories,

net

The Company’s inventories, consisting mainly of food and other food service-related products, are primarily considered as finished goods. Inventory costs, including the purchase price of the product and freight charges to deliver it to the Company’s warehouses, are net of certain cash or non-cash consideration received from vendors. The Company assesses the need for valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory age, specifically identified items, and overall economic conditions. Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. As of March 31, ~~2020,~~2021 and December 31, ~~2019,~~2020, the valuation allowance was ~~$316,368~~$202,655 and ~~$16,928,~~$146,078, respectively.

Property and Equipment,

net

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Following are the estimated useful lives of the Company’s property and equipment:

	Estimated useful lives (years)
					Estimated useful lives (years)
Automobiles				Automobiles	3	—	7
Buildings and improvements	7	-	39	Buildings and improvements	7	—	39
Furniture and fixtures				Furniture and fixtures	4	—	10
Machinery and equipment	3	-	15	Machinery and equipment	3	—	10
Motor vehicles	5	-	7

Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterment that extends the useful lives of property, plant and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in the ~~unaudited condensed~~ consolidated statements of operations in other income or expenses.

Business Combinations

The Company accounts for its business combinations using the purchase method of accounting in accordance with ASC ~~Topic~~ 805 (“ASC 805”)- , Business Combinations. The purchase method of accounting requires that the consideration transferred be allocated to the assets, including separately identifiable assets and liabilities the Company acquired, based on their estimated fair values. The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any ~~noncontrolling~~non-controlling interests. The excess of (i) the total of cost of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over, (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in earnings.

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The Company estimates the fair value of assets acquired and liabilities assumed in a business combination. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, its estimates are inherently uncertain and subject to refinement. Significant estimates in valuing certain intangible assets include, but are not limited to future expected revenues and cash flows, useful lives, discount rates, and selection of comparable companies. Although the Company believes the assumptions and estimates it has made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain. During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. On the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.

Transaction costs associated with business combinations are expensed as incurred, and are included in ~~general~~distribution, selling and administrative expenses in the Company’s consolidated statements of operations. The results of operations of the businesses that the Company acquired are included in the Company’s consolidated financial statements from the date of acquisition.

Goodwill

~~The Company opted to early adoption of Accounting Standards Update (“ASU”) 2017-04,~~ ~~Intangibles - Goodwill and~~ ~~Other~~ ~~(Topic 350): Simplifying the Test for Goodwill Impairment~~. The standard simplifies the subsequent measurement of goodwill by removing Step 2 of the current goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new standard, an impairment loss will be recognized in the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. The Company tests goodwill for impairment at least annually, in the fourth quarter, or whenever events or changes in circumstances indicate that goodwill might be impaired.

The Company reviews the carrying values of goodwill and identifiable intangibles whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually for goodwill and indefinite lived intangible assets as required by ASC Topic 350 (“ASC 350”), Intangibles — Goodwill and Other. This guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, the Company measures any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

The Company opted 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. The Company determines the appropriate useful life of its intangible assets by measuring the expected cash flows of acquired assets. The estimated useful lives of intangible assets are as follows:


	Estimated useful lives (years)
Tradenames		10
Customer relationships		20

Long-term Investments

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

The Company follows ASC Topic 321 (“ASC 321”), Investments – Equity Securities, using the measurement alternative to measure investments in investees that do not have readily determinable fair value and over which the Company does not have significant influence at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company makes a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, the Company has to estimate the investment’s fair value in accordance with the principles of ASC Topic 820 (“ASC 820”), Fair

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

Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC Topic 323 (“ASC 323”), Investments-Equity Method and Joint Ventures. Under the equity method, the Company initially records its investment at cost and the difference between the cost and the fair value of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill, which is included in the equity method investment on the consolidated balance sheets. The equity method goodwill is not subsequently amortized and is not tested for impairment under ASC 350. The Company subsequently adjusts the carrying amount of the investment to recognize the Company’s proportionate share of each equity investee’s net income or loss into earnings after the date of investment. The Company evaluates the equity method investments for impairment under ASC 323. An impairment loss on the equity method investments is recognized in earnings when the decline in value is determined to be other-than-temporary.

The Company did ~~not~~0t record any impairment loss on its long-term investments as of March 31, ~~2020~~2021 and December 31, ~~2019.~~

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. 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 ~~not~~0t record any impairment loss on its long-lived assets as of March 31, ~~2020~~2021 and December 31, ~~2019.~~

2020.

Revenue Recognition

The Company recognizes revenue from the sale of products when title and risk of loss passes and the customer accepts the goods, which occurs at delivery. Sales taxes invoiced to customers and remitted to government authorities are excluded from net sales.

The Company follows ASU 2014-09, Revenue from Contracts with Customers ~~(“ASC Topic 606”)~~(Topic 606). The Company recognizes revenue that represents the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfer to a customer. The majority of the Company’s contracts have one single performance obligation, as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. The Company’s revenue streams are recognized at a specific point in time.

~~The contract assets and contract liabilities are recorded on~~

For the ~~consolidated balance sheets as accounts receivable and advances from customers as of March 31, 2020 and December 31, 2019. For~~ three ~~months~~month periods ended March 31, ~~2020~~2021 and ~~2019,~~2020, revenue recognized from performance obligations related to prior periods was insignificant. Revenue expected to be recognized in any future periods related to remaining performance obligations is insignificant.

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

For the Three Months Ended

March 31,
2020

March 31,
2019

North Carolina
$ 29,717,516 $ 35,259,767
Florida
19,085,809 23,130,742
Georgia
14,102,255 16,410,513
Arizona
10,011,749 -
California
67,664,956 -
Colorado
8,908,993 -
Utah
14,998,375 -
Washington
11,313,683 -
Total
$ 175,803,336 $ 74,801,022

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For the Three Months Ended
March 31,
2021 March 31,
2020
Arizona $ 11,139,602 $ 10,011,749
California 53,071,420 67,664,956
Colorado 9,475,566 8,908,993
Florida 19,385,243 19,085,809
Georgia 14,609,025 14,102,255
North Carolina 30,027,159 29,717,516
Utah 13,335,605 14,998,375
Washington 8,338,208 11,313,683
Total $ 159,381,828 $ 175,803,336

Shipping and Handling Costs

Shipping and handling costs, which include costs related to the selection of products and their delivery to customers, are ~~presented~~included in distribution, selling and administrative expenses. Shipping and handling costs were ~~$2,558,233~~$1,925,773 and ~~$1,051,120~~$2,558,233 for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740 (“ASC 740”), Income Taxes, on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company does not believe that there were any uncertain tax positions at March 31, ~~2020~~2021 and December 31, ~~2019.~~

2020.

~~Leases~~

~~On January 1, 2019, the~~The Company adopted ASU ~~2016-02,~~ ~~Leases~~2019-12 (“ASU 2019-12”), Income Taxes (Topic ~~842)~~~~. For all leases that were entered into prior~~740): Simplifying the Accounting for Income Taxes, on January 1, 2021. ASU 2019-12 is intended to ~~the effective date of Topic 842, the Company elected~~simplify various aspects related to apply the package of practical expedients. Based on this guidance the Company did not reassess the following: (1) whether any expired or existing contracts are or contain leases; (2) the lease classificationmanagerial accounting for ~~any expired or existing leases; and (3) initial direct costs for any existing leases.~~income taxes. The adoption ~~of Topic 842 did not have a~~had no material impact on the ~~Company’s~~Company's consolidated ~~statements~~financial statements.

Leases

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

As a result of ~~operations.~~

~~The adoption of Topic 842 resulted~~the Realty Acquisition (see Note 7 for additional information), 9 leases previously included in the ~~presentation~~operating lease asset and liabilities balance were eliminated during consolidation. As of ~~$21.2 million of~~March 31, 2021, the balances for operating lease assets were $15,993,197 and liabilities were $16,096,714. As of December 31, 2020, the balances for operating lease assets were $931,630 and liabilities ~~on the consolidated balance sheet as of January 1, 2019.~~were $931,630. See Note 12 for additional information.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on

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the Company’s consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of finance lease liabilities, and finance lease liabilities, non-current on the consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Earnings Per Share

The Company computes earnings per share (“EPS”) in accordance with ASC Topic 260 (“ASC 260”), Earnings per Share. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an ~~anti- dilutive~~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 no0 anti-dilutive effect for the three ~~months~~month periods ended March 31, ~~2020~~2021 and ~~2019.~~

2020.

Fair Value of Financial Instruments

The Company follows the provisions of FASB ASC ~~Topic~~ 820, ~~(“ASC 820”),~~ Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

•Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

•Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

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

Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized at the end of the reporting period in which the transfer occurs. There were no transfers between fair value levels in any of the periods presented herein.

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

Derivative Financial Instrument

In accordance with the guidance in ASC Topic 815 ("ASC 815"), Derivatives and Hedging, derivative financial instruments are recognized as assets or liabilities on the unaudited condensed consolidated balance sheets at fair value. The Company has not designated its interest rate swap ("IRS") contracts as hedges for accounting treatment. Pursuant to U.S. GAAP, income or loss from fair value changes for derivatives that are not designated as hedges by management are reflected as income or loss on the statement of operations. Net amounts received or paid under the interest rate swap contracts are recognized as an increase or decrease to interest expense when such amounts are incurred. The Company is exposed to credit loss in the event of nonperformance by the counterparty.

Concentrations and Credit Risk

Credit risk

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Accounts receivable are typically unsecured and derived from revenue earned from customers, and thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.

Concentration risk

There were no receivables from any one customer representing more than 10% of the Company’s consolidated gross accounts receivable at March 31, ~~2020~~2021 and December 31, ~~2019.~~

2020.

For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, no supplier accounted for more than 10% of the total cost of revenue. As of March 31, 2021, there were two suppliers that accounted for 24% and 11% of total outstanding advance payments, and 0 supplier that accounted for advance payments to related parties. As of December 31, 2020, two suppliers accounted for ~~56%~~22% and ~~15%~~18% of total outstanding advance payments, ~~outstanding~~ and ~~these two suppliers~~one supplier accounted for ~~79% and 21%~~96% of advance payments to related parties, respectively. As of December 31, 2019, two suppliers accounted for 34% and 15% of total advance payments outstanding and these two suppliers accounted for 70% and 30% of advance payments to related parties, respectively.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 (“ASU 2016-13”), Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU ~~16-13~~2016-13 was further amended in November 2019 in “Codification Improvements to Topic 326, Financial Instruments-Credit losses”. This guidance is effective for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years. For emerging growth companies, the effective date is has been extended to fiscal years beginning after December 31, 2022. The Company will adopt this ASU within the annual reporting period of December 31, 2023. The Company is currently assessing the impact of adopting this standard, but based ~~on a~~upon its preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

~~In August 2018, the FASB issued ASU 2018-13 (“ASU 2018-13”),~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~. ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. ASU 2018-13 eliminates certain disclosures related to transfers and the valuations process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning January 1, 2020. The Company adopted ASU 2018-13 on January 1, 2020 and the adoption did not have any material impact on its consolidated financial statements.

~~In December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”),~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~, which is intended to simplify various aspects related to managerial accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

NOTE 3 - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following:


	As of March 31, 2020			As of December 31, 2019				As of March 31, 2021		As of December 31, 2020
Accounts receivable	$	27,030,267		$	50,651,104		Accounts receivable	$	31,097,511	$	25,761,394
Less: allowance for doubtful accounts		(819,807	)		(623,970	)	Less: allowance for doubtful accounts	(830,306)		(909,182)
Accounts receivable, net	$	26,210,460		$	50,027,134		Accounts receivable, net	$	30,267,205	$	24,852,212

Movement of allowance for doubtful accounts is as follows:

For the Three Months Ended

March 31,
2020

March 31,
2019

Beginning balance
$ 623,970 $ 658,104
Provision for doubtful accounts
231,274 (99,678
)
Less: write off/recovery
(35,437
)
(3,373
)
Ending balance
$ 819,807 $ 555,053


	For the Three Months Ended
	March 31, 2021		March 31, 2020
Beginning balance	$	909,182	$	623,970
Increase (decrease) in provision for doubtful accounts	(82,551)		231,274
Less: write off/ (recovery)	3,675		(35,437)
Ending balance	$	830,306	$	819,807

~~NOTE 4- NOTES RECEIVABLE~~

On September 30, 2018, the Company entered into a line of credit promissory note agreement with Feilong Trading, Inc, which is a supplier to the Company. Pursuant to the promissory note agreement, Feilong Trading, Inc. was permitted to borrow up to $4,000,000 from time to time. The note bore interest at the rate of 5% per annum on the unpaid balance, compounded monthly. On September 30, 2019, the entire outstanding balance of $3,622,505 was sold to Mr. Zhou Min Ni in exchange for 272,369 shares of common stock of the Company, which shares were received and recorded as treasury stock by the Company as of September 30, 2019. In connection with the sale of this note receivable, the Company also required 89,882 additional shares of common stock of the Company owned by Mr. Ni to be placed in an escrow account for a period of one year (the “Escrow Period”), which will be delivered to the Company in part or in full, if the weighted average closing price of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the Escrow Period is less than $13.30.

NOTE ~~5 –~~4 - LONG-TERM INVESTMENTS

Long-term investments consisted of the following:

Ownership as of March 31,
2020

As of
March 31, 2020

As of
December 31, 2019

Pt. Tamron Akuatik Produk Industri
12% $ 1,800,000 $ 1,800,000
Asahi Food, Inc.
49% 531,337 496,276
Long-term investments
$ 2,331,337 $ 2,296,276

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	Ownership as of March 31, 2021	As of March 31, 2021		As of December 31, 2020
Asahi Food, Inc.	49%	$	607,364	$	577,164
Pt. Tamron Akuatik Produk Industri	12%	1,800,000		1,800,000
Total		$	2,407,364	$	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 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 no0 impairment as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 for these investments.

NOTE 65 - PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	As of March 31, 2020			As of December 31, 2019
								As of March 31, 2021		As of December 31, 2020
Automobiles							Automobiles	$	24,549,095	$	24,544,094
Building							Building	71,285,127		71,285,127
Building improvements							Building improvements	9,923,124		9,807,234
Furniture and fixtures							Furniture and fixtures	223,995		223,996
Land	$	50,744,295		$	2,010,253		Land	52,125,900		52,125,900
Buildings and improvements		80,690,964			26,903,528
Machinery and equipment		14,431,258			13,412,961		Machinery and equipment	14,056,946		13,498,211
Motor vehicles		24,235,114			23,841,730
Subtotal		170,101,631			66,168,472		Subtotal	172,164,187		171,484,562
Less: accumulated depreciation		(30,160,238	)		(28,630,325	)	Less: accumulated depreciation	(36,120,204)		(34,615,477)
Property and equipment, net	$	139,941,393		$	37,538,147		Property and equipment, net	$	136,043,983	$	136,869,085

The Company acquired $102,331,567 of property and equipment resulting from an acquisition of assets from B&R Realty Group on January 17, 2020. See Note 87 for additional information.

Depreciation expense was ~~$1,651,505~~$1,526,691 and ~~$707,396~~$1,651,505 for the three ~~months~~month periods ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

NOTE ~~7 –~~6 - BUSINESS COMBINATION WITH B&R GLOBAL

Effective November 4, 2019, HF Group acquired 100% of the controlling interest of B&R Global, in exchange for 30,700,000 shares of HF Group Common Stock. HF Group is considered as both the legal and accounting acquirer based on the fact that there was no change of control in connection with this ~~business combination.~~Business Combination. The aggregate fair value of the consideration paid by HF Group in the ~~business combination~~Business Combination is $576,699,494 and is based on the closing share price of the Company’s common stock at the date of Closing.

The information included herein has been prepared based on the allocation of the purchase price using estimates of the fair value of assets acquired and liabilities assumed which were determined with the assistance of independent valuations using quoted market prices, discounted cash flow, and estimates made by management. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets and liabilities acquired are fully evaluated by the Company, not to exceed one year as permitted under ASC 805.

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

Cash
$ 7,017,467
Accounts receivable, net
30,934,831
Accounts receivable - related parties, net
3,393,930
Inventories, net
56,451,885
Other current assets
2,332,063
Other current assets - related parties
498,211
Advances to suppliers, net
97,964
Property and equipment, net
11,042,601
Deposit
281,282
Deposit – related parties
591,380
Long-term investments
2,289,389
Right-of-use assets
17,791,681
TANGIBLE ASSETS ACQUIRED
132,722,684

Lines of credit
35,567,911
Accounts payable
24,884,247
Accounts payable - related parties
1,528,139
Bank overdraft
12,082,094
Accrued expenses
778,779
Other payables
185,938
Other payables – related party
733,448
Customer deposits
38,510
Long-term debt
3,284,159
Lease liabilities
17,791,680
Deferred tax liabilities arising from acquired intangible assets
51,413,633
TANGIBLE LIABILITIES ASSUMED
148,288,538
NET TANGIBLE LIABILITIES ASSUMED
(15,565,854
)

Identifiable intangible assets
188,503,000
Goodwill
406,703,348
INTANGIBLE ASSETS ACQUIRED
595,206,348

Noncontrolling interests
2,941,000
Total consideration
$ 579,640,494

The Company recorded acquired intangible assets of $188,503,000. These intangible assets include tradenames ofvalued at $29,303,000 and customer relationships ofvalued at $159,200,000. The associated goodwill and intangible assets are not deductible for tax purposes.

~~The amounts of revenue and earnings of~~

NOTE 7 - ACQUISITION OF B&R ~~Global included in the Company’s consolidated statement of income for the three months ended March 31, 2020 are as follows:~~

For the three
months ended
March 31,
2020

Net Revenue
$ 112,897,756

Net Income
$ (340,298,022
)
REALTY SUBSIDIARIES

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The following table presents the Company’s unaudited pro forma results for the three months ended March 31, 2019, as if the Business Combination had occurred on January 1, 2019. The unaudited pro forma financial information presented includes the effects of adjustments related to the amortization of acquired intangible assets, and excludes other non-recurring transaction costs directly associated with the acquisition such as legal and other professional service fees. Statutory rates were used to calculate income taxes.

For the three
months ended
March 31,

2019

Pro forma Net revenue
$ 208,955,366
Pro forma Net income
2,924,375 ⁽¹⁾
Pro forma Net income attributable to HF Group
2,678,359 ⁽¹⁾

Pro forma earnings per common share - basic and diluted
$ 0.05

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

~~(1)~~

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

~~NOTE 8 – ACQUISITION OF B&R REALTY SUBSIDIARIES~~

On January 17, 2020, B&R Global acquired ~~all~~100% equity membership interests inof the ~~B&R Realty~~ subsidiaries of BRGR, which own warehouse facilities that were being leased byto B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana. ~~Co-CEO~~CEO of the Company, Xiao Mou Zhang, managed and owned an 8.91% interest in ~~B&R Group Realty.~~BRGR. The total purchase price for the acquisition was $101,269,706, ~~which is~~ based on independent appraisals of the fair market value ~~appraisals~~ of the ~~properties owned by the B&R Realty subsidiaries.~~

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 ~~in which the buildings are~~ all used for warehousing and distribution purposes). As such, the acquisition of ~~Selling B&R Global Realty~~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 11 for additional information), (ii) issuance by B&R Global of a $7.0 million Unsecured Subordinated Promissory Note to ~~B&R Group Realty~~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 ~~B&R Group Realty~~BRGR from its obligations to the lenders under the First Amended Credit Agreement (See Note 1011 for additional information) and predecessor financing arrangements.

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

Cash
$ 265,639
Automobile
33,690
Prepaids
39,193
Land
48,734,042
Buildings
53,563,835
ASSETS ACQUIRED
102,636,399

Accounts payable and Accrued Expenses
1,366,693
LIABILITIES ASSUMED
1,366,693
NET ASSETS ACQUIRED
$ 101,269,706


Cash	$	265,639
Automobile	33,690
Prepaids	39,193
Land	48,734,042
Buildings	53,563,835
Total assets acquired	102,636,399

Accounts payable and accrued expenses	1,366,693
Total liabilities assumed	1,366,693
Net assets acquired	$	101,269,706

NOTE 98 - GOODWILL AND ACQUIRED INTANGIBLE ASSETS

Goodwill

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

HF Group

B&R Global

Total

Balance at December 31, 2019
$ - $ 406,703,348 $ 406,703,348
Balance at March 31, 2020⁽¹⁾
$ - $ 68,511,941 $ 68,511,941


	HF		B&R Global		Total
Balance at December 31, 2020	$	0	$	68,511,941	$	68,511,941
Impairment loss	0		0		0
Balance at March 31, 2021	$	0	$	68,511,941	$	68,511,941

The Company ~~had~~ booked approximately $406.7 million of goodwill on December 31, 2019, resulting from the completion of business combination with B&R Global, which represents the excess of the purchase price over the fair value of net assets acquired. HF Group acquired 100% of the controlling interest of B&R Global, in exchange for 30,700,000 consideration shares of HF Group Common Stock, valued at $576,699,494 based upon the closing share price of the Company’s common stock at the date of Closing on ~~December 31,~~November 4, 2019. The ~~Company tests~~Company's policy is to test goodwill for impairment annually in the fourth quarter, or more frequently if certain triggering events or circumstances indicate it could be impaired. Potential impairment indicators include (but are not limited to) macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit, or sustained decrease in share price.

~~During~~

Towards the end of first quarter of fiscal year 2020, ~~as a result of~~the Company experienced significant ~~declines~~decline in ~~the Company’s~~ business volume due to mandatory stay-at-home orders issued by governmental authorities in response to the intensification of the COVID-19 ~~pandemic, the~~pandemic. The Company determined that the B&R Global reporting unit was very sensitive to these declines and that it was more likely than not that an impairment may exist. The Company, therefore, performed an analysis of the fair value of the B&R

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Global reporting unit as of March 31, 2020 using a discounted cash flow method for goodwill impairment testing purposes. Based ~~on this~~upon the analysis, the Company ~~determined~~concluded that the carrying value of its B&R Global reporting unit exceeded its fair value by approximately $338.2 million. As a result, the company recorded the amount as impairment ~~charges~~loss during the first quarter of fiscal year 2020.

The Company estimated the fair values of the B&R Global reporting unit using the income approach, discounting projected future cash flows based onupon 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)~~("WACC"), future revenue, profitability, perpetual growth rates and fair values of assets and liabilities. The fair value conclusions as of March 31, 2020 for the reporting unit are highly sensitive to changes in the WACC, which ~~considered~~consider observable data about guideline publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization. The Company also observed that the WACC applied on March 31, 2020 increased significantly from the ~~one on~~original WACC value as of the acquisition date, mainly driven by the increased risk and volatility observed in the market. Volatility ~~has~~had primarily been due to concerns about demand for food distribution services, as restaurant activity in much of the country ~~has~~had been reduced to takeout and delivery offerings. ~~Furthermore, increased~~Continued uncertainty about the ~~unwinding~~removal or perpetuation of these restrictions and levels of consumer spending ~~are driving the uncertainty and subsequent~~cause ongoing volatility.

In addition, the fair value of the goodwill is sensitive to the changes in the assumptions used in the projected cash flows, which include forecasted revenues and perpetual growth rates, among others, all of which require significant ~~judgments~~judgment by management. The ~~company~~Company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future ~~changes,~~conditions, industry and global economic and geo-political ~~conditions,~~factors, and the timing and success of the Company's implementation of current strategic initiatives. ~~The impact~~

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 the COVID-19 pandemic on estimated future cash flows is uncertain and will largely depend on the outcome of future events, which could result in further goodwill impairments going forward. The company will complete its annual impairment test in the fourth quarter of fiscal 2020.

March 31, 2021.

Acquired Intangible Assets

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


	At March 31, 2020							At December 31, 2019								As of March 31, 2021						As of December 31, 2020
	Gross Carrying Amount		Accumulated Amortization			Net Carrying amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Tradenames	$	29,303,000	$	(1,220,958	)		28,082,042	$	29,303,000	$	(488,383	)		28,814,617	Tradenames	$	29,303,000	$	(4,151,258)	$	25,151,742	$	29,303,000	$	(3,418,683)	$	25,884,317
Customer relationships		159,200,000		(3,316,667	)		155,883,333		159,200,000		(1,326,667	)		157,873,333	Customer relationships	159,200,000		(11,276,667)		147,923,333		159,200,000		(9,286,667)		149,913,333
Total	$	188,503,000	$	(4,537,625	)		183,965,375	$	188,503,000	$	(1,815,050	)		186,687,950	Total	$	188,503,000	$	(15,427,925)	$	173,075,075	$	188,503,000	$	(12,705,350)	$	175,797,650

~~Since~~

COVID-19 has had aan adverse impact on the Company’s customers, which was a triggering event, the Company performed interim long-lived asset quantitative impairment tests as of March ~~30, 2020.~~31, 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. Based on the test for recoverability using undiscounted cash flows attributable to the asset (or asset group), the sum of the undiscounted cash flows exceeded the carrying value of the measured asset (or asset group). As such, no0 impairment was recorded for the finite lived ~~assets.~~

assets as of March 31, 2021.

HF Group’s amortization expense for intangible assets was $2,722,575 and $2,722,575 for the three ~~months~~month periods ended March 31, ~~2020~~2021 and ~~nil for the three months ended~~ March 31, ~~2019,~~2020, respectively. Estimated future amortization expense for intangible assets is presented below:

Twelve months ending March 31,

2021
$ 10,890,300
2022
10,890,300
2023
10,890,300
2024
10,890,300
2025
10,890,300
Thereafter
129,513,875
Total
$ 183,965,375

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Twelve months ending March 31,	Amount
2022	$	10,890,300
2023	10,890,300
2024	10,890,300
2025	10,890,300
2026	10,890,300
Thereafter	118,623,575
Total	$	173,075,075

NOTE 109 - ~~LINES OF CREDIT~~

DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes interest rate swaps for the sole purpose of mitigating interest rate fluctuation risk associated to floating rate debt instruments (as defined in Note 11 Lines of Credit, and Note 12 Long-Term Debt). The Company does not use any other derivative financial instruments for trading or speculative purposes.

On ~~July 1, 2016, Han Feng,~~August 20, 2019, HF ~~Group’s main operating entity,~~Group entered into a line of credit agreement with East West Bank. The line of credit agreement provided for a revolving credit of $14,500,000. The line of credit was secured by virtually all assets of Han Feng, the premises and an adjoining undeveloped parcel of land owned by R&N Holding, and premises owned by R&N Lexington. The principal and all accrued unpaid interest were originally due in May 2018 and then extended to May 27, 2019, in order to provide an uninterrupted credit facility while the renewal of the line of credit is being reviewed by the bank. Interest was based on the prime rate less 0.15%, but in no event less than 3.25% per annum, and was payable monthly. On April 18, 2019, this $5,156,018 obligation was repaid in full with proceeds from the Credit Agreement2 IRS contracts with East West Bank (the "EWB IRS") for initial notional amounts of $1.05 million and $2.625 million, respectively. The EWB IRS contracts were entered into ~~on April 18,~~in conjunction with 2 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 2 term loans at 4.23% per annum until maturity in September 2029.

On December 19, 2019, ~~as described below.~~

HF Group entered into an IRS contract with Bank of America (the "BOA IRS") for an initial notional amount of $2.74 million in conjunction with a newly contracted mortgage term loan of corresponding amount. The term loan was contracted at USD 1-month LIBOR plus 2.15% per annum but was fixed at 4.25% per annum resulting from the corresponding BOA IRS contract. The term loan and corresponding BOA IRS contract matures in December, 2029.

On ~~November 14, 2012, NSF, another operating entity,~~June 24, 2020, HF Group entered into a line of credit agreement with Bank of America. The line of credit agreement provided for a revolving credit of $4,000,000. The line of credit was secured by three real properties owned by NSF, and guaranteed by the two shareholders of the Company, as well as BB, a subsidiary of the Company. The maximum borrowings were determined by certain percentages of eligible accounts receivable and inventories. The principal and all accrued unpaid interest were originally due in January 2018 and subsequently extended to February 2020. Interest was based on the LIBOR rate plus 2.75%. On April 18, 2019, this $954,984 obligation was paid off in full with proceeds from the Credit Agreement with East West Bank entered into on April 18, 2019, as described below.

On April 18, 2019, the Company, Han Feng, NSF and Kirnland entered into a Credit Agreement (the “Credit Agreement”) with East West Bank. The Credit Agreement provided for a $25 million secured line of credit facility available to be used in one or more revolving loans to the Company’s domestic subsidiaries that were parties to the Credit Agreement for working capital and general corporate purposes. Han Feng, NSF and Kirnland (the “Borrower Subsidiaries”) were the borrowers and the Company and each of its other material subsidiaries were guarantors of all the obligations under the Credit Agreement. The original maturity of the line of credit was August 18, 2021. Contemporaneously with the execution of the Credit Agreement, existing senior debt of the Borrower Subsidiaries in the amount of $6,111,692 was paid from revolving loans drawn on the line of credit. Under the Credit Agreement, the Borrower subsidiaries were to pay interest on the principal amounts drawn on the line of credit at a rate per annum equal to (a) 0.375% below the Prime Rate in effect from time to time, or (b) 2.20% above the LIBOR Rate in effect from time to time, depending on the rate elected at the time a borrowing request is made, but in no event would the interest rate of any revolving loan at any time be less than 4.214% per annum (4.625% at September 30, 2019). The outstanding balance on the line of credit at September 30, 2019 was $11,864,481. The Credit Agreement contained certain financial covenants which, among other things, required Han Feng to maintain certain financial ratios. On November 4, 2019, the line of credit was paid off from borrowings under the Amended and Restated Credit Agreement entered into in connection with the closing of the merger with B&R Global as described below. The outstanding balance paid off, including accrued interest, was $13,864,481.

~~On November 4, 2019, the Company entered into an Amended and Restated Credit Agreement~~forward starting IRS contract with JP Morgan Chase Bank ~~N.A. (“JP Morgan”~~(the "JPM IRS"). for a fixed $80 million notional amount, effective from June 30, 2021 and expiring on June 30, 2025, as a means to partially hedge its existing floating rate loans exposure. On March 3, 2021, the Company unwound the JPM IRS. The ~~Amended~~contract was unwound with a view that 1-month LIBOR will continue to remain low in the foreseeable future despite the spike at the long end of the yield curve. The Company recorded a gain of $718,600 in the first quarter of 2021.

The Company evaluated the above mentioned interest rate swap contracts currently in place and ~~Restated~~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 March 31, 2021 and December 31, 2020, the Company has determined that the fair value of the interest rate swap obligations was $281,223 and $993,516, respectively. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in its assessment of fair value. The interest rate swaps are classified as Level 3 liabilities and fair value was obtained from the respective counterparties.

NOTE 10 - LINE OF CREDIT

The JPM Credit Agreement provides for a $100 million asset-secured revolving credit facility maturing on November 4, 2022, with an option to renew at the bank’s discretion. The ~~line of~~ credit isfacility was collateralized by all assets of the Company and iswas also guaranteed by B&R Group Realty and B&R Realty Subsidiaries, which ~~are related parties of~~B&R Realty Subsidiaries were subsequently acquired by the ~~Company.~~Company on January 17, 2020 (See Note 8 for additional information). The JPM Credit Agreement was later superseded by a Second Amended and Restated Credit Agreement ~~contains financial covenants requiring the Company on a consolidated basis to maintain a Fixed Charge Coverage Ratio of 1.10 to 1.00, determined~~("Second Amended Credit Agreement") as ~~of the end of each fiscal quarter for the four fiscal quarter periods then ended. As of March 31, 2020, the Company was in compliance with the covenants under the credit agreement.~~

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”), ~~as borrowers,~~ and certain material subsidiaries of the Company as guarantors, entered into athe Second Amended ~~and Restated~~ Credit Agreement ~~(the “Second Amended Credit Agreement”)~~ with JPMorgan, ~~Chase Bank, N.A. (“JPMorgan”),~~ as Administrative Agent, and certain lender parties thereto, including Comerica Bank. The Second Amended Credit Agreement, provides for ~~(a)~~(i) a $100 million asset-secured revolving credit facility maturing on November 4, 2022 (the ~~“Facility”~~“Revolving Facility”), and ~~(b)~~(ii) mortgage-secured ~~Term Loans~~term loan of $75.6 ~~million.~~ million ("Term Loan").

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The ~~Second Amended Credit Agreement amends and restates the~~ existing $55.0 million of real estate term loans evidenced by that certain Amended and Restated Credit Agreement, dated as of November 4, 2019, among the Company, B&R Global, its affiliates and JP Morgan Chase Bank, N.A., as Administrative Agent and sole lender (the “First Amended Credit Agreement”). As of January 17, 2020, the existingrevolving credit facility balance of ~~revolving debt~~$41.2 million under the First Amended Credit Agreement, ~~$41.2 million,~~ 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 an additional $18.7 million ~~available to the Company under the Facility was drawn. The Company and B&R used the $75.6 million in mortgage-secured term loans and $18.7 million drawn~~drawdown from the ~~revolving credit facility~~Revolving Facility to fund in part the acquisition of 10 warehouse facilities owned by the ~~Selling~~selling BRGR Subsidiaries, which B&R ~~Group Realty Subsidiaries, which the Company has~~Global had been leasing for its operations in California, Arizona, Utah, Colorado, Washington, and Montana. The Second Amended Credit Agreement contained certain financial covenants and as of March 31, 2021, the Company was in compliance with the covenants under the Second Amended Credit Agreement. The outstanding principal balance on the line of credit as of March 31, ~~2020~~2021 was ~~$43.1~~$16.4 million.

NOTE 11 - LONG-TERM DEBT

Long-term debt at March 31, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows:

Bank name

Maturity

Interest
rate at
March 31,
2020

As of
March 31,
2020

As of
December 31,
2019

East West Bank – (a)

August 2027 - September 2029

3.83%
-
4.25%

$
6,942,702

$
6,989,016

Capital Bank – (b)

October 2027

3.85%

4,919,094

4,967,075

Bank of America – (c)

April 2021 – December 2029

3.75%
-
5.51%

5,696,670

4,263,663

J.P. Morgan Chase (d)

February 2023 – January 2030

3.46%

77,516,030

2,702,371

BMO Harris Bank – (e)

April 2022 - January 2024

5.87%
-
5.99%

397,378

508,564

Peoples United Bank – (e)

April 2020 – January 2023

6.69%
-
7.53%

981,749

1,114,993

Other finance companies – (e)

May 2020 – March 2024

3.9%
-
6.14%

639,323

716,315

Total debt 97,092,946 21,261,997
Less: current portion (6,941,738 ) (2,726,981 )
Long-term debt $ 90,151,208 $ 18,535,016


Bank name	Maturity	Interest rate as of March 31, 2021			As of March 31, 2021		As of December 31, 2020
Bank of America – (a)	April 2021 - December 2029	3.73%	—	5.51%	$	5,903,576	$	5,905,472
BMO Harris Bank N.A. – (b)	April 2022 - January 2024	5.87%	—%	5.99%	239,334		280,164
East West Bank – (c)	August 2027 - September 2029	3.83%	—	4.25%	6,752,747		6,802,271
First Horizon Bank – (d)	October 2027	3.85%			4,722,997		4,773,378
J.P. Morgan Chase – (e)	February 2023 - January 2030	1.99%	—	2.12%	73,745,065		74,687,806
Peoples United Bank – (b)	December 2022 - January 2023	6.69%	—	7.53%	642,965		725,282
Other finance institutions – (b)	July 2022 - March 2024	3.90%	—	6.14%	430,750		475,689
Total debt					92,437,434		93,650,062
Less: current portion					(5,898,994)		(5,641,259)
Long-term debt					$	86,538,440	$	88,008,803

The terms of the various loan agreements related to long-term bank borrowings ~~contain certain restrictive financial covenants which, among other things,~~ require the Company to ~~maintain specified ratios of debt to tangible net assets and debt service coverage.~~comply with certain financial covenants. As of March 31, ~~2020,~~2021 and December 31, ~~2019,~~2020, the Company was in ~~compliance with such covenants.~~

compliance.

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

~~(a)~~

Guaranteed by two shareholders of the Company, as well as five subsidiaries of the Company, Han Feng, TT, MFD, R&N Holding and R&N Lexington. Also secured by assets of Han Feng and R&N Lexington and R&N Holding, two real properties of R&N Holding, and a parcel of real property owned by R&N Lexington. Balloon payment of $2,293,751 is due in 2027 and another balloon payments of $3,007,239 is due in 2029.

~~(b)~~

~~Guaranteed by two shareholders, as well as Han Feng, a subsidiary of the Company. Also secured by a real property owned by HG Realty. Balloon payment for this debt is $3,116,687.~~

~~(c)~~

Guaranteed by two shareholders, as well as two subsidiaries of the Company, NSF and BB. Secured by real property, equipment and fixtures, inventories, receivables and all other personal property owned by NSF. Balloon payment for this long-term debt is $1,382,046.

~~(d)~~

Real estate term loan with a principal balance of $75,007,690 is secured by assets held by nine subsidiaries of the Company, AK, BRR, BSR, FL, GSR, HP, LF, LR, and MP. Equipment term loan with a principal balance of $2,508,340 is secured by specific vehicles and equipment as defined in loan agreements.

~~(e)~~

~~Secured by vehicles.~~

(a)Guaranteed by 2 subsidiaries of the Company, NSF and BB, and also secured by real property, equipment and fixtures, inventories, receivables and all other personal property owned by NSF. Balloon payment for this long-term debt is $1,382,046.

(b)Secured by vehicles.

(c)Guaranteed by 5 subsidiaries of the Company, Han Feng, TT, MFD, R&N Holdings and R&N Lexington, in part by one shareholder and spouse, and also secured by assets of Han Feng and R&N Lexington and R&N Holdings, 2 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. Also secured by a real property owned by HG Realty. Balloon payment for this debt is $3,116,687.

(e)Real estate term loan with a principal balance of $72,012,901 as of March 31, 2021 is secured by assets held by nine subsidiaries of the Company, AK, BRR, BSR, FL, GSR, HP, LF, LR, and MP. Equipment term loan with a principal balance of $1,732,164 as of March 31, 2021 is secured by specific vehicles and equipment as defined in loan agreements.

The future maturities of long-term debt as of March ~~31,2020~~31, 2021 are as follows:

Twelve months ending March 31,

2021
$ 6,941,738
2022
5,597,456
2023
5,128,522
2024
4,020,194
2025
3,698,486
Thereafter
71,706,550
Total
$ 97,092,946

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Twelve months ending March 31,	Amount
2022	$	5,898,994
2023	5,475,300
2024	4,264,783
2025	4,025,088
2026	4,061,240
Thereafter	68,712,029
Total	$	92,437,434

NOTE 12 - LEASES

~~On January 1, 2019, the Company adopted ASU 2016-02,~~ ~~Leases (ASC Topic 842)~~~~. For all leases that were entered into prior to the effective date of Topic 842, the Company elected to apply the package of practical expedients.~~

The Company leases office space, warehouses and ~~warehouses~~vacant land for building development under non-cancelable operating leases, with terms typically ranging from one to ~~five~~thirty years, as well as operating and finance leases for vehicles and delivery trucks, forklifts and computer equipment with various expiration dates through ~~2021.~~2050. The Company determines whether an arrangement is or includes an embedded lease at contract inception.

Operating lease assets and lease liabilities are recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term. Lease expense is recognized on a straight-line basis over the lease term. For finance leases, the Company also recognizes a finance lease ~~asset~~assets and finance lease ~~liability~~liabilities at inception, with lease expense recognized as interest expense and amortization of the lease payment.

Operating Leases

The components of lease expense were as follows:

For the Three Months Ended

March 31,
2020

March 31,
2019

Operating lease cost
$ 503,057 $ 164,752

Weighted Average Remaining Lease Term (Months)

Operating leases
36 31

Weighted Average Discount Rate

Operating leases
4.1 % 5.1 %


	For the Three Months Ended
	March 31, 2021			March 31, 2020
Operating lease cost	$	572,135		$	503,057

Weighted Average Remaining Lease Term (Months)
Operating leases	312			36

Weighted Average Discount Rate
Operating leases	2.08		%	4.10		%

Finance Leases

The components of lease expense were as follows:


	For the Three Months Ended					For the Three Months Ended
	March 31, 2020		March 31, 2019			March 31, 2021		March 31, 2020
Finance leases cost:					Finance leases cost:
Amortization of right-of-use assets	$	139,687	$	145,879	Amortization of right-of-use assets	$	87,176	$	139,687
Interest on lease liabilities		27,903		32,327	Interest on lease liabilities	20,625		27,903
Total finance leases cost	$	167,590	$	178,206	Total finance leases cost	$	107,801	$	167,590

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

For the Three Months Ended

March 31,
2020

March 31,
2019

Operating cash flows from finance leases
27,903 32,327

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	For the Three Months Ended
	March 31, 2021		March 31, 2020
Operating cash flows from finance leases	$	20,625	$	27,903

Supplemental balance sheet information related to leases was as follows:

	March 31, 2020			December 31, 2019
								March 31, 2021			December 31, 2020
Finance Leases							Finance Leases
Property and equipment, at cost	$	2,793,731		$	2,793,731		Property and equipment, at cost	$	2,793,731		$	2,793,731
Accumulated depreciation		(1,432,817	)		(1,293,130	)	Accumulated depreciation	(1,918,495)			(1,831,318)
Property and equipment, net	$	1,360,914		$	1,500,601		Property and equipment, net	$	875,236		$	962,413

Weighted Average Remaining Lease Term (Months)							Weighted Average Remaining Lease Term (Months)
Finance leases		51			54		Finance leases	41			43

Weighted Average Discount Rate							Weighted Average Discount Rate
Finance leases		7.52	%		7.51	%	Finance leases	7.57		%	7.56		%

Maturities of lease liabilities were as ~~follows~~

follows:


Twelve months ending March 31,	Operating Leases			Finance Leases			Twelve months ending March 31,	Operating Leases		Finance Leases
2021	$	395,354		$	373,715
2022		288,902			352,151		2022	$	999,730	$	424,308
2023		245,773			334,224		2023	985,718		320,868
2024		78,784			295,250		2024	856,936		288,572
2025		-			162,142		2025	816,708		165,248
2026							2026	723,859		0
Thereafter							Thereafter	17,466,321		0
Total Lease Payments		1,008,813			1,517,482		Total Lease Payments	21,849,272		1,198,996
Less Imputed Interest		(125,261	)		(249,599	)	Less Imputed Interest	(5,752,558)		(218,012)
Total	$	883,552		$	1,267,883		Total	$	16,096,714	$	980,984

On July 2, 2018, AnHeart Inc. ("AnHeart"), a former wholly-owned subsidiary of HF Holding, entered into ~~two~~2 separate leases for ~~two buildings~~2 properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, ~~respectively, which are~~respectively. The leases were on a triple net ~~leases,~~basis, meaning ~~that~~ AnHeart is required to pay all costs associated with the ~~buildings,~~properties, including taxes, insurance, utilities, maintenance and repairs. HF Holding provided a corporate guaranty for all rent and related costs of the leases, including costs associated with the planned construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue.

The Company entered into the leases with the planned purpose of expanding its product lines to include Chinese herb supplements, and to use the sites to develop into a hub for such products. The Company has since determined to cease this business expansion in early 2019.

On February 23, 2019, HF ~~Group~~Holding executed an agreement to ~~transfer~~divest all of its ownership interest in AnHeart to Ms. Jianping An, a resident of New York, for athe sum of $20,000. The transfer of ownership was completed on May 2, 2019. However, the ~~transfer of ownership~~divestment does not release HF Holding’s guaranty of AnHeart’s obligations or liabilities under the original lease agreements. Under the terms of the sale of AnHeart stock to Ms. An, and in consideration of the Company’s ongoing guaranty of AnHeart’s performance of the lease obligations, AnHeart granted to the Company a security interest in all AnHeart assets, together with a covenant that the Company will be assigned the leases, to be exercised if AnHeart ~~defaults.~~defaults on the original lease agreements. Further, ~~AnHeart~~Ms. An has tendered an unconditional guaranty of all AnHeart liabilities arising from the leases, in favor of the Company, executed by Minsheng Pharmaceutical Group Company, Ltd., a Chinese manufacturer and distributor of herbal medicines.

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“273 Lease Agreement”) dated as of July 2, 2018, by and between AnHeart, a former subsidiary of the Company, and Premier 273 Fifth, LLC ("Landlord"). On the same date, the closing documents were delivered to effectuate the amendment of the 273 Lease Agreement pursuant to an Amendment to Lease (the “Lease Amendment”). The Assignment and the 273 Lease Amendment were negotiated pursuant to guarantee obligations of the Company’s wholly owned subsidiary, HF Holding as guarantor under the Lease Agreement. 273 Co has agreed to observe all the covenants and conditions of the Lease Agreement, as amended, including the payment of all rents due. Under the terms of the Lease Agreement and the Assignment, 273 Co has undertaken to construct, at Company’s expense, a building on the premises, at a minimum cost of $2,500,000. The 273 Lease Agreement and the Lease Amendment provide for a term of 30 years, with option to renew for 10 additional years, at an annual rent starting at $325,000 and escalating annually throughout the term, with the annual rent in the final year of the initial term of $1,047,974. The 273 Lease Amendment further granted certain rent abatement to the premises for 2020 and 2021, including a 20% reduction of annual rent in 2021. The Lease Amendment permits subletting of the premises.

NOTE 13 –- SUPPLEMENTAL CASH FLOWS INFORMATION

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

For the Three Months Ended

March 31,
2020

March 31,
2019

Supplemental disclosure of cash flow data:

Cash paid for interest
$ 814,077 $ 379,969
Cash paid for income taxes
$ 93,315 -
Supplemental disclosure of non-cash investing and financing activities

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


	For the Three Months Ended
	March 31, 2021		March 31, 2020
Supplemental disclosure of cash flow data
Cash paid for interest	$	725,669	$	814,077
Cash paid for income taxes	$	47,552	$	93,315

Supplemental disclosure of non-cash investing and financing activities
Right of use assets obtained in exchange for operating lease liabilities	$	15,318,231	$	0

Property and equipment purchases from notes payable	$	257,450	$	1,633,614
Issuance of promissory note for the acquisition of B&R Realty Subsidiaries	$	0	$	7,000,000

NOTE 14 - TAXES

~~Corporate Income Taxes (“CIT”)~~

Corporate Income Taxes (“CIT”)

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign income. The Act also created a new minimum tax on certain future foreign earnings. The Company ~~expects the new federal income tax rate will significantly lower the Company’s income tax expenses going forward. The Company~~ does not expect the repatriation tax and new minimum tax on certain future foreign earnings to have any impact on the Company’s operations since it currently has no foreign income and does not expect to generate any foreign income in the future.

~~(i)~~

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

For the Three Months Ended

March 31,
2020

March 31,
2019

Current income taxes:

Federal
$ 359,600 $ 392,484
State
89,660 139,386
Current income taxes
449,260 531,870
Deferred income taxes (benefit):

Federal
(723,342
)
103,060
State
(208,129
)
12,709
Deferred income taxes (benefit)
(931,471
)
115,769
Total provision (benefit) for income taxes
$ (482,211 ) $ 647,639

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


	For the Three Months Ended
	March 31, 2021		March 31, 2020
Current income taxes:
Federal	$	963,860	$	359,600
State	222,281		89,660
Current income taxes	1,186,141		449,260
Deferred income taxes (benefit):
Federal	(425,208)		(723,342)
State	(153,726)		(208,129)
Deferred income taxes (benefit)	(578,934)		(931,471)
Total provision (benefit) for income taxes	$	607,207	$	(482,211)

~~(ii)~~

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

As of
March 31,
2020

As of
December 31,
2019

Deferred tax assets:

Allowance for doubtful accounts
$ 405,255 $ 373,438
Inventories
590,255 594,628
Federal NOL
228,637 228,637
State NOL
86,383 80,514
Basis in intangible assets
52,467 -
Accrued expenses
128,082 80,100
Total deferred tax assets
1,491,079 1,357,317
Deferred tax liabilities:

Property and equipment
(3,177,207
)
(3,270,536
)
Intangibles assets
(49,623,453
)
(50,327,833 )
Total deferred tax liabilities
(52,800,660
)
(53,598,369
)
Net deferred tax liabilities
$ (51,309,581
)
$ (52,241,052
)
(ii)Temporary differences and carryforwards of the Company that created significant deferred tax assets and liabilities are as follows:


	As of March 31, 2021		As of December 31, 2020
Deferred tax assets:
Allowance for doubtful accounts	$	421,751	$	443,151
Inventories	538,152		481,016
Federal net operating loss	330,248		101,828
State net operating loss	10,851		257,490
Fair value change in interest rate swap contracts	38,023		244,622
Accrued expenses	198,188		268,813
Total deferred tax assets	1,537,213		1,796,920
Deferred tax liabilities:
Property and equipment	(2,526,291)		(2,660,874)
Intangibles assets	(44,757,214)		(45,461,272)
Total deferred tax liabilities	(47,283,505)		(48,122,146)
Net deferred tax liabilities	$	(45,746,292)	$	(46,325,226)

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

follows:


	As of March 31, 2020			As of December 31, 2019				As of March 31, 2021		As of December 31, 2020
Deferred tax assets	$	69,236		$	78,993		Deferred tax assets	$	45,837	$	57,478
Deferred tax liabilities		(51,378,817	)		(52,320,045	)	Deferred tax liabilities	(45,792,129)		(46,382,704)
Net deferred tax liabilities	$	(51,309,581	)	$	(52,241,052	)	Net deferred tax liabilities	$	(45,746,292)	$	(46,325,226)

~~(iii)~~

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

For the Three Months Ended

March 31,
2020

March 31,
2019

Federal statutory tax rate
21.0
%
21.0
%
State statutory tax rate
-

5.2
%
Impact of goodwill impairment loss – permanent difference
(20.8
)%
0.3
%
Effective tax rate
0.2
%
26.5
%
(iii)Reconciliations of the statutory income tax rate to the effective income tax rate are as follows:

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	For the Three Months Ended
	March 31, 2021		March 31, 2020
Federal statutory tax rate	21.0	%	21.0	%
State statutory tax rate	2.2	%	0	%
Impact of goodwill impairment loss - permanent difference	0	%	(20.8)	%
U.S. permanent difference	0.1	%	0	%
Others	1.7	%	0	%
Effective tax rate	25.0	%	0.2	%

NOTE 15 –- RELATED PARTY TRANSACTIONS

The Company ~~records transactions with~~makes regular purchases from and sales to various related parties. Related party affiliations were attributed to transactions conducted between the Company and those business entities partially or wholly owned by Company officers and major shareholders. Certain related party transactions described in this note are among the issues that are being scrutinized as part of an ongoing internal investigation, and disclosures concerning particular transactions are subject to the outcome of, and conclusions that may ultimately be reached in, this ongoing investigation. Mr. Zhou Min Ni and Mr. Xiao Mou Zhang were the Co-Chief Executive Officers as of December 31, 2020. Mr. Ni subsequently resigned from all of his official posts on February 23, 2021. Upon resignation, Mr. Ni owned 10.7% of outstanding shares of common stock of the Company. Mr. Xiao Mou Zhang became the sole Chief Executive Officer on February 23, 2021. Mr. Ni and his immediate family members are treated as related parties for purposes of this report because Mr. Ni continued as an officer and director of the Company during a substantial portion of the three month period ending March 31, 2021 and Mr. Ni is a holder of more than 10% of the Company's securities. The related party transactions as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 and for the three month periods ended March 31, 2021 and 2020 are identified as follows:

Related Party Sales and Purchases Transactions

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

a.Purchase - related parties

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

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Name of Related Party		Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
(a)	Allstate Trading Company, Inc.	$	0	$	284,968
(b)	Best Food Services, LLC	990,459		2,099,563
(c)	Eastern Fresh NJ, LLC	1,494,996		1,609,605
(d)	First Choice Seafood, Inc.	83,121		336,739
(e)	Fujian RongFeng Plastic Co., Ltd	799,917		1,020,353
(f)	Hanfeng (Fujian) Information Technology Co., Ltd.	270,328		712,025
(g)	N&F Logistics, Inc.	2,646		361,914
(h)	North Carolina Good Taste Noodle, Inc.	0		1,035,341
(i)	Ocean Pacific Seafood Group, Inc.	130,578		181,032
(j)	PT. Tamron Akuatik Produk Industri	0		1,012,588
(k)	Revolution Industry, LLC	259,257		503,792
(l)	UGO USA, Inc.	241,640		187,389
(m)	Union Foods, LLC	0		1,083,904
(n)	Winfar Foods, Inc.	195,219		0
	Others	130,883		63,039
Total		$	4,599,044	$	10,492,252

(a)Mr. Zhou Min Ni owns 40% equity interest in this entity.

(b)Mr. Xiao Mou Zhang owned 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. Mr. Zhang's children own 10.38% equity interest in this entity indirectly from November 1, 2020.

(c)Mr. Zhou Min Ni owns 30% equity interest in this entity.

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

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

(f)Mr. Zhou Min Ni owns 100% equity interest in this entity.

(g)Mr. Zhou Min Ni owns 25% equity interest in this entity.

(h)Mr. Jian Ming Ni, former Chief Financial Officer owns 29% equity interest in this entity. Mr. Zhou Min Ni previously owned 37.34% equity in this entity as of December 31, 2019. Mr Zhou Min Ni's equity interest was disposed of on January 1, 2020.Purchase amount disclosed for the three months ended March 31, 2020 was for information purpose.

(i)Mr. Zhou Min Ni owns 26% equity interest in this entity.

(j)B&R Global has 12% equity interest in this entity. Entity is not considered as a related party due to lack of control. Purchase amount disclosed for the three months ended March 31, 2020 for information purpose.

(k)Raymond Ni, one of Mr. Zhou Min Ni’s family members, owns 100% equity interest in this entity. On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and ~~2019 are identified~~equipment from Revolution Industry, LLC. Han Feng has acquired substantially all of the operating assets used or held for use in such business operation for an amount of $250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of Revolution. Advances due from Revolution at the time of transaction were an offset to the purchase payment made to Revolution. Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with Revolution Industry, LLC.

(l)Mr. Zhou Min Ni owns 30% equity interest in this entity.

(m)Tina Ni, one of Mr. Zhou Min Ni’s family members, owns 30% equity interest in this entity. Anthony Zhang, one of Mr. Xiao Mou Zhang's family member, owns 10% of equity interest in this entity.

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

b. Sales - related parties

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

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Name of Related Party		Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
(a)	ABC Food Trading, LLC	$	713,906	$	879,153
(b)	Asahi Food, Inc.	117,755		117,805
(c)	Best Food Services, LLC	73,679		166,275
(d)	Eagle Food Service, LLC	1,008,676		1,558,629
(e)	Eastern Fresh NJ, LLC	23,193		941,473
(f)	Enson Group, Inc. (formerly "Enson Group, LLC")	26,512		148,873
(g)	First Choice Seafood, Inc.	74,530		232,224
(h)	Fortune One Foods, Inc.	92,467		150,091
(i)	Heng Feng Food Services, Inc.	39,976		371,481
(j)	N&F Logistics, Inc.	206,666		381,027
	Others	13,101		216,291
Total		$	2,390,461	$	5,163,322

(a)Mr. Xiao Mou Zhang owned 10.38% equity interest in this entity indirectly through its parent company as ~~follows:~~

of October 31, 2020. Mr. Zhang's children own 10.38% equity interest in this entity indirectly from November 1, 2020.

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

(c)Mr. Xiao Mou Zhang owned 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. Mr. Zhang's children own 10.38% equity interest in this entity indirectly from November 1, 2020.

(d)Tina Ni, one of Mr. Zhou Min Ni’s family members, owns 26.5% equity interest in this entity indirectly through its parent company.

(e)Mr. Zhou Min Ni owns 30% equity interest in this entity.

(f)Mr. Zhou Min Ni owns 25% equity interest in this entity.

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

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

(i)Mr. Zhou Min Ni owns 45% equity interest in this entity.

(j)Mr. Zhou Min Ni owns 25% equity interest in this entity.

c. Lease Agreements - Related Parties

The Company leases various facilities to related parties.

R&N Holdings leases a facility to UGO USA Inc. under an operating lease agreement expiring in 2022. Rental income for the three months ended March 31, 2021 and 2020 was $10,500 and $10,500, respectively.

HG Realty leases a warehouse to Enson Seafood GA Inc. (formerly “GA-GW Seafood, Inc.”) under an operating lease agreement expiring on September 21, 2027. Rental income for the three months ended March 31, 2021 and 2020 was $120,000 and $120,000, respectively.

Han Feng leases a production area to Revolution Industry, LLC under a $3,000 month-to-month lease agreement. Rental income recorded for the three months ended March 31, 2021 and 2020 was $6,000 and $9,000, respectively. The lease agreement was terminated as a result of the asset purchase agreement executed on February 25, 2021.

B&R Global leased warehouses from related parties owned by the majority shareholder of B&R Global prior to the Realty Acquisition on January 17, 2020. Rent incurred to the related parties from January 1, 2020 to January 16, 2020 was $187,750.

In 2020, Kirnland renewed a warehouse lease from Yoan Chang Trading, Inc. ("Yoan") under an operating lease agreement expiring on December 31, 2020. In February 2021, Kirnland executed a new 5-year operating lease agreement with Yoan effective January 1, 2021 and expiring on December 31, 2025. Rent incurred to the related party ~~balances:~~

a.	~~Accounts receivable - related parties, net~~

was $70,485 and $30,000 for the three months ended March 31, 2021 and 2020, respectively.

Related Party Balances

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a.Accounts receivable - related parties, net

Below is a summary of accounts receivable with related parties recorded as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively:

		As of March 31		As of December 31,
Name of Related Party	Name of Related Party	2020		2019		Name of Related Party			As of March 31, 2021			As of December 31, 2020
(a)	Allstate Trading Company Inc.	$	19,382	$	11,322	(a)	ABC Food Trading, LLC		$	348,273		$	18,816
(b)	Enson Seafood GA Inc. (formerly “GA-GW Seafood, Inc.”)		439,108		348,833	(b)	Asahi Food, Inc.		110,253			68,766
(c)	Eagle Food Service LLC		1,494,220		979,591	(c)	Best Food Services, LLC		73,679			1,250
(d)	Fortune One Foods Inc.		166,379		53,862	(d)	Eagle Food Service, LLC		333,535			697,538
(e)	Eastern Fresh LLC		1,948,403		1,511,075	(e)	Eastern Fresh NJ, LLC		24,693			0
(f)	Enson Trading LLC		346,497		341,200	(f)	Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”)		128,631			325,596
(g)	Hengfeng Food Service Inc.		849,022		477,541	(g)	Fortune One Foods, Inc.		14,275			36,250
(h)	N&F Logistic, Inc.		-		119,241	(h)	Heng Feng Food Services, Inc.		21,475			0
(i)	ABC Trading, LLC		448,917		238,513
(j)	UGO USA Inc.		71,587		-

~~(k)~~(i)	Best Food Services, LLC		72,761		-	N&F Logistics, Inc.		90,109			113,247
	Others		131,356		121,692		Others		17,543			5,110
Total	Total	$	5,987,632	$	4,202,870	Total			$	1,162,466		$	1,266,573

~~(a)~~	~~Mr. Zhou Min Ni, the Chairman and Co-Chief Executive Officer of the Company, owns a 40% equity interest in this entity;~~
~~(b)~~	~~Mr. Zhou Min Ni owns a 50% equity interest in this entity.~~
~~(c)~~	~~Tina Ni, one of Mr. Zhou Min Ni’s family members, owns a 50% equity interest in this entity.~~
~~(d)~~	~~Mr. Zhou Min Ni owns a 17.5% equity interest in this entity.~~
~~(e)~~	~~Mr. Zhou Min Ni owns a 30% equity interest in this entity.~~
~~(f)~~	~~Mr. Zhou Min Ni owns a 25% equity interest in this entity.~~
~~(g)~~	~~Mr. Zhou Min Ni owns a 45% equity interest in this entity.~~
~~(h)~~	~~Mr. Zhou Min Ni owns a 25% equity interest in this entity.~~
~~(i)~~	~~Mr. Xiaomou Zhang, Co-Chief Executive Officer of the Company, owns 10.38% equity interest in this entity.~~
~~(j)~~	~~Mr. Zhou Min Ni owns a 30% equity interest in this entity.~~
~~(k)~~	~~Mr. Xiaomou Zhang owns 10.38% equity interest in this entity.~~

(a)Mr. Xiao Mou Zhang owned 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. Mr. Zhang's children own 10.38% equity interest in this entity indirectly from November 1, 2020..

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

(d)Tina Ni, one of Mr. Zhou Min Ni’s family members, owns 26.5% equity interest in this entity indirectly through its parent company.

(e)Mr. Zhou Min Ni owns 30% equity interest in this entity.

(f)Mr. Zhou Min Ni owns 50% equity interest in this entity.

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

(h)Mr. Zhou Min Ni owns 45% equity interest in this entity.

(i)Mr. Zhou Min Ni owns 25% equity interest in this entity.

All accounts receivable from these related parties are current and considered fully collectible. No allowance is deemed ~~necessary.~~

b.	~~Advances to suppliers - related parties, net~~

necessary as of March 31, 2021 and December 31, 2020.

b. Accounts payable - related parties, net

All the accounts payable to related parties are payable upon demand without interest. Below is a summary of accounts payable with related parties recorded as of March 31, 2021 and December 31, 2020, respectively:


Name of Related Party		As of March 31, 2021		As of December 31, 2020
(a)	Best Food Services, LLC	$	190,339	$	588,920
(b)	Eastern Fresh NJ, LLC	550,750		427,795
(c)	Enson Group, Inc. (formerly "Enson Group, LLC")	51,783		25,368
(d)	Fujian RongFeng Plastic Co., Ltd	352,818		69,429
(e)	Hanfeng (Fujian) Information Technology Co., Ltd.	0		175,657
(f)	Hanfeng Information Technology (Jinhua), Inc.	0		107,258
(g)	Heng Feng Food Services, Inc.	0		116,436
(h)	Revolution Industry, LLC	129,257		0
(i)	UGO USA, Inc.	75,616		211,003
	Others	121,978		61,995
Total		$	1,472,541	$	1,783,861

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(b)Mr. Zhou Min Ni owns 30% equity interest in this entity.

(c)Mr. Zhou Min Ni owns 25% equity interest in this entity.

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

(e)Mr. Zhou Min Ni owns 100% equity interest in this entity.

(f)Mr. Zhou Min Ni owns 37% equity interest in this entity.

(g)Mr. Zhou Min Ni owns 45% equity interest in this entity.

(h)Raymond Ni, one of Mr. Zhou Min Ni’s family members, owns 100% equity interest in this entity. On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment from Revolution Industry, LLC. Han Feng has acquired substantially all of the operating assets used or held for use in such business operation for an amount of $250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of Revolution. Advances due from Revolution at the time of transaction were an offset to the purchase payment made to Revolution. Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with Revolution Industry, LLC.

(i)Mr. Zhou Min Ni owns 30% equity interest in this entity.

c. Advances to suppliers - related parties, net

The Company periodically provides purchase advances to various vendors, including the related party suppliers. ~~These advances are made in the normal course of business and are considered fully realizable.~~

Below is a summary of advances to related party suppliers recorded as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively:

	As of		As of
Name of Related Party	March 31, 2020		December 31, 2019		Name of Related Party		As of March 31, 2021		As of December 31, 2020
(1) Ocean Pacific Seafood Group	$	181,775	$	223,303
(2) Revolution Industry, LLC		683,041		521,832
(a)					(a)	Ocean Pacific Seafood Group, Inc.	$	0	$	7,101
(b)					(b)	Revolution Industry, LLC	0		189,702
Total	$	864,816	$	745,135	Total		$	0	$	196,803

~~(1)~~	~~Mr. Zhou Min Ni owns a 25% equity interest in this entity.~~
~~(2)~~	~~The son of Mr. Zhou Min N, Raymond Ni, owns 100% of Revolution Industry, LLC.~~

c.	~~Notes receivable - related parties~~

(a)Mr. Zhou Min Ni owns 26% equity interest in this entity.

(b)Raymond Ni, one of Mr. Zhou Min Ni’s family members, owns 100% equity interest in this entity. On February 25, 2021, Han Feng executed an asset purchase agreement to acquire the machinery and equipment from Revolution Industry, LLC. Han Feng has acquired substantially all of the operating assets used or held for use in such business operation for an amount of $250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of Revolution. Advances due from Revolution at the time of transaction were an offset to the purchase payment made to Revolution. Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with Revolution Industry, LLC.

d.Promissory note payable - related party

B&R Global issued a $7.0 million Unsecured Subordinated Promissory Note to BRGR. The note bears an interest rate of 6% per annum that matures in January 2030. At March 31, 2021, outstanding balance was $6.5 million and accrued interest payable was NaN.

e.Notes Receivable - related Parties

The Company had previously made advances or loans to certain entities that are either owned by ~~the controlling shareholders~~our former Chairman and Co-CEO of the Company, Mr. Zhou Min Ni or family members of ~~the controlling shareholders.~~

On January 1, 2018, the Company entered into a promissory note agreement with Enson Seafood. Pursuant to the promissory note agreement, the outstanding balances of $550,000 due from Enson Seafood as of December 31, 2017 were converted into promissory notes bearing annual interest of 5% commencing January 1, 2018. The principal plus interest was due no later than December 31, 2019. Interest was computed on the outstanding balance on the basis of the actual number of days elapsed in a year of 360 days.

On September 30, 2018, the Company signed a promissory note agreement with Enson Seafood in the principal amount of $2,000,000. The note accrued interest at the rate of 5% per annum on the unpaid balance, compounded monthly. The principal plus all accrued and unpaid interest was initially due no later than September 30, 2019, with an option to renew, and required Enson Seafood to make monthly payments of $171,215 for twelve months. On March 1, 2019, the Company and Enson Seafood extended the expiration date of the note until February 29, 2024 and Mr. ~~Zhou Min Ni agreed to personally guarantee the note.~~

On January 1, 2018, the Company signed a promissory note agreement with NSG. Pursuant to the promissory note agreement, the outstanding balances of $5,993,552 due from NSG as of December 31, 2017 were converted into promissory notes bearing annual interest of 5% commencing January 1, 2018. The principal plus interest was required to be paid off no later than December 31, 2019. Interest was computed on the outstanding balance on the basis of the actual number of days elapsed in a year of 360 days.

On March 1, 2019, the Company entered into a new five year-term promissory note agreement with NSG that comprised a restatement and novation and superseded the note dated January 1, 2018. Pursuant to the new promissory note agreement, the outstanding balance of $5,941,031 together with interest at the rate of 5% per annum became payable in monthly installments until principal and accrued interest was paid in full on or before March 1, 2024.

On March 1, 2018, the Company entered into a promissory note agreement by which Revolution Automotive was loaned $483,628. Pursuant to this promissory note agreement, Revolution Automotive was required to make monthly payments of $5,000 for 60 months, including interest, with final payment of $284,453. The loan bore interest of 5% per annum. Interest was computed on the outstanding balance on the basis of the actual number of days elapsed in a year of 360 days. The principal plus interest was to be paid off no later than April 30, 2023.

On March 1, 2019, the Company and each of Enson Seafood and NSG agreed to extend the expiration date of their notes payable until February 29, 2024, and Mr. Zhou Min Ni agreed to personally guarantee these notes.

Ni.

On September 30, 2019, the ~~entire~~Company and Mr. Ni entered into a Loan Purchase and Sale Agreement (the "Loan Sale Agreement"). Pursuant to the Loan Sale Agreement, all notes receivable from Enson Seafood GA Inc, Han Feng Global, Inc. dba NSG Interntional Inc., and Revolution Automotive LLC, with a combined outstanding balance of ~~all the above notes of~~ $8,415,525 ~~was~~("Total Notes Receivable"), were sold to Mr. Zhou Min Ni in exchange for 632,746 shares of common stock of the Company, which shares were received and recorded in treasury stock by the Company as of September 30, 2019. In connection with the sale of the above notes, the Company also required 208,806 additional shares of common stock of the Company owned by Mr. Ni to be placed in an escrow account for a period of one year until September 30, 2020 (the “Escrow Period”), which will then be delivered to the Company in part or in full, if the volume weighted average ~~closing~~ price ("VWAP") of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the Escrow Period is less than $13.30.

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d.	~~Accounts payable - related parties~~

On October 9, 2020, in accordance with the terms of ~~March 31, 2020, and December 31, 2019,~~the Loan Sale Agreement, the Company ~~had a total accounts payable balance~~and Mr. Ni determined and agreed that the 250-day VWAP was $10.59, and that, therefore, 161,966 of ~~$3,738,202~~the Escrow Shares would be transferred to and ~~$4,521,356 due~~recorded as treasury stock by the Company and the remaining 46,840 Escrow Shares would be returned to ~~various related parties, respectively. All these accounts payable to related parties occurred in~~Mr. Ni. Following which, the ~~ordinary course of business and are payable upon demand without interest.~~

e.	~~Advances from customers - related parties~~

Total Notes Receivable guaranteed by Mr. Ni is considered fully settled. The Company also periodically receives advances from its related parties for business purposes. These advances are interest free and due upon demand. The balance for advances from customers involving related parties was $213,354 at March 31, 2020 and there were no advances from customers involving related parties at December 31, 2019.

f.	~~Security deposit - related parties~~

The Company made deposits to its related parties for warehouse rental purposes. These deposits are expected to be returned upon termination of the respective leases. Total deposits to related parties amounted to $591,380 at December 31, 2019. As a result of the Realty Acquisition referencedhas retired all treasury stock in ~~Footnote 8, rent deposits previously classified as related party became intercompany balances and were eliminated as of March 31,~~October 2020. ~~There was no related party rent deposit as of March 31, 2020.~~

g.	~~Term Loan guaranty - related parties~~

B&R Global issued a $7.0 million Unsecured Subordinated Promissory Note to B&R Group Realty. The note bears an interest rate of 6% per annum that matures in January 2030. At March 31, 2020, accrued interest payable was $87,500. The term loan is collateralized by all assets of the Company.

~~Lease Agreements with Related Parties:~~

A subsidiary of the Company, R&N Holding, leases a facility to a related party under an operating lease agreement expiring in 2024. The cost of the leased building is $400,000 at March 31, 2020 and December 31, 2019, and the accumulated depreciation of the leased building is $80,102 and $78,282 at March 31, 2020 and December 31, 2019, respectively. Rental income for the three months ended March 31, 2020 and 2019 was $11,400 and $11,400, respectively.

A subsidiary of the Company, R&N Holding, leases a facility to a related party under an operating lease agreement expiring in 2022. Rental income for the three months ended March 31, 2020 and 2019 was $10,500 and $10,500, respectively.

In 2017, a subsidiary of the Company, HG Realty, leased a warehouse to a related party under an operating lease agreement expiring on September 21, 2027. The cost of the leased building is $3,223,745 at March 31, 2020 and December 31, 2019, and the accumulated depreciation of the leased building is $537,291 and $516,626 as of March 31, 2020 and December 31, 2019, respectively. Rental income for the three months ended March 31, 2020 and 2019 was $120,000 and $120,000, respectively.

B&R Global leased warehouses from related parties owned by the majority shareholder of B&R Global prior to Realty Acquisition on January 17, 2020. Rent incurred to the related parties from January 1, 2020 to January 16, 2020 was $187,750.

In 2020, a subsidiary of the Company, Kirnland, leased a warehouse from a related party under an operating lease agreement expiring on December 31, 2020. Rent incurred to the related party was $30,000 and $30,000 for the three months ended March 31, 2020 and 2019, respectively.

~~Related party sales and purchases transactions:~~

The Company makes regular sales to and purchases from various related parties during the normal course of business. The total sales to related parties were $5,163,322 and $4,497,111 for the three months ended March 31, 2020 and 2019, respectively. The total purchases made from related parties were $10,492,252 and $8,932,217 for the three months ended March 31, 2020 and 2019, respectively.

NOTE 16 - SEGMENT REPORTING

ASC 280, ~~“Segment~~“Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s ~~chief~~ operating decision ~~maker~~makers for making ~~operating~~operational decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the ~~chief~~ operating decision makers, ~~reviews~~review operation results by the revenue of different ~~products. After acquiring~~customers.

On February 23, 2021, former co-CEO Zhou Min Ni resigned and Xiao Mou Zhang assumed the ~~business~~role of ~~B&R Global, the Company distinguishes revenues, costs and expenses between HF Group and B&R Global in its internal reporting, and reports costs and expenses by nature in different operating segments.~~sole CEO. As a result, the Company ~~has~~reassessed its performance evaluation process and determined 2 relevant reporting segments - sales to independent restaurants and wholesale. Frequency, volume and profit margins are uniquely different between the two ~~reportable segments, including HF Group and B&R Global, and has re-presented the segment~~reporting segments. Segment reporting for the three months ended March 31, ~~2019 as follows.~~

2020 were re-presented below.

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

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


	For the Three Months Ended
	March 31, 2021		March 31, 2020
Net revenue
Sales to independent restaurants	$	153,555,563	$	167,271,935
Wholesales	5,826,265		8,531,401
Total	$	159,381,828	$	175,803,336


	For the Three Months Ended March 31, 2021
	Sales to independent restaurants		Wholesales		Total
Revenue	$	153,555,563	$	5,826,265	$	159,381,828
Cost of revenue	$	124,445,583	$	5,506,654	$	129,952,237
Gross profit	$	29,109,980	$	319,611	$	29,429,591
Depreciation and amortization	$	4,388,281	$	166,502	$	4,554,783
Cash capital expenditures	$	431,790	$	16,383	$	448,173


	For the Three Months Ended March 31, 2020
	Sales to independent restaurants		Wholesales		Total
Revenue	$	167,271,935	$	8,531,401	$	175,803,336
Cost of revenue	$	138,729,285	$	8,099,006	$	146,828,291
Gross profit	$	28,542,650	$	432,395	$	28,975,045
Depreciation and amortization	$	4,306,625	$	219,652	$	4,526,277
Cash capital expenditures	$	152,475	$	7,777	$	160,252

The following table presents total assets by reportable segment as of March 31, 2021 and ~~2019,~~December 31, 2020, respectively:

For the Three Months Ended

March 31, 2020

March 31, 2019

Net revenue

HF
$ 62,905,580 $ 74,801,022
B&R Global
112,897,756 -
Total
$ 175,803,336 $ 74,801,022

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	As of March 31, 2021		As of December 31, 2020
Total assets:
Sales to independent restaurants	$	482,493,622	$	460,783,650
Wholesales	18,306,961		23,501,433
Total Assets	$	500,800,583	$	484,285,083

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

For the Three Months Ended March 31, 2020

HF

B&R Global

Total

Revenue
$ 62,905,580 $ 112,897,756 $ 175,803,336
Cost of revenue
51,350,288 95,478,003 146,828,291
Gross profit
11,555,292 17,419,753 28,975,045
Depreciation and amortization
755,642 3,770,635 4,526,277
Total capital expenditures
$ 21,459 $ 138,793 $ 160,252

For the Three Months Ended March 31, 2019

HF

B&R Global

Total

Revenue
$ 74,801,022 $ - $ 74,801,022
Cost of revenue
62,094,166 - 62,094,166
Gross profit
12,706,856 - 12,706,856
Depreciation and amortization
872,148 - 872,148
Total capital expenditures $ 1,344,555 $ - $ 1,344,555

As of
March 31,
2020

As of
December 31,
2019

Total assets:

HF
$ 69,878,489 $ 80,514,529
B&R Global
451,533,917 722,329,265
Total Assets
$ 521,412,406 $ 802,843,794

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

NOTE 17– - COMMITMENT AND ~~CONTINGENCY~~

~~Various labor~~CONTINGENCIES

From time to time, the Company is a party to various lawsuits, claims and ~~employment lawsuits were filed by former employees against FUSO, NBT,~~other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and ~~HRT, alleging these entities failed to provide proper meal~~can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and ~~rest breaks, as well as other~~the amount involved is material. The Company continuously assesses the potential liability related ~~violations. These entities deny all the allegations. Management believes there is no merit~~ to the ~~cases~~Company’s pending litigation and revises its estimates when additional information becomes available. With respect to our outstanding legal matters, we believe that the amount or estimable range of reasonably possible loss will ~~vigorously defend~~not, either individually or in the ~~cases. Therefore, the Company did not accrue any loss contingency for this matter~~aggregate, have a material adverse effect on ~~its~~our business, consolidated financial ~~statements as~~position, results of ~~March 31, 2020~~operations, or cash flows. However, the outcome of litigation is inherently uncertain. Therefore, if one or more of these ordinary-course legal matters were resolved against us for amounts in excess of management's expectations, our results of operations and ~~2019.~~

Onfinancial condition, including in a particular reporting period, could be materially adversely affected.

Beginning on March 29, 2020, ~~plaintiff Jesus Mendoza (“Mendoza”)~~two putative class actions and two derivative actions were filed ~~a putative shareholder securities class action lawsuit (the “Mendoza Lawsuit”) in the United States District Court for the Central District of California~~ against ~~the Company and~~us, our directors, and/or certain of ~~its present and former~~our officers (collectively, the “Mendoza Defendants”) styled Mendoza v. HF Foods Group Inc., et al., Civil Action No. 2:20-CV-2929-ODW-JPR (C.D. Cal.). On April 30, 2020, plaintiff Walter Ponce-Sanchez (“Ponce-Sanchez”) filed a substantially similar putative shareholderalleging violation of securities ~~class action lawsuit (the “Ponce-Sanchez Lawsuit”)~~laws or breach of fiduciary duties in ~~the United States District Court for the Central District of California against the same defendants named in the Mendoza Lawsuit (collectively, the “Ponce-Sanchez Defendants” and~~connection with the Mendoza Defendants, the “Defendants”) styled Ponce-Sanchez v. HF Foods Group Inc., et al., Civil Action No. 2:20-CV-3967-PA-GJS (C.D. Cal.). The complaints in the Mendoza Lawsuit and the Ponce-Sanchez Lawsuit both allegeallegations that ~~the Defendants made materially false and/or misleading statements that caused losses to investors. Additionally, Mendoza and Ponce-Sanchez both allege that the Defendants~~we failed to disclose in public statements that the Company engaged in certain related party transactions, that insiders and related parties were enriching themselves by misusing shareholder funds, and that the Company masked the true number of free-floating ~~shares. Neither the Mendoza Lawsuit nor the Ponce-Sanchez Lawsuit quantifies any alleged~~shares, These cases seek unspecified damages ~~but, in addition to attorneys’ fees and costs, they seek to recover damages on behalf of themselves~~ and other ~~persons who purchased or otherwise acquired Company stock during~~forms of relief. We intend to continue to vigorously defend these lawsuits. These cases now are all pending in the ~~putative class period from August 23, 2018 through March 23, 2020 at allegedly inflated prices~~U.S. District Court for the Central District of California. A motion to dismiss the amended securities fraud complaint was filed on January 19, 2021, which is pending. The derivative actions are stayed pending the outcome of that motion to dismiss. In addition, the events alleged in the lawsuits became the subject of an investigation by the Securities and purportedly suffered financial harm as a result. The Company disputes these allegations and intends to defend the Mendoza Lawsuit and the Ponce-Sanchez Lawsuit vigorously. At this stage, the Company is unable to determine whether a future loss will be incurred due to this litigation, or estimate a range of loss, if any, and accordingly, no amountsExchange Commission, with which we are cooperating. There have been ~~accrued~~no changes to the status of these proceedings as described in our Annual Report on Form 10-K for the ~~Company’s financial statements.~~

fiscal year ended December 31, 2020.

NOTE 18– - SUBSEQUENT EVENTS

~~Starting Mid-March 2020 when, federal, state and local governments throughout~~

The Company evaluated subsequent events through May 10, 2021, which is the ~~United States issued shelter-in-place orders related~~date the financial statements were available to the COVID-19 pandemic. Many of the Company’s customers, including those in the restaurant segments, ceased operating due to governmental requirements for closures to help curb the spread of COVID-19, and there are no assurances as to how long these closures may remain in effect. Furthermore, even after reopening, there can be no assurance as to the time required to regain operations and sales volume at prior levels. Given the uncertain nature of this situation, the Company cannot reasonably estimate the further impacts of COVID-19 on its financial condition, results of operations or cash flows for the foreseeable future. However, the Company expects the COVID-19 pandemic will have a material and adverse impact on future revenue growth, as well as overall profitability, and may lead to higher bad debt expense, higher inventory allowance, additional impairment of goodwill, intangible assets or fixed assets.

issued.

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CAUTIONARY NOTE ABOUT FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for HF Foods Group Inc. (“HF Foods,” “HF Group,” the “Company,” “we,” “us,” or “our”) contains forward-looking statements. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, include without limitation:

	●	~~Unfavorable macroeconomic conditions in the United States;~~
	●	~~Competition in the food service distribution industry particularly the entry of new competitors into the Chinese/Asian restaurant market niche;~~
	●	~~Increases in fuel costs;~~
	●	~~Increases in commodity prices;~~
	●	~~Disruption of relationships with vendors and increases in product prices;~~
	●	~~US government tariffs on products imported into the United States, particularly from China;~~
	●	~~Changes in consumer eating and dining out habits;~~
	●	~~Disruption of relationships with or loss of customers;~~
	●	~~Our ability to execute our acquisition strategy;~~
	●	~~Availability of financing to execute our acquisition strategy;~~
	●	~~Our ability to renew or replace the current lease of our warehouse in Georgia;~~
	●	~~Control of the Company by our Co-Chief Executive Officers and principal stockholders;~~
	●	~~Failure to retain our senior management and other key personnel particularly, Zhou Min Ni and Chan Sin Wong;~~
	●	~~Our ability to attract, train and retain employees;~~
	●	~~Changes in and enforcement of immigration laws;~~
	●	~~Failure to comply with various federal, state and local rules and regulations regarding food safety, sanitation, transportation, minimum wage, overtime and other health and safety laws;~~
	●	Product recalls, voluntary recalls or withdrawals if any of the products we distribute are alleged to have caused illness, been mislabeled, misbranded or adulterated or to otherwise have violated applicable government regulations;
	●	~~Failure to protect our intellectual property rights;~~
	●	~~Any cyber security incident, other technology disruption or delay in implementing our information technology systems;~~
	●	~~The development of an active trading market for our common stock;~~
	●	~~Failure to acquire other distributors or wholesalers and enlarge our customer base could negatively impact our results of operations and financial condition;~~
	●	~~Scarcity of and competition for acquisition opportunities;~~
	●	~~Our ability to obtain acquisition financing;~~
	●	~~The impact of non-cash charges relating to the amortization of intangible assets related to material acquisitions;~~
	●	~~Our ability to identify acquisition candidates;~~
	●	~~Increases in debt in order to successfully implement our acquisition strategy;~~
	●	~~Difficulties in integrating operations, personnel, and assets of acquired businesses that may disrupt our business, dilute stockholder value, and adversely affect our operating results; and~~
	●	~~Other factors discussed in “Item 1A. Risk Factors.” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.~~

•Unfavorable macroeconomic conditions in the United States;

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

•Increases in fuel costs;

•Increases in commodity prices;

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

•U.S. government tariffs on products imported into the United States, particularly from China;

•Changes in consumer eating and dining out habits;

•Disruption of relationships with or loss of customers;

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

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

•Our ability to attract, train and retain employees;

•Changes in and enforcement of immigration laws;

•Failure to comply with various federal, state and local rules and regulations regarding food safety, sanitation, transportation, minimum wage, overtime and other health and safety laws;

•Product recalls, voluntary recalls or withdrawals if any of the products we distribute are alleged to have caused illness, been mislabeled, misbranded or adulterated or to otherwise have violated applicable government regulations;

•Failure to protect our intellectual property rights;

•Any cyber security incident, other technology disruption or delay in implementing our information technology systems;

•The development of an active trading market for our common stock;

•Failure to acquire other distributors or wholesalers and enlarge our customer base could negatively impact our results of operations and financial condition;

•Scarcity of and competition for acquisition opportunities;

•Our ability to obtain acquisition financing;

•The impact of non-cash charges relating to the amortization of intangible assets related to material acquisitions;

•Our ability to identify acquisition candidates;

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

•The effects of the COVID-19 pandemic;

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

•Other factors discussed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the Securities and Exchange Commission (the "SEC") and public communications. We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. Except as otherwise required by law, we undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise.

Table of Contents

~~Item~~

ITEM 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations of HF Foods Group Inc.

This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from the forward-looking statements as a result of these risks and uncertainties. See “Cautionary Note About Forward-Looking Statements”for additional cautionary information.

Company Background and Overview

~~HF Foods Group Inc. (“HF Group”, or the “Company”)~~

The Company markets and distributes Asian specialty food products, fresh ~~produces,~~produce, frozen and dry food, and ~~non- food~~non-food products to primarily Asian restaurants and other ~~foodservice~~food service customers throughout the Southeast, Pacific and Mountain West regions ~~region~~ of the United States.

The Company was originally incorporated in Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp. ~~(“Atlantic”~~("Atlantic"), in order to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination, one or more businesses or entities.

~~Effective~~

On August 22, 2018, Atlantic consummated ~~the transactions contemplated by~~ a merger agreement (the “Atlantic Merger Agreement”), dated as of March 28, 2018, by and among Atlantic, HF Group Merger Sub Inc., a Delaware subsidiary formed by Atlantic, HF Group Holding Corporation, a North Carolina corporation (“HF Holding”),reverse acquisition transaction resulting in the stockholders of HF Holding ~~and Zhou Min Ni, as representative of~~becoming the stockholders of HF Holding. Pursuant to the Atlantic Merger Agreement, HF Holding merged with HF Merger Sub and HF Holding became the surviving entity (the “Atlantic Merger”) and a wholly-owned subsidiarymajority shareholders of Atlantic, (the “Atlantic Acquisition”). Additionally, upon the closing of the transactions contemplated by the Atlantic Merger Agreement (the “Atlantic Closing”), (i) the stockholders of HF Holding became the holders of a majority of the shares of common stock of Atlantic, and ~~(ii) Atlantic~~ changed its name to HF Foods Group Inc. ~~(Collectively, these transactions are referred to as the “Atlantic Transactions”).~~

~~Effective~~

On November 4, 2019, ~~HF Group~~the Company consummated ~~the transactions contemplated by~~ a merger agreement (the “B&R Global Merger Agreement”), dated as of June 21, 2019, by and among the Company, B&R Global Merger Sub Inc., a Delaware corporation (“Merger Sub”), B&R Global, the stockholders of B&R Global (the ”B&R Global Stockholders”), and Xiao Mou Zhang, as representative of the stockholders (the “Business Combination”). Upon the closing of the transactions contemplated by the B&R Global Merger Agreement (the “Closing”), Merger Sub merged with and into B&R Global,transaction, resulting in B&R Global becoming a wholly owned subsidiary of HF Group. ~~HF Group~~At closing, the Company acquired 100% of the controlling interest of B&R Global, in exchange for the issuance of 30,700,000 shares of ~~HF Group~~ Common ~~Stock.~~Stock of the Company to the B&R Global shareholders. The aggregate fair value of the consideration paid by HF Group in the business combination iswas approximately $576,699,494, ~~and is~~ based on the closing share price at the date of Closing.

On January 17, 2020, B&R Global acquired all equity membership interests in the ~~B&R Realty~~BRGR Subsidiaries, which own warehouse facilities that were being leased byto the Company for its operations in California, Arizona, Utah, Colorado, Washington, and Montana. Xiao Mou Zhang, Co-CEO of the Company ~~Xiao Mou Zhang,~~at the time, managed and owned an 8.91% interest in ~~B&R Group Realty.~~BRGR. The total purchase price for the acquisition was $101,269,706, which iswas based on independent fair market value appraisals of the properties owned by the ~~B&R Realty~~BRGR Subsidiaries.

The Company notes that substantially all of the fair value of the gross assets acquired is concentrated in a group of similar assets (land and buildings ~~in which the buildings are all~~ used for warehousing and distribution purposes). As such, the acquisition of ~~B&R Global Realty~~BRGR Subsidiaries would not be deemed a business combination under ASC 805 but as an asset acquisition. The total purchase price is allocated on a relative fair value basis to the net assets acquired.

Due to the acquisition of B&R Global, the financial information of the Company for the quarter ended March 31, 2020 is not comparable to the quarter ended March 31, 2019. As such, the Company has presented our results of operations for the quarters ended March 31, 2020 and 2019 as well as the unaudited pro forma combined results of operations for quarters ended March 31, 2020 and 2019. For more information, see section titled “Supplemental Unaudited Pro Forma Combined

Financial ~~Information”.~~

Overview

~~Outlook~~

The Company plans to continue to expand our business through acquisition of other distributors and wholesalers, which depends on access to sufficient capital. If the Company is unable to obtain equity or debt financing, or borrowings from bank loans, the Company may not be able to execute its plan to acquire other distributors and wholesalers. Even if the Company is able to make such acquisitions, the Company may not be able to successfully integrate any acquired businesses or improve their profitability, which could have a material adverse effect on our financial condition and future operating performance.

Our net revenue for the ~~quarter~~three months ended March 31, ~~2020~~2021 was ~~$175.8~~$159.4 million, ~~an increase~~a decrease of ~~$101.0~~$16.4 million, or ~~135.0%~~9.3%, from ~~$74.8~~$175.8 million for the ~~quarter~~three months ended March 31, ~~2019, as a result of the business combination with B&R Global effective November 4, 2019.~~2020. Net ~~loss~~income attributable to HF Group’s stockholders for the ~~quarter~~three months ended March 31, ~~2020~~2021 was ~~$339.9~~$1.5 million, ~~a decrease~~an increase of ~~$341.6~~$341.4 million, or ~~20,418.1%~~100.4%, ~~from~~compared to net ~~income~~loss attributable to HF Group’s stockholders of ~~$1.7~~$339.9 million for the ~~quarter~~three months ended March 31, ~~2019,~~2020. The net loss in 2020 is mainly due to ~~the~~a significant goodwill impairment of ~~goodwill ($338.2~~$338.2 million ~~- see~~taken in first quarter of 2020 (see Note 98 to our financial statements for additional information) prompted by the impact of the COVID-19 ~~pandemic that swept through the United States in March 2020.~~pandemic. Adjusted EBITDA for the ~~quarter~~three months ended March 31, ~~2020~~2021 was ~~$4.3~~$8.9 million, an increase of ~~$0.8~~$4.5 million, or ~~24.8%~~104.1%, from ~~$3.5~~$4.3 million for the ~~quarter~~three months ended March 31, ~~2019.~~2020. For additional information on Adjusted EBITDA, see the section entitled “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS— Adjusted EBITDA” below.

~~On a pro-forma basis, assuming that~~

COVID-19 Impact

In March 2020, due to the Business Combination took place on January 1, 2019, our net revenue for the quarter ended March 31, 2020 would have been $175.8 million, a decrease of $33.2 million, or 15.9% from $209.0 million for the quarter ended March 31, 2019. Net loss attributable to HF Group’s stockholders for the quarter ended March 31, 2020 would have been $339.9 million, a decrease of $342.6 million, or 12,790.0%, from net income attributable to HF Group’s stockholder of $2.7 million for the quarter ended March 31, 2019. Adjusted EBITDA for the quarter ended March 31, 2020 would have been $4.3 million, a decrease of $5.7 million, or 56.8%, from $10.0 million for the quarter ended March 31, 2019. For additional information on our pro-forma results, see the section entitled “SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION” below.

COVID-19 ~~Update~~

~~For the first two months of 2020, the~~ outbreak, of COVID-19 did not have a significant impact on our business. However, we began to experience a gradual decline in sales towards the end of February and the impact began to intensify in March, especially in the final two weeks of the month.

~~By late March,~~ almost all states across the country had issued some form of stay-at-home orders. As such, the operations of our restaurant customers were severely disrupted due to the “cliff-like” decline in consumer demand for food away from home. The government mandates ~~have~~ forced many of our restaurant customers to temporarily close or convert to take-out or delivery-only operations. As a result, there was a significant decline in net sales the last two weeks of March ~~led to a significant decline in net sales, hence~~2020, negatively impacting our overall ~~net income and adjusted EBITDA~~financial results in the first quarter ended March 31, 2020. ~~Our net sales during the last two weeks~~

Table of ~~the first quarter decreased approximately 67% compared~~Contents

In response to ~~pro-forma sales in the same period ended March 31, 2019.~~

~~The intensification of~~ the COVID-19 pandemic, ~~and the resulting sharp slowdown~~beginning in overall business activities will continue to adversely impact our sales and liquidity position. We currently expect that the COVID-19 outbreak will impact our financial performance for the second quarter ending June 30, 2020 more than it impacted the first quarter ended March 31, 2020.

The trends that began at the end of March continued to worsen in April 2020, resulting in as much as a 75% decrease in net sales compared to pro-forma sales in the comparable prior year period, and took a $338.2 million impairment charge to goodwill (See Note 9 to our financial statements for additional information). However, we began to experience a recovery of business volume since the week of April 27, 2020 as the COVID-19 infection curve began to flatten and fear among consumers began to subside. Weekly sales in the beginning of May have recovered to over 50% of pre-COVID-19 levels, and we expect the recovery to continue into the month of June 2020.

In late March 2020, we swiftly pivoted our business strategy and cost structure to reduce operating costs, strengthen our liquidity position, and secure new revenue ~~sources in response to the COVID-19 pandemic.~~sources. Some of the notable actions include:

•actively managing our variable costs to better align with ~~current~~prevailing sales volumes by instituting temporary furloughs, reducing our delivery schedules and ~~temporary~~temporarily shutting down the operation of ~~a few~~several distribution centers, resulting in ~~no less than~~approximately 40% overall cost reduction since April 2020 as compared to pre-COVID-19 levels; Pre-COVID level of revenue is the proforma revenue for the same period in ~~the month of April 2020;~~

2019.

•improving working capital by ~~extending terms with vendors while~~ focusing on ~~collecting receivables;~~

receivables collection efforts while working with our vendors on temporarily extended terms;

•suspending capital expenditures and limiting maintenance and information technology projects;

•developing our proprietary e-commerce platform (www.rongchengmarkets.com) with ~~very~~ minimal investment to cater to consumers and meet the increasing demand for online grocery shopping in larger quantities at wholesale prices; and

•securing new partnerships with other online grocery retailers.

The above ~~decisive actions have resulted~~cost cutting measures and more efficient operations ensured that the Company had positive cash flow to pay down the revolving credit line, resulting in an overall improvement of our available line of credit that ~~would enable~~has enabled the Company to ~~confidently~~ navigate through this unprecedented ~~“crisis”.~~

~~We also have~~pandemic. In the ~~ability~~second half of 2020, the Company saw a recovery to implement further cost reduction measures as necessary if the COVID-19 pandemic persists longer than expected. The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law at the endabout 70% of March 2020. HF foods may benefit from the refundable payroll tax credits provided under the CARES. We also expect that many of our customers will benefit from the federally backed small business loan program, which in turn will help to speed up ourpre-COVID business volume ~~recovery.~~

(proforma net revenue for the three months ended March 31, 2019). The ~~impact~~recovery further increased to 76% of pre-COVID business volume (proforma net revenue for the ~~COVID-19 pandemic~~three months ended March 31, 2019) for the three months ended March 31, 2021. Based on current sales volumes and adjusted cost structures, the company is generating weekly positive operating cash flows and does not have immediate liquidity concerns, especially if sales volume continues to ~~evolve and, therefore, we cannot currently predict the extent to which our business, results of operations,~~remain stable or ~~financial condition will ultimately be impacted. The impact of the COVID-19 pandemic~~improve further.

We remain optimistic on ~~our business will also depend on:~~

~~• the resilience of the Asian/Chinese restaurants, and consumer spending more broadly;~~

• actions taken by governments to successfully contain the virus or limit its impact, including travel restrictions, social distancing requirements, required closures of non-essential businesses, and aid and economic stimulus efforts; and

~~• any prolonged economic recession resulting from the pandemic.~~

We do not expect economic and operating conditions for our business to improve until consumers are once again willing and able to resume consumption of food away from home on a regular basis. This may not occur until well after the pandemic abates and the broader economy begins to improve.

~~We are optimistic about~~ the long-term prospects for our business. Although the timetable for returning to normalcy is unknown, we believe that our current level of sales ~~volumes~~volume will increase over time as the effects of the COVID-19 pandemic slowly dissipate and consumer demand for food ~~prepared~~ away from home increases.

As the market leader in servicing the Asian/Chinese restaurant sector, we believe we are well-positioned for long-term success. The fragmented nature of the Asian/Chinese food service industry and the current environment create opportunities for ~~companies~~a company like HF ~~Foods,~~Group, which has the necessary expertise and deep understanding of our unique ~~customers~~customer base. We believe we are differentiated from ~~many of~~ our competitors given our extensive footprint, strong vendor and customer relationships, and value-added service offerings, all of which have allowed and will continue to allow us to ~~continue to~~better serve our customers in these unprecedented conditions.

How to Assess HF Group’s Performance

In assessing our performance, the Company considers a variety of performance and financial measures, including principal growth in net revenue, gross profit, distribution, ~~general~~selling and administrative expenses, EBITDA and adjusted EBITDA. The key measures that the Company uses to evaluate the performance of our business are set forth below:

Net Revenue

Net revenue is equal to gross sales minus sales returns, sales incentives that the Company offers to our customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. Our net sales are driven by changes in number of customers and average customer order amount, product inflation that is reflected in the pricing of ~~its~~our products and mix of products sold.

Gross Profit

Gross profit is equal to net sales minus cost of revenue. Cost of revenue primarily includes inventory costs (net of supplier consideration), inbound freight, custom clearance fees and other miscellaneous expenses. Cost of revenue generally changes as the Company incurs higher or lower costs from suppliers and as the customer and product mix changes.

Distribution, Selling and Administrative Expenses

(DSA Expenses)

Distribution, selling and administrative expenses consist primarily ~~consist~~ of salaries and benefits for employees and contract laborers, trucking and fuel expenses, utilities, maintenance and repair expenses, insurance expenses, depreciation and amortization expenses, selling and marketing expenses, professional fees and other operating expenses.

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EBITDA and Adjusted EBITDA

The Company ~~believes that~~uses EBITDA to measure operating performance, defined as net income before interest expense, income taxes, and depreciation and amortization. In addition, management uses Adjusted EBITDA, ~~is a useful performance measure~~defined as net income before interest expense, interest income, income taxes, and ~~can be used~~depreciation and amortization, further adjusted to facilitate a comparison of the Company’s operating performance on a consistent basis from period to period and to provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone can provide. Our managementexclude certain unusual, non-cash, non recurring expenses. Management believes that Adjusted EBITDA is less susceptible to variances in actual performance resulting from ~~depreciation, amortization~~non-recurring expenses, extraordinary charges, and other non-cash charges and more reflective of other factors that affect our operating performance. ~~Our management~~Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial performance with other companies in the same industry, many of which present similar non-GAAP financial measures to investors. The Company presents EBITDA and Adjusted EBITDA in order to provide supplemental information that the Company considers relevant for the readers of our consolidated financial statements included elsewhere in this report, and such information is not meant to replace or supersede U.S. GAAP measures.

The Company defines Adjusted EBITDA as net income (loss) before interest expense, income taxes, and depreciation and amortization, further adjusted to exclude certain unusual, non-cash, non-recurring, cost reduction, and other adjustment items. The definition of EBITDA and Adjusted EBITDA may not be the same as similarly titled measures used by other companies in the industry. EBITDA and Adjusted EBITDA isare not defined under U.S. GAAP and is subject to important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of HF Group’s results as reported under U.S. GAAP. For example, Adjusted EBITDA:

●

~~excludes certain tax payments that may represent a reduction in cash available to the Company;~~

●

~~does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;~~

●

~~does not reflect changes in, or cash requirements for, our working capital needs; and~~

●

~~does not reflect the significant interest expense, or the cash requirements, necessary to service our debt.~~

•excludes certain tax payments that may represent a reduction in cash available to the Company;

•does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

•does not reflect changes in, or cash requirements for, our working capital needs; and

•does not reflect the significant interest expense, or the cash requirements, necessary to service our debt.

For additional information on EBITDA and Adjusted EBITDA, see the section entitled “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — EBITDA and Adjusted EBITDA” below.

Results of Operations for the ~~three months ended~~Three Months Ended March 31, ~~2020~~2021 and ~~2019~~

2020

The following table sets forth a summary of our consolidated results of operations for the three ~~months~~month periods ended March 31, ~~2020~~2021 and ~~2019.~~2020. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

For the three months ended
March 31,

Changes

2020

2019

Amount

%

Net revenue
$ 175,803,336 $ 74,801,022 $ 101,002,314 135.0
%
Cost of revenue
146,828,291 62,094,166 84,734,125 136.5
%
Gross profit
28,975,045 12,706,856 16,268,189 128.0
%
Distribution, selling and administrative expenses
29,406,593 10,365,172 19,041,421 183.7
%
Income (loss) from operations
(431,548
)
2,341,684 (2,773,232
)
(118.4
)%
Interest income
131 151,949 (151,818
)
(99.9
)%
Interest expenses and bank charges
(1,951,569
)
(336,958
)
(1,614,611
)
479.2
%
Goodwill impairment loss (338,191,407 ) - (338,191,407 ) 100 %
Other income, net
405,650 284,535 121,115 42.6
%
Income (loss) before income tax provision
(340,168,743
)
2,441,210 (342,609,953
)
(14034.4
)%
Provision (benefit) for income taxes
(482,211 ) 647,639 (1,129,850
)
(174.5
)%
Net income (loss)
(339,686,532
)
1,793,571 (341,480,103
)
(19039.1
)%
Less: net income attributable to noncontrolling interest
197,410 120,758 76,652 63.5
%
Net income (loss) attributable to HF Foods Group Inc.
$ (339,883,942
)
$ 1,672,813 $ (341,556,755
)
(20418.1
)%

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For the Three Months Ended March 31, Changes
2021 2020 Amount %
Net revenue $ 159,381,828 $ 175,803,336 $ (16,421,508) (9.3) %
Cost of revenue 129,952,237 146,828,291 (16,876,054) (11.5) %
Gross profit 29,429,591 28,975,045 454,546 1.6 %
Distribution, selling and administrative expenses 28,127,495 29,406,593 (1,279,098) (4.3) %
Income (loss) from operations 1,302,096 (431,548) 1,733,644 401.7 %
Interest income — 131 (131) (100.0) %
Interest expenses (742,141) (1,951,569) 1,209,428 (62.0) %
Goodwill impairment loss — (338,191,407) 338,191,407 100.0 %
Other income, net 439,559 405,650 33,909 8.4 %
Change in fair value of interest rate swap contracts 1,430,892 — 1,430,892 100.0 %
Income (loss) before income tax provision 2,430,406 (340,168,743) 342,599,149 100.7 %
Provision (benefit) for income taxes 607,207 (482,211) 1,089,418 225.9 %
Net income (loss) 1,823,199 (339,686,532) 341,509,731 100.5 %
Less: net income attributable to noncontrolling interests 300,267 197,410 102,857 52.1 %
Net income (loss) attributable to HF Foods Group Inc. $ 1,522,932 $ (339,883,942) $ 341,406,874 100.4 %

Net Revenue

Net revenue was mainly derived from sales to independent restaurants (Chinese/Asian restaurants) and wholesale sales ~~as wholesale~~ to smaller distributors.

The following table sets forth the breakdown of net revenue:

For the three months ended March 31,

2020

2019

Change

Amount

%

Amount

%

Amount

%

Net revenue

Sales to independent restaurants
$ 167,272,317 95.1
%
$ 70,123,135 93.7 % $ 97,149,182 138.5
%
Wholesale
8,531,019 4.9
%
4,677,887 6.3 % 3,853,132 82.4
%
Total
$ 175,803,336 100.0
%
$ 74,801,022 100.0 % $ 101,002,314 135.0
%


	For the Three Months Ended March 31,
	2021				2020				Changes
	Amount		%		Amount		%		Amount		%
Net revenue
Sales to independent restaurants	$	153,555,563	96.3	%	$	167,271,935	95.1	%	$	(13,716,372)	(8.2)	%
Wholesale	5,826,265		3.7	%	8,531,401		4.9	%	(2,705,136)		(31.7)	%
Total	$	159,381,828	100.0	%	$	175,803,336	100.0	%	$	(16,421,508)	(9.3)	%

Net revenue ~~increased~~derived from sales to independent restaurants decreased by ~~$101.0~~$13.7 million, or ~~135.0%~~8.2%, ~~during~~for the three months ended March 31, ~~2020~~2021 as compared to the three months ended March 31, ~~2019. This~~2020. The decrease over the same period last year was ~~attributable~~ primarily to the acquisition of B&R Global, which contributed $4.1 million in sales to wholesale customers and $108.7 million in sales to independent restaurants. The increase was offset by a decrease in revenue of $11.6 million in sales to independent restaurants of HF and $0.3 million of sales to wholesale customers. This decrease was due to lower sales as a result of the ~~COVID-19 pandemic. The negative~~continued impact of COVID-19 on the ~~COVID-19 pandemic on our restaurant customers during the last two weeks of March 2020 led to a significant decline in the net~~business. Net revenue ~~for both HF Foods and B&R Global~~ for the three months ended March 31, ~~2020. See~~2020 included two months of business volume derived prior to the ~~section entitled “SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION” below.~~

outbreak of COVID-19 whereas the entire quarter ended March 31, 2021 was impacted by the pandemic. For comparison purposes, the net revenue for the quarter ended March 31, 2020 was 84% of pre-COVID levels (proforma basis for the three months ended March 31, 2019), while the net revenue for the quarter ended March 31, 2021 was 76% of pre-COVID levels (proforma basis for the three months ended March 31, 2019).

We conduct wholesale operations as a supplemental business to our ~~foodservice~~food service distribution to restaurants by purchasing full truckloads of product from suppliers and redistributing to smaller distributors who are typically not large enough to order truckload quantities, or do not want to keep inventory for long periods. ~~The~~These larger ~~purchase~~purchases can improve overall bargaining power with suppliers by increasing total order quantity. Net revenue from wholesale for the three months ended March 31, ~~2020 increased~~2021 decreased by ~~$3.9M,~~$2.7 million, or ~~82.4%~~31.7%, as compared to the three months ended March 31, ~~2019,~~2020, mainly due to ~~the acquisition~~continued impact of ~~B&R Global.~~

COVID-19 on business volume.

Cost of ~~sales~~Sales and Gross Profit

The following tables set forth the calculation of gross profit and gross margin for sales to independent restaurants, wholesale and total net revenue:

For the three months ended
March 31,

Changes

2020

2019

Amount

%

Sales to independent restaurants

Net revenue
$ 167,272,317 $ 70,123,135 $ 97,149,182 138.5
%
Cost of revenue
138,729,285 57,560,246 81,169,039 141.0
%
Gross profit
$ 28,543,032 $ 12,562,889 $ 15,980,143 127.2
%
Gross Margin
17.1
%
17.9
%
(0.8
)%

Wholesale

Net revenue
$ 8,531,019 $ 4,677,887 $ 3,853,132 82.4
%
Cost of revenue
8,099,006 4,533,920 3,565,086 78.6
%
Gross profit
$ 432,013 $ 143,967 $ 288,046 200.1
%
Gross Margin
5.1
%
3.1
%
2.0
%

Total sales

Net revenue
$ 175,803,336 $ 74,801,022 $ 101,002,314 135.0
%
Cost of revenue
146,828,291 62,094,166 84,734,125 136.5
%
Gross profit
$ 28,975,045 $ 12,706,856 $ 16,268,189 128.0
%
Gross Margin
16.5
%
17.0
%
(0.5
)%

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	For the Three months ended March 31,						Changes
	2021			2020			Amount		%
Sales to independent restaurants
Net revenue	$	153,555,563		$	167,271,935		$	(13,716,372)	(8.2)	%
Cost of revenue	124,445,583			138,729,285			(14,283,702)		(10.3)	%
Gross profit	$	29,109,980		$	28,542,650		$	567,330	2.0	%
Gross Margin	19.0		%	17.1		%

Wholesale
Net revenue	$	5,826,265		$	8,531,401		$	(2,705,136)	(31.7)	%
Cost of revenue	5,506,654			8,099,006			(2,592,352)		(32.0)	%
Gross profit	$	319,611		$	432,395		$	(112,784)	(26.1)	%
Gross Margin	5.5		%	5.1		%

Total sales
Net revenue	$	159,381,828		$	175,803,336		$	(16,421,508)	(9.3)	%
Cost of revenue	129,952,237			146,828,291			(16,876,054)		(11.5)	%
Gross profit	$	29,429,591		$	28,975,045		$	454,546	1.6	%
Gross Margin	18.5		%	16.5		%

Cost of revenue was $130.0 million for the three months ended March 31, 2021, a decrease of $16.9 million, or 11.5%, from $146.8 million for the three months ended March 31, ~~2020, an increase~~2020. The decrease in cost of ~~$84.7 million or 136.5%, from $62.1 million~~revenue outpaced the decrease in net revenue due to successful strategy in increasing overall gross margin.

Despite the drop in net revenue due to COVID-19 impact, gross profit for the three months ended March 31, ~~2019. The~~2021 was $29.4 million, an increase ~~was mainly attributable to the acquisition~~ of ~~B&R Global, with $91.6~~$0.5 million, and $3.9 million in cost of revenue for sales to independent restaurants and wholesale customers, respectively. This increase was offset by a decrease of $10.4 million cost of revenue due to reduced sales resultingor 1.6%, from ~~the COVID-19 pandemic.~~

~~Gross profit was~~ $29.0 million for the three months ended March 31, ~~2020, an increase of $16.3 million, or 128%, from $12.7 million for the three months ended March 31, 2019.~~2020. The increase ~~was attributable primarily to B&R Global, with $17.1~~consisted of a $0.6 million ~~and $0.3 million~~increase in gross profit ~~derived~~ from sales to independent restaurants as direct result of better customer mix with higher margin, and ~~wholesale customers, respectively. This increase was offset by a decrease $1.1~~$0.1 million ~~cost of revenue for the sales to independent restaurants of HF driven by the~~ decrease in ~~sales.~~

gross profit from wholesale customers.

Gross margin ~~decreased~~increased from ~~17.0% for the three months ended March 31, 2019 to~~ 16.5% for the three months ended March 31, 2020 ~~primarily attributable~~ to ~~the lower gross margin of B&R Global. B&R Global’s gross margin~~18.5% for the three months ended March 31, ~~2020 was 15.4% which resulted~~2021, attributable mainly to the Company's continuous effort to improve gross margin as evidenced by the increased weight in "Sales to independent restaurants" with higher margin rate and the significant drop in lower ~~gross~~ margin ~~in overall gross~~sales to the buffet restaurants still severely impacted by the outbreak of COVID-19, a segment of our customers on the West Coast region which typically have higher sales volume but at lower margin.

Distribution, ~~selling~~Selling and Administrative Expenses

~~Distribution, selling and administrative expenses~~ (DSA Expenses)

DSA Expenses were ~~$29.4~~28.1 million and ~~$10.4~~29.4 million for the three months ended March 31, ~~2020~~2021 and ~~the three months ended March 31, 2019,~~2020, respectively, representing a ~~$19.0~~$1.3 million, or ~~183.7% increase.~~4.3%, decrease. The ~~increase~~decrease was ~~mainly~~ attributable to ~~the Business Combination~~a cost reduction of $4.4 million in line with ~~B&R Global, which contributed $16.6~~decreased business volume while being offset by an increase of $3.1 million ~~and the amortization expense of $2.7 million relating~~primarily stemming from legal cost related to the ~~intangible assets acquired~~legal defense of class action lawsuits and internal investigations thereof. Cost reductions consisted of (1) $1.0 million decrease in payroll expenses, (2) $1.0 million decrease in fulfillment related expense such as outbound freight, auto, fuel, and contract labor, (3) $0.7 million decrease in insurance cost as a result of program consolidation savings realization, (4) $0.3 million decrease in business development expenses such as meals, entertainment, and travel that were largely reduced due to continued COVID restrictions, (5) $0.3 million saving in customer service expense as sales volume deceased and renegotiation of new rate, (6) $0.3 million decrease in donated inventory, (7) $0.2 million decrease in bad debt, and (8) $0.1 million decrease in depreciation expense.

Interest Expense

Interest expenses primarily stemmed from ~~the Business Combination.~~

~~Interest Expense and Bank Charges~~

~~Interest expense and bank charges are primarily generated from lines~~utilization of line of credit, ~~capital~~finance leases, and long-term ~~debt.~~debts. Interest expenses ~~and bank charges~~ were ~~$1.9~~$0.7 million for the three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$1.6~~$1.3 million, or ~~479.2%~~about 62.0%, compared with $0.3 million for the three months ended March 31, 2019. The increase was mainly attributable to increased lines of credit after the business combination with B&R Global and additional long-term debt with B&R Realty Subsidiaries, with total interest expenses of $1.0$2.0 million for the three months ended March 31, 2020.

The decrease was attributable to significant reduction in utilization of the Company's line of credit and a 50% decrease in actual interest rate due to the floating rate nature of some of our credit facilities. The Company's floating rate debt decreased $30.2 million from $120.6 million for the three months ended March 31,

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2020 to $90.4 million for the same period ended March 31, 2021. Floating interest rates decreased from 3.0%- 3.5% range for the three months ended March 31, 2020 to 1.5%-2.0% range for the same period ended March 31, 2021.

Goodwill Impairment Loss

Goodwill impairment loss was $338.2 million for the three months ended March 31, 2020 and nil for the three months ended March 31, ~~2019.~~2021. See Note 98 to our financial statements for additional information.

Other Income

Other income consists primarily of non-operating income and rental income. Other income was $0.4 million for the three months ended March 31, ~~2020 an increase~~2021 and 2020.

Change in Fair Value of ~~$0.1 million or 42.6%, compared with $0.3 million~~Interest Rate Swap Contracts

Change in fair value of interest rate swap contracts stemmed from mark to market fair value change of four interest rate swap contracts and realized gain on the termination of JPM IRS contract. See Note 9 to our financial statements for ~~the three months ended March 31, 2019.~~

additional information.

Income ~~taxes~~Tax Provision

(Benefit)

Provision for income taxes ~~decreased~~increased by $1.1 million, ~~of 174.5%~~or 225.9%, from ~~$0.6 million for the three months ended March 31, 2019 to~~ a tax benefit of $0.5 million for the three months ended March 31, 2020 asto a ~~result~~tax provision of ~~the decrease in income before income tax provision.~~

~~Net Income Attributable to Noncontrolling interest~~

~~Net income attributable to noncontrolling interest was derived from four minority owned subsidiaries and increased by $0.1 million, or 63.5% from $0.1~~$0.6 million for the three months ended March 31, ~~2019~~2021, as a result of the increase in income before income tax provision.

Net Income Attributable to Noncontrolling interests

Net income attributable to noncontrolling interests was derived from four subsidiaries with minority ownership outside the Company and increased by $0.1 million, or 52.1%, from net income of $0.2 million for the three months ended March 31, ~~2020. The increase was due~~2020 to ~~the Business Combination with B&R Global,~~a net income ~~attributable to noncontrolling interest~~ of ~~$0.1~~$0.3 million for the three months ended March 31, ~~2020.~~

2021. The increase was attributed to increase in net income attributable to noncontrolling interest from Kirnland for the three months ended March 31, 2021.

Net Income (Loss) Attributable to Our Stockholders

As a result of all analysis above, net income attributable to our stockholders was ~~$1.7~~$1.5 million for the three months ended March 31, 2021, and net loss attributable to our stockholders was $339.9 million for the three months ended March 31, ~~2019~~2020.

EBITDA and ~~for the three months ended March 31, 2020, respectively.~~

Adjusted EBITDA

The following table sets forth of the calculation of EBITDA and adjusted EBITDA, and reconciliation to net income (loss), the closest U.S. GAAP measure:

For the three months ended
March 31,

Change

2020

2019

Amount

%

Net income (loss)
$ (339,686,532
)
$ 1,793,571 $ (341,480,103
)
(19039.1
)%
Interest expenses
1,951,569 336,958 1,614,611 479.2
%
Income tax provision (benefit)
(482,211
)
647,639 (1,129,850
)
(174.5
)%
Depreciation & Amortization
4,374,080 707,396 3,666,684 518.3
%
Goodwill impairment loss
338,191,407 - 338,191,407 100
%
Adjusted EBITDA
$ 4,348,313 3,485,564 862,749 24.8
%
Percentage of revenue
2.5
%
4.7
%
(2.2
)%


	For the Three months ended March 31,						Changes
	2021			2020			Amount			%
Net income (loss)	$	1,823,199		$	(339,686,532)		$	341,509,731		100.5	%
Interest expense	742,141			1,951,569			(1,209,428)			(62.0)	%
Income tax provision (benefit)	607,207			(482,211)			1,089,418			225.9	%
Depreciation & Amortization	4,298,120			4,374,080			(75,960)			(1.7)	%
EBITDA	7,470,667			(333,843,094)			341,313,761			102.2	%
Goodwill impairment loss	—			338,191,407			(338,191,407)			(100.0)	%
Change in fair value of interest rate swap contracts	(1,430,892)			—			(1,430,892)			(100.0)	%
COVID-19 bad debt reserve recovery	(178,250)			—			(178,250)			(100.0)	%
Non-recurring expenses*	3,012,620			—			3,012,620			100.0	%
Adjusted EBITDA	$	8,874,145		$	4,348,313		$	4,525,832		104.1	%
Percentage of revenue	5.6		%	2.5		%	3.1		%	124.0	%

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* For the three months ended March 31, 2021, non-recurring expenses comprised of $3.0 million for legal fees related to the defense of class action lawsuits and an internal investigation stemming from the lawsuits (see Note 17 to our financial statements for additional information.).

Adjusted EBITDA was ~~$4.3~~$8.9 million for the three months ended March 31, ~~2020,~~2021, an increase of ~~$0.8~~$4.5 million, or ~~24.8%~~104.1%, compared to ~~$3.5~~$4.4 million for the three months ended March 31, ~~2019, resulting mainly from~~2020. Goodwill impairment loss was a one time transaction affecting 2020 but not 2021. Excluding the $338 million of goodwill impairment loss, the increase in Adjusted EBITDA was primarily attributed to a $3.3 million ~~decrease~~improvement in net income ~~(excluding goodwill impairment loss), partially~~as a result of 2% gross margin improvement, and a $3 million add back of non-recurring expenses related to the legal defense of class action lawsuits and an associated internal investigation, while being offset by ~~$1.6~~a $1.4 million ~~increase~~subtraction of change in fair value of interest ~~expense~~rate swap contracts.

The special reserve for doubtful accounts receivable related to COVID-19 saw a recovery of $0.2 million due to ~~increased line of credit~~Company's effort in collection.

Liquidity and ~~Long-Term Debt and $3.7 million more depreciation and amortization from intangible and fixed assets associated with acquisition of B&R Global and B&R Realty Subsidiaries~~

~~Supplemental Unaudited Pro Forma Combined Financial Information~~

~~As described above,~~Capital Resources

On January 17, 2020, the Company ~~completed~~entered into the ~~Business Combination with B&R Global~~Second Amended Credit Agreement by and among JP Morgan, as Administrative Agent, and certain lender parties thereto, including Comerica Bank. The Second Amended Credit Agreement provided for a $100 million asset-secured revolving credit facility maturing on November 4, ~~2019. For comparative purposes, the Company is presenting supplemental unaudited pro forma combined statements~~2022, and mortgage-secured Term Loans of operations for the quarters ended March 31, 2020 and 2019. The unaudited pro forma combined statements of operations for these periods present our consolidated results of operations giving pro forma effect to the Business Combination as if it had occurred on January 1, 2019. The pro forma combined adjustments give effect to the items identified in the unaudited pro forma combined tables below in connection with the Business Combination.

$75.6 million.

The unaudited pro forma combined adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma combined basis, the impact of the Business Combination on our historical financial information, as applicable.

The B&R Global Financial Statements and our financial statements have been adjusted in the pro forma financial information to give effect to events that are (1) directly attributable to the Business Combination, (2) factually supportable, and (3) expected to have a continuing impact on the combined company.

The unaudited pro forma combined financial information has been prepared for informational purposes only and is not necessarily indicative of or intended to represent what the combined company’s financial position or results of operations actually would have been had the Business Combination occurred as of the dates indicated. In addition, the unaudited pro forma combined financial information does not purport to project the future financial position or operating results of the combined company. The unaudited pro forma adjustments are based on information available at the time of the preparation of the unaudited pro forma combined financial information.

The unaudited pro forma combined financial information does not reflect cost savings, synergies or revenue enhancements that the Company may achieve with respect to combining the companies or costs to integrate the B&R Global business or the impact of any non-recurring activity and any one-time transaction related costs. Synergies and integration costs have been excluded from consideration because they do not meet the criteria for unaudited pro forma adjustments.

~~Unaudited Pro Forma Results of Operations~~

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma financial statements:

Three months ended March 31, 2019

HF

B&R
Global

Adjustments

Pro Forma Combined

Net revenue
$ 74,801,022 $ 134,154,344 $ - $ 208,955,366
Net income
1,793,571 3,853,379 (2,722,575
)(1)
2,924,375
Net Income Attributable to HF Foods Group Inc.
$ 1,672,813 $ 3,728,121 $ (2,722,575
)
$ 2,678,359

~~(1)~~

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

~~Liquidity and Capital Resources~~

As of March 31, ~~2020,~~2021, we had cash of approximately ~~$12.7 million.~~$11.3 million and access to approximately $83.4 million in additional funds through our $100 million line of credit, subject to a borrowing base calculation. The strategic cost management actions undertaken in late March 2020 resulted in an overall increase of the available line of credit over time. We have funded working capital and other capital requirements primarily by equity ~~contribution~~contributions from shareholders, cash flow from operations, and bank loans. Cash is required to pay purchase costs for inventory, salaries, fuel and trucking expenses, selling expenses, rental expenses, income taxes, other operating expenses and ~~repay~~to service debts.

On April 18, 2019, we and our operating subsidiaries Han Feng, New Southern Food Distributers and Kirnland entered into a credit agreement with East West Bank, which replaced our prior credit agreement with East West Bank. The credit agreement provides a $25,000,000 revolving credit facility which was due August 18, 2021, accrued interest based on the prime rate less 0.375% or 2.20% above LIBOR, but in no event less than 4.214% per annum, and was secured by virtually all assets of the Company and our domestic subsidiaries. On November 4, 2019, the East West Bank revolving credit facility loan was paid off from borrowings under the Amended and Restated Credit Agreement entered into connection with the merger with B&R, as described below.

On November 4, 2019, we entered into an Amended and Restated Credit Agreement with JP Morgan. The Amended and Restated Credit Agreement provides for (a) a $100 million asset-secured revolving credit facility maturing on November 4, 2022, and (b) mortgage-secured term loans of $55.4 million.

On January 17, 2020, the Company, B&R Global, and the Borrowers, and certain material subsidiaries of the Company as guarantors, entered into a Second Amended and Restated Credit Agreement (the “Second Amended Credit Agreement”) by and among JPMorgan, as Administrative Agent, and certain lender parties thereto, including Comerica Bank. The Second Amended Credit Agreement provided for (a) a $100 million asset-secured revolving credit facility maturing on November 4, 2022 (the “Facility”), and (b) mortgage-secured Term Loans of $75.6 million. The Second Amended Credit Agreement amended and restated the existing $55.0 million of real estate term loans under the Amended Credit Agreement. As of January 17, 2020, the existing balance of revolving debt under the Amended Credit Agreement, $41.2 million, was rolled over, and an additional $18.7 million available to the Company under the Facility was drawn. The Company used the $75.6 million in mortgage-secured term loans and $18.7 million drawn from the revolving credit facility to fund in part the Acquisition of the B&R Realty Subsidiaries, as noted above. Borrowings under the Second Amended Credit Agreement may be used for, among other things, working capital and other general corporate purposes of the Company and its subsidiaries (including permitted acquisitions). The Borrowers have the ability to increase the amount of the Facility, which increases may take the form of increases to the revolving credit commitments, by an aggregate amount of up $30 million upon satisfaction of customary conditions precedent for such increases or incremental loans and receipt of additional commitments by one or more existing or new lenders. Borrowings under the Facility bear interest at a floating rate, which will be, at the Borrowers’ option, either LIBOR plus 1.375%, or a base rate of prime rate minus 1.125%. The mortgage-secured Term Loans bear interest at a floating rate, which will be, at the Borrowers’ option, either LIBOR plus 1.875%, or a base rate of prime rate minus 0.625%. A commitment fee of 0.15% is payable monthly in arrears based on the daily amount of the undrawn portion of each lender’s revolving credit commitments under the Facility. The Borrowers are obligated to pay monthly installments on the mortgage-secured Term Loans in the amount of $252,000.00, with a final installment of the remaining principal balance of the Term Loans due on January 17, 2030, the Term Loan Maturity Date.

Although management believes that the cash generated from operations will be sufficient to meet our normal working capital needs for at least the next twelve months, our ability to repay our current obligations will depend on the future realization of our current assets. Management has considered the historical experience, the economy, the trends in the ~~foodservice~~food service distribution industry, the expected collectability of accounts receivable and the realization of the inventories as of March 31, ~~2020.~~2021. Based on the above considerations, management is of the opinion that we have sufficient funds to meet our working capital requirements and debt obligations as they become due. However, there is no assurance that management will be successful in our plan. There are a number of factors that could potentially arise ~~that could~~which might result in shortfalls to ~~our plan,~~what is anticipated, such as the demand for our products, economic conditions, ~~the~~ competitive pricing in the ~~foodservice~~food service distribution industry, and our bank and suppliers being able to provide continued support. If the future cash flow from operations and other capital resources ~~are~~is insufficient to fund our liquidity needs, we may be forced to reduce or delay our expected acquisition plan, sell assets, obtain additional debt or equity capital, or refinance all or a portion of our debt.

We, however, make no assurance ~~however,~~ that we will be able to raise any additional capital in the future on satisfactory terms or at all. Our continued access to sources of liquidity depends on multiple factors, including economic conditions, the condition of financial markets, the availability of sufficient amounts of financing, our operating performance and our credit ratings. In addition, the effect of COVID-19 on the capital markets could significantly impact our cost of borrowing and the availability of capital to us.

The following table sets forth cash flow data for the three months ended March 31, ~~2020~~2021 and ~~2019:~~

For the three months ended
March 31,

2020

2019

Net cash provided by operating activities
$ 18,627,806 $ 2,521,378
Net cash used in investing activities
(94,073,441
)
(1,380,487
)
Net cash provided by financing activities
73,597,614

267,059
Net increase (decrease) in cash and cash equivalents
$ (1,848,021
)
$ 1,407,950

2020:

For the Three Months Ended March 31,
2021 2020
Net cash provided by operating activities $ 10,567,284 $ 18,627,806
Net cash used in investing activities (440,173) (94,073,441)
Net cash provided by (used in) financing activities (8,454,443) 73,597,614
Net increase (decrease) in cash and cash equivalents $ 1,672,668 $ (1,848,021)

Operating Activities

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Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, changes in deferred income taxes and others, and adjusted for the effect of working capital changes. Net cash provided by operating activities was approximately ~~$18.6~~$10.6 million for the ~~quarter~~three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$16.1~~$8.0 million, or ~~638.8%~~43.3%, compared to net cash provided by operating activities of ~~$2.5~~$18.6 million for the ~~quarter~~three months ended March 31, ~~2019.~~2020. The ~~increase~~decrease was ~~due primarily~~the result of ~~newly acquired B&R Global with total net cash provided by operating activities of $11.4 million. The remaining increase is a combined results of an increase of $14.3 million from~~ changes in working capital items mainly resulting from ~~changes~~decreases in accounts receivable, accrued expenses, advances from customers – related parties , inventory and depreciation and amortization expense which were offset by a decrease of $9.2 million in, net income, advances to suppliers – related parties, other current assets, other long term assets, advance from customers - related party, goodwill impairment loss and ~~accounts payable.~~

loss from derivative instrument which were offset by an increase in net income, depreciation and amortization expense, gain from disposal of equipment, inventory, advances to suppliers – related parties, deferred tax benefit, and accrued expenses.

Investing Activities

Net cash used in investing activities was approximately ~~$94.1~~$0.4 million for the ~~quarter~~three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$92.7~~$93.7 million, or ~~6,714.5%~~99.5%, compared to ~~$1.4~~$94.1 million net cash used in investing activities for the ~~quarter~~three months ended March 31, ~~2019.~~2020. The ~~increase~~decrease was primarily due to payment made to acquire B&R Realty Subsidiaries of $94.1 ~~million.~~million in prior year. The ~~increase~~decrease was offset by ~~a combined result of, decreased~~an increase in cash paid for the purchase of property and equipment of ~~$1.3~~$0.3 million ~~cash paid to notes receivable to third parties~~ and ~~related parties of $0.1 million and $0.1 million, respectively,~~ offset by a decrease in cash proceeds from the disposal of equipment of $0.1 million.

Financing Activities

Net cash used in financing activities was approximately $8.5 million for the three months ended March 31, 2021, a change of $82.1 million, or 111.5%, compared with $73.6 million of net cash provided by financing activities ~~was approximately $73.6 million~~ for the ~~quarter~~three months ended March 31, ~~2020, an increase of $73.3~~2020. The change was caused primarily by a non-recurring $75.6 million ~~or 27458.6%, compared with $0.3 million of net cash used~~term loan proceed in ~~financing activities~~prior year for the ~~quarter ended March 31, 2019. The~~B&R Realty Acquisition, $3.7 million increase ~~was due primarily result of newly acquired $75.6 million in mortgage-backed term loans to fund Realty Acquisition. The increase was offset by a combined result of , an increase of $170.0 million~~ in repayment of lines of credit anand $2.9 million increase ~~of $172.6 million in proceeds from lines of credit, an increase of $0.7 million in repayment of long term debt , an increase of $1.5 million~~ in repayment of bank overdrafts, ~~and a decrease of $0.1 million in cash dividend to shareholders.~~

Commitments and Contractual Obligations

The following table presents the ~~company’s~~Company’s material contractual obligations as of March 31, ~~2020:~~

Contractual Obligations

Total

Less than 1
year

1-3 years

3-5 years

More than 5
years

Lines of credit
$ 43,101,338 - 43,101,338 - -
Long-term debt
97,092,946 6,941,738 10,725,978 7,718,680 71,706,550
Promissory note payable - related party 7,000,000 - - - 7,000,000
Finance lease obligations
1,517,482 373,715 686,375 457,392 -
Operating lease obligations
1,008,813 395,354 534,675 78,784 -
Total
$ 149,720,579 7,710,807 55,048,366 8,254,856 78,706,550

2021:


Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Line of credit	$	16,380,876	$	—	$	16,380,876	$	—	$	—
Long-term debt	92,437,434		5,898,994		9,740,083		8,086,328		68,712,029
Promissory note payable - related party	6,500,000		—		—		—		6,500,000
Finance lease obligations	1,198,996		424,308		609,440		165,248		—
Operating lease obligations	21,849,272		999,730		1,842,654		1,540,567		17,466,321
Total	$	138,366,578	$	7,323,032	$	28,573,053	$	9,792,143	$	92,678,350

On July 2, 2018, AnHeart Inc., ~~one~~a wholly-owned subsidiary of ~~our subsidiaries,~~HF Holding ("AnHeart"), entered into two separate leases for two ~~buildings~~properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, ~~respectively, which are~~respectively. The leases were on triple net ~~leases,~~basis, meaning ~~that~~ AnHeart iswas required to pay all costs associated with the ~~buildings,~~properties, including taxes, insurance, utilities, maintenance and repairs. HF Holding provided a guaranty for all rent and related costs of the leases, including costs associated with the planned construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue. Under the lease for 273 Fifth Avenue, the fixed rent costs over 30 years commence at $325,000 for the first year and escalate every year during the term to $1,047,000 in year 30. Under the lease for 275 Fifth Avenue, the fixed rent costs over 15 years commence at $462,000 for the first year and escalate every year during the term to approximately $760,878 in year 15. The 275 Fifth Avenue lease includes an option to extend the term for an additional 10 years. Under the leases, ~~AnHeart~~HF Holding delivered ~~a letter~~two letters of credit in favor of the Landlord, one in the amount of $213,000 as security for AnHeart’s obligations under the lease at 273 Fifth Avenue, and the second in the amount of $115,500 with respect to 275 Fifth Avenue. The Company entered into the leases ~~for~~with the planned purpose of expanding its product lines to include Chinese herb supplements and to use the sites to develop into a hub for such products. The Company has since determined to cease this business expansion.

On February 23, 2019, the Company executed an agreement to ~~transfer~~divest all of ~~our~~the ownership interest in AnHeart to Ms. Jianping An, a resident of New York, for the sum of $20,000. The transfer of ownership was disclosed and landlord consent was obtained. However, the ~~transfer~~divestment of ownership ~~does~~did not release HF Holding’s guaranty of AnHeart’s obligations or liabilities under the original lease agreements. Under the terms of the ~~transfer agreement,~~sale of AnHeart stock to Ms. An, and in consideration of the Company’s ongoing guaranty of AnHeart’s performance of the lease obligations, AnHeart executed a security agreement which

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grants us a security interest in AnHeart assets and contains a covenant to assign the leases to HF Group if AnHeart ~~defaults.~~defaults on the original lease agreements. Further, ~~AnHeart~~Ms. An has tendered an unconditional guaranty of all liabilities arising under the leases, in favor of the Company, executed by Minsheng Pharmaceutical Group Company, Ltd., a Chinese manufacturer and distributor of herbal medicines.

On February 10, 2021, 273 Co, a newly established Delaware limited liability company and wholly owned subsidiary of the Company, completed the closing of an Assignment and Assumption of Lease Agreement (“Assignment”), dated effective as of January 21, 2021, pursuant to which it has assumed the lease of the premises at 273 Fifth Avenue, New York, New York (the “273 Lease Agreement”) dated as of July 2, 2018, by and between AnHeart, a former subsidiary of the Company, and Premier 273 Fifth, LLC ("Landlord"). On the same date, the closing documents were delivered to effectuate the amendment of the 273 Lease Agreement pursuant to an Amendment to Lease (the “Lease Amendment”). The Assignment and the 273 Lease Amendment were negotiated pursuant to guarantee obligations of the Company’s wholly owned subsidiary, HF Holding as guarantor under the Lease Agreement. 273 Co has agreed to observe all the covenants and conditions of the Lease Agreement, as amended, including the payment of all rents due. Under the terms of the Lease Agreement and the Assignment, 273 Co has undertaken to construct, at Company’s expense, a building on the premises, at a minimum cost of $2,500,000. The 273 Lease Agreement and the Lease Amendment provide for a term of 30 years, with option to renew for 10 additional years, at an annual rent starting at $325,000 and escalating annually throughout the term, with the annual rent in the final year of the initial term of $1,047,974. The 273 Lease Amendment further granted certain rent abatement to the premises for 2020 and 2021, including a 20% reduction of annual rent in 2021. The Lease Amendment permits subletting of the premises.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital ~~resources~~

resources.

Critical Accounting Policies and Estimates

We have prepared the financial information in this Quarterly Report in accordance with U.S. GAAP. Preparing the Company's consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during these reporting periods. We base our estimates and judgments on historical experience and other factors we believe are reasonable under the circumstances. These assumptions form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the ~~2019~~2020 Annual Report includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenue, or expenses during the three ~~months~~month period ended March 31, ~~2020.~~

2021.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 2, Recent Accounting Pronouncements, in our consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk

Our debt exposes us to risk of fluctuations in interest rates. Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at higher rates. We manage our debt portfolio to achieve an overall desired ~~position~~proportion of fixed and floating ~~rates~~rate debts and may employ interest rate swaps as a tool from time to time to achieve that position.

~~Floating~~

As of March 31, 2021, our aggregate floating rate debt’s outstanding principal balance was ~~$121.7~~$90.4 million, asor 78.2% of ~~March 31, 2020, which consists~~total debt, consisting of long-term debt and ~~revolver~~revolving line of credit (See Notes 10, 11 and ~~11 to our financial statements)~~15). ~~Based~~Floating rate debt bore interest rate based on the ~~outstanding balance as~~floating 1-month LIBOR plus the bank spreads. The remaining 21.8% of ~~March 31, 2020, a~~our debt are on fixed rate. A hypothetical 1% ~~change~~fluctuation in the applicable ~~base~~ rate would cause the interest expense on our floating rate debt, to change by approximately ~~$1.2~~$0.9 million per year.

Fuel Price Risk

We are also exposed to fluctuations risk ~~due to fluctuations~~ in the price and availability of diesel fuel. We require significant quantities of diesel fuel for our vehicle fleet, and the inbound delivery ~~to us~~ of the products we sell is also is dependent upon shipment by diesel-fueled vehicles. We currently are able to obtain adequate supplies of diesel fuel, and prices in the current quarter ~~are substantially lower than in~~increased 6% from the comparable period of ~~2019.~~2020. However, it is impossible to predict the future availability or price of diesel fuel. The price and supply of diesel fuel fluctuates based on ~~events outside~~external factors not within our control, including geopolitical developments, supply and demand for oil and gas, regional production patterns, weather conditions and environmental concerns. Increases in the cost of diesel fuel ~~can~~could increase ~~the prices we pay for products~~our cost of goods sold and ~~the~~operating costs ~~we incur~~ to deliver products to our customers.

~~Our activities~~

The Company does not actively hedge the price fluctuation of diesel fuel in general. Instead, we seek to minimize fuel cost risk ~~include~~through delivery route optimization and improving fleet ~~utilization and using fuel surcharges.~~

utilization.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. In connection with this review and the audit of our consolidated financial statements for the year ended December 31, ~~2019,~~2020, we identified ~~material~~ weaknesses and control deficiencies in our internal control over financial reporting. The ~~material~~ weaknesses ~~related to~~identified include: (1) ~~the~~The Company ~~does not have~~has limited in-house accounting personnel with sufficient ~~capacity of US~~U.S. GAAP and SEC reporting ~~experiences~~experience related to complex transactions; and (2) ~~The~~the Company ~~failed~~lacks sufficient IT resources to maintain effective IT General Controls, including missing certain entity level controls in IT management, lack of segregation of duties in IT functions, proper review of the operation of application systems, and measures to protect data security and maintain business sustainability. Control deficiencies are related to the lack of proper documentation to evidence the management review inof various business processes. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that as a result of the material weakness in our internal control over financial reporting reported in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, our disclosure controls and procedures were not effective as of March 31, ~~2020.~~2021. Notwithstanding the ~~material~~ weaknesses, our management has concluded that the financial statements included elsewhere in this report present fairly, and in all materials respects, our financial position on results of operation and cash flow in conformity with U.S. GAAP.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

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As previously reported in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, management concluded that our internal control over financial reporting was ineffective due to material ~~weakness~~weaknesses and control deficiencies in our internal control over financial reporting. The material weaknesses ~~related to~~identified includes: (1) of the Company ~~does not have~~has limited in-house accounting personnel with sufficient ~~knowledge of US~~U.S. GAAP and SEC reporting experiences, especially related to complex transactions and new accounting pronouncements; and (2) ~~The~~the Company ~~failed~~lacks sufficient IT resources to maintain effective IT General Controls, including missing certain entity level controls in IT management, lack of segregation of duties in IT functions, proper review of the operation of application systems, and measures to protect data security and maintain business sustainability. Control deficiencies are related to the lack of proper documentation to evidence the management review inof various business processes. In order to address and resolve the foregoing material weakness, during the ~~three months~~quarter ended March 31, ~~2020,~~2021, we continued to improve on our USU.S. GAAP and SEC reporting knowledge relating to complex transactions and added additional resources both in terms of systems and manpower to improve our internal control over financial ~~reporting:~~

reporting.

The measures we have implemented are subject to continued management review supported by confirmation and testing, as well as audit committee oversight. Management remains committed to the implementation of remediation efforts to address these ~~material~~ weaknesses. Although we will continue to implement measures to remedy our internal control deficiencies, there can be no assurance that our efforts will be successful or avoid potential future material weaknesses. In addition, until remediation steps have been completed and/or operated for a sufficient period of time, and subsequent evaluation of their effectiveness is completed, the ~~material~~ weaknesses identified and described above will continue to exist.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

~~Various labor~~

Onfinancial condition, including in a particular reporting period, could be materially adversely affected.

Beginning on March 29, 2020, ~~plaintiff Jesus Mendoza (“Mendoza”)~~two putative class actions and two derivative actions were filed ~~a putative shareholder securities class action lawsuit (the “Mendoza Lawsuit”) in the United States District Court for the Central District of California~~ against ~~the Company and~~us, our directors, and/or certain of ~~its present and former~~our officers (collectively, the “Mendoza Defendants”) styled Mendoza v. HF Foods Group Inc., et al., Civil Action No. 2:20-CV-2929-ODW-JPR (C.D. Cal.). On April 30, 2020, plaintiff Walter Ponce-Sanchez (“Ponce-Sanchez”) filed a substantially similar putative shareholderalleging violation of securities ~~class action lawsuit (the “Ponce-Sanchez Lawsuit”)~~laws or breach of fiduciary duties in ~~the United States District Court for the Central District of California against the same defendants named in the Mendoza Lawsuit (collectively, the “Ponce-Sanchez Defendants” and~~connection with the Mendoza Defendants, the “Defendants”) styled Ponce-Sanchez v. HF Foods Group Inc., et al., Civil Action No. 2:20-CV-3967-PA-GJS (C.D. Cal.). The complaints in the Mendoza Lawsuit and the Ponce-Sanchez Lawsuit both allegeallegations that ~~the Defendants made materially false and/or misleading statements that caused losses to investors. Additionally, Mendoza and Ponce-Sanchez both allege that the Defendants~~we failed to disclose in public statements that the Company engaged in certain related party transactions, that insiders and related parties were enriching themselves by misusing shareholder funds, and that the Company masked the true number of free-floating ~~shares. Neither the Mendoza Lawsuit nor the Ponce-Sanchez Lawsuit quantifies any alleged~~shares, These cases seek unspecified damages ~~but, in addition to attorneys’ fees and costs, they seek to recover damages on behalf of themselves~~ and other ~~persons who purchased or otherwise acquired Company stock during~~forms of relief. We intend to continue to vigorously defend these lawsuits. These cases now are all pending in the ~~putative class period from August 23, 2018 through March 23,~~U.S. District Court for the Central District of California. A motion to dismiss the amended securities fraud complaint was filed on January 19, 2021, which is pending. The derivative actions are stayed pending the outcome of that motion to dismiss. In addition, the events alleged in the lawsuits became the subject of an investigation by the Securities and Exchange Commission, with which we are cooperating. There have been no changes to the status of these proceedings as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 at allegedly inflated prices and purportedly suffered financial harm as a result. The Company disputes these allegations and intends to defend the Mendoza Lawsuit and the Ponce-Sanchez Lawsuit vigorously. At this stage, the Company is unable to determine whether a future loss will be incurred due to these lawsuits.

(the "Previous Report").

Item 1A. Risk Factors.

There have been no changes with respect to risk factors as previously disclosed in ~~our Annual Report on Form 10-K for~~ the ~~year ended December 31, 2019 (the “Previous Report”).~~Previous Report. Investing in our common stock involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described in our Previous Report, our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this Quarterly Report on Form 10-Q, our consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes, as well as our Management’s Discussion and Analysis of Financial Condition and Results of Operations and the other information in our Previous Report. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities.

~~None.~~

There have been no changes with respect to unregistered sales of equity securities as previously disclosed in the Previous Report.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

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Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are being filed or furnished with this quarterly report on Form 10-Q:

~~Exhibit No.~~	~~Description~~
Exhibit No.		Description
~~2.1~~ 31.1		Form of Membership Interest Purchase Agreement among B&R Global Holdings, Inc., B&R Group Realty Holding, LLC, and subsidiaries of B&R Group Realty Holding, LLC (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on January 21, 2020)

~~10.1~~	Form of Second Amended and Restated Credit Agreement among HF Foods Group Inc. B&R Global Holdings, Inc., subsidiaries of the Company, JPMorgan Chase Bank, N.A. (“JPMorgan”), as Administrative Agent, and certain lender parties thereto [disclosure schedules have been redacted as immaterial and commercially sensitive] (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on January 21, 2020)

~~10.2~~	Form of Letter Agreement between HF Foods Group Inc. and Russell T. Libby (incorporated by reference to Exhibit 5.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 23, 2020)

~~10.3~~	Form of Mutual Rescission Agreement between HF Group and Rescinding Shareholders dated April 1, 2020 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 7, 2020)

~~31.1~~	Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

4246

Table of Contents

SIGNATURES

~~signatures~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		HF FOODS GROUP INC.

		By: ~~/s/ Zhou Min Ni~~ /s/ Xiao Mou Zhang
		~~Zhou Min Ni~~ Xiao Mou Zhang Chief Executive Officer ~~(Principal executive officer)~~


	By: ~~/s/~~ /s/ Kong Hian Lee
		Kong Hian Lee Chief Financial Officer (Principal accounting and financial officer)

Date: May 10, 2021

~~Date: May 18, 2020~~

4347

	As of
	March 31			December 31
	2020			2019
ASSETS
CURRENT ASSETS:
Cash	$	12,690,265		$	14,538,286
Accounts receivable, net		26,210,460			50,027,134
Accounts receivable - related parties, net		5,987,632			4,202,870
Inventories, net		75,704,474			77,531,854
Advances to suppliers - related parties, net		864,816			745,135
Other current assets		3,872,326			4,374,338
TOTAL CURRENT ASSETS		125,329,973			151,419,617

Property and equipment, net		139,941,393			37,538,147
Security deposits-related parties		-			591,380
Operating lease right-of-use assets		883,552			17,155,584
Long-term investments		2,331,337			2,296,276
Intangible assets, net		183,965,375			186,687,950
Goodwill		68,511,941			406,703,348
Deferred tax assets		69,236			78,993
Other long-term assets		379,599			372,499
TOTAL ASSETS	$	521,412,406		$	802,843,794

CURRENT LIABILITIES:
Bank overdraft	$	13,474,772		$	14,952,510
Lines of credit		43,101,338			41,268,554
Accounts payable		32,456,258			39,689,911
Accounts payable - related parties		3,738,202			4,521,356
Advances from customers - related parties		213,354			-
Current portion of long-term debt, net		6,941,738			2,726,981
Current portion of obligations under finance leases		288,101			280,243
Current portion of obligations under operating leases		333,180			4,322,503
Accrued expenses and other liabilities		2,960,084			2,683,696
TOTAL CURRENT LIABILITIES		103,507,027			110,445,754

Long-term debt, net		90,151,208			18,535,016
Promissory note payable - related party		7,000,000			-
Obligations under finance leases, non-current		979,782			1,053,166
Obligations under operating leases, non-current		550,372			12,833,081
Deferred tax liabilities		51,378,817			52,320,045
TOTAL LIABILITIES		253,567,206			195,187,062

SHAREHOLDERS’ EQUITY:
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized , no shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		-			-
Common Stock, $0.0001 par value, 100,000,000 shares authorized, 53,050,211 shares issued, and 52,145,096 shares outstanding as of March 31, 2020 and December 31, 2019, respectively		5,305			5,305
Treasury Stock, at cost, 905,115 shares as of March 31, 2020 and December 31, 2019, respectively		(12,038,030	)		(12,038,030	)
Additional paid-in capital		599,617,009			599,617,009
Retained earnings (accumulated deficit)		(324,060,281	)		15,823,661

Total shareholders’ equity attributable to HF Foods Group, Inc.		263,524,003			603,407,945
Noncontrolling interest		4,321,197			4,248,787
TOTAL SHAREHOLDERS’ EQUITY		267,845,200			607,656,732
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	521,412,406		$	802,843,794

	For the three months Ended Mar 31,
	2020			2019

Net revenue - third parties		170,640,014		$	70,303,911
Net revenue - related parties		5,163,322			4,497,111
TOTAL NET REVENUE		175,803,336			74,801,022

Cost of revenue - third parties		141,904,237			57,725,355
Cost of revenue - related parties		4,924,054			4,368,811
TOTAL COST OF REVENUE		146,828,291			62,094,166

GROSS PROFIT		28,975,045			12,706,856

DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES		29,406,593			10,365,172

INCOME (LOSS) FROM OPERATIONS		(431,548	)		2,341,684

Other Income (Expenses)
Interest income		131			151,949
Interest expense and bank charges		(1,951,569	)		(336,958	)
Goodwill impairment loss		(338,191,407	)		-
Other income		405,650			284,535
Total Other Income (Expenses), net		(339,737,195	)		99,526

INCOME (LOSS) BEFORE INCOME TAX PROVISION		(340,168,743	)		2,441,210

PROVISION (BENEFIT) FOR INCOME TAXES		(482,211	)		647,639

NET INCOME (LOSS)		(339,686,532	)		1,793,571

Less: net income attributable to noncontrolling interest		197,410			120,758

NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.		(339,883,942	)	$	1,672,813

Earnings (loss) per common share - basic and diluted		(6.52	)	$	0.08

Weighted average shares - basic and diluted		52,145,096			22,167,486

	Common Stock							Additional		Retained Earnings			Total Shareholders’ Equity Attributable						Total
	Number of				Treasury			Paid-in		(Accumulated			to HF			Noncontrolling			Shareholders’
	Shares		Amount		Stock			Capital		Deficit)			Group Inc.			Interest			Equity
Balance at December 31, 2019		52,145,096	$	5,305	$	(12,038,030	)	$	599,617,009	$	15,823,661		$	603,407,945		$	4,248,787		$	607,656,732
Net income (loss)		-		-		-			-		(339,883,942	)		(339,883,942	)		197,410			(339,686,532	)
Distribution to shareholders		-		-		-			-		-			-			(125,000	)		(125,000	)
Balance at March 31, 2020		52,145,096		5,305		(12,038,030	)		599,617,009		(324,060,281	)		263,524,003			4,321,197			267,845,200


Balance at December 31, 2018		22,167,486		2,217		-			22,920,603		10,433,984			33,356,804			1,104,678			34,461,482
Net income		-		-		-			-		1,672,813			1,672,813			120,759			1,793,572
Balance at March 31, 2019		22,167,486	$	2,217	$	-		$	22,920,603	$	12,106,797		$	35,029,617		$	1,225,437		$	36,255,054

	For the three months ended March 31
	2020		2019
Net revenue	$	666,428	$	-
Net income	$	64,778	$	-

	For the Three Months Ended
	March 31, 2020		March 31, 2019
North Carolina	$	29,717,516	$	35,259,767
Florida		19,085,809		23,130,742
Georgia		14,102,255		16,410,513
Arizona		10,011,749		-
California		67,664,956		-
Colorado		8,908,993		-
Utah		14,998,375		-
Washington		11,313,683		-
Total	$	175,803,336	$	74,801,022

	Ownership as of March 31, 2020		As of March 31, 2020		As of December 31, 2019
Pt. Tamron Akuatik Produk Industri		12%	$	1,800,000	$	1,800,000
Asahi Food, Inc.		49%		531,337		496,276
Long-term investments			$	2,331,337	$	2,296,276

Cash	$	7,017,467
Accounts receivable, net		30,934,831
Accounts receivable - related parties, net		3,393,930
Inventories, net		56,451,885
Other current assets		2,332,063
Other current assets - related parties		498,211
Advances to suppliers, net		97,964
Property and equipment, net		11,042,601
Deposit		281,282
Deposit – related parties		591,380
Long-term investments		2,289,389
Right-of-use assets		17,791,681
TANGIBLE ASSETS ACQUIRED		132,722,684

Lines of credit		35,567,911
Accounts payable		24,884,247
Accounts payable - related parties		1,528,139
Bank overdraft		12,082,094
Accrued expenses		778,779
Other payables		185,938
Other payables – related party		733,448
Customer deposits		38,510
Long-term debt		3,284,159
Lease liabilities		17,791,680
Deferred tax liabilities arising from acquired intangible assets		51,413,633
TANGIBLE LIABILITIES ASSUMED		148,288,538
NET TANGIBLE LIABILITIES ASSUMED		(15,565,854	)

Identifiable intangible assets		188,503,000
Goodwill		406,703,348
INTANGIBLE ASSETS ACQUIRED		595,206,348

Noncontrolling interests		2,941,000
Total consideration	$	579,640,494

	For the three months ended March 31, 2020

Net Revenue	$	112,897,756

Net Income	$	(340,298,022	)

	For the three months ended March 31,
	2019
Pro forma Net revenue	$	208,955,366
Pro forma Net income		2,924,375	⁽¹⁾
Pro forma Net income attributable to HF Group		2,678,359	⁽¹⁾

Pro forma earnings per common share - basic and diluted	$	0.05

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

	HF Group		B&R Global		Total
Balance at December 31, 2019	$	-	$	406,703,348	$	406,703,348
Balance at March 31, 2020⁽¹⁾	$	-	$	68,511,941	$	68,511,941

Bank name	Maturity	Interest rate at March 31, 2020			As of March 31, 2020			As of December 31, 2019
East West Bank – (a)	August 2027 - September 2029	3.83%	-	4.25%	$	6,942,702		$	6,989,016
Capital Bank – (b)	October 2027		3.85%			4,919,094			4,967,075
Bank of America – (c)	April 2021 – December 2029	3.75%	-	5.51%		5,696,670			4,263,663
J.P. Morgan Chase (d)	February 2023 – January 2030		3.46%			77,516,030			2,702,371
BMO Harris Bank – (e)	April 2022 - January 2024	5.87%	-	5.99%		397,378			508,564
Peoples United Bank – (e)	April 2020 – January 2023	6.69%	-	7.53%		981,749			1,114,993
Other finance companies – (e)	May 2020 – March 2024	3.9%	-	6.14%		639,323			716,315
Total debt						97,092,946			21,261,997
Less: current portion						(6,941,738	)		(2,726,981	)
Long-term debt					$	90,151,208		$	18,535,016

	For the Three Months Ended
	March 31, 2020			March 31, 2019
Operating lease cost	$	503,057		$	164,752

Weighted Average Remaining Lease Term (Months)
Operating leases		36			31

Weighted Average Discount Rate
Operating leases		4.1	%		5.1	%

	For the Three Months Ended
	March 31, 2020		March 31, 2019
Net revenue
HF	$	62,905,580	$	74,801,022
B&R Global		112,897,756		-
Total	$	175,803,336	$	74,801,022

	For the Three Months Ended March 31, 2020
	HF		B&R Global		Total
Revenue	$	62,905,580	$	112,897,756	$	175,803,336
Cost of revenue		51,350,288		95,478,003		146,828,291
Gross profit		11,555,292		17,419,753		28,975,045
Depreciation and amortization		755,642		3,770,635		4,526,277
Total capital expenditures	$	21,459	$	138,793	$	160,252

	As of March 31, 2020		As of December 31, 2019
Total assets:
HF	$	69,878,489	$	80,514,529
B&R Global		451,533,917		722,329,265
Total Assets	$	521,412,406	$	802,843,794

	For the three months ended March 31,						Changes
	2020			2019			Amount			%
Net revenue	$	175,803,336		$	74,801,022		$	101,002,314			135.0	%
Cost of revenue		146,828,291			62,094,166			84,734,125			136.5	%
Gross profit		28,975,045			12,706,856			16,268,189			128.0	%
Distribution, selling and administrative expenses		29,406,593			10,365,172			19,041,421			183.7	%
Income (loss) from operations		(431,548	)		2,341,684			(2,773,232	)		(118.4	)%
Interest income		131			151,949			(151,818	)		(99.9	)%
Interest expenses and bank charges		(1,951,569	)		(336,958	)		(1,614,611	)		479.2	%
Goodwill impairment loss		(338,191,407	)		-			(338,191,407	)		100	%
Other income, net		405,650			284,535			121,115			42.6	%
Income (loss) before income tax provision		(340,168,743	)		2,441,210			(342,609,953	)		(14034.4	)%
Provision (benefit) for income taxes		(482,211	)		647,639			(1,129,850	)		(174.5	)%
Net income (loss)		(339,686,532	)		1,793,571			(341,480,103	)		(19039.1	)%
Less: net income attributable to noncontrolling interest		197,410			120,758			76,652			63.5	%
Net income (loss) attributable to HF Foods Group Inc.	$	(339,883,942	)	$	1,672,813		$	(341,556,755	)		(20418.1	)%

	For the three months ended March 31,						Change
	2020			2019			Amount			%
Net income (loss)	$	(339,686,532	)	$	1,793,571		$	(341,480,103	)		(19039.1	)%
Interest expenses		1,951,569			336,958			1,614,611			479.2	%
Income tax provision (benefit)		(482,211	)		647,639			(1,129,850	)		(174.5	)%
Depreciation & Amortization		4,374,080			707,396			3,666,684			518.3	%
Goodwill impairment loss		338,191,407			-			338,191,407			100	%
Adjusted EBITDA	$	4,348,313			3,485,564			862,749			24.8	%
Percentage of revenue		2.5	%		4.7	%		(2.2	)%

	Three months ended March 31, 2019
	HF		B&R Global		Adjustments			Pro Forma Combined

Net revenue	$	74,801,022	$	134,154,344	$	-		$	208,955,366
Net income		1,793,571		3,853,379		(2,722,575	)(1)		2,924,375
Net Income Attributable to HF Foods Group Inc.	$	1,672,813	$	3,728,121	$	(2,722,575	)	$	2,678,359

Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Lines of credit	$	43,101,338		-		43,101,338		-		-
Long-term debt		97,092,946		6,941,738		10,725,978		7,718,680		71,706,550
Promissory note payable - related party		7,000,000		-		-		-		7,000,000
Finance lease obligations		1,517,482		373,715		686,375		457,392		-
Operating lease obligations		1,008,813		395,354		534,675		78,784		-
Total	$	149,720,579		7,710,807		55,048,366		8,254,856		78,706,550