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 ~~September~~June 30, ~~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 ☒ No ☐

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 ☒ No ☐

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 ☐ No ☒

As of ~~November 9, 2020,~~August 6, 2021, the registrant had 51,913,411 shares of common stock outstanding.

Table of Contents

HF FOODS GROUP INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021

TABLE OF CONTENTS


Description		Page

PART I.	FINANCIAL INFORMATION
	Item 1 Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Operations (Unaudited)	32
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	43
	Condensed Consolidated Statements of Cash Flows (Unaudited)	54
	Notes to Unaudited Condensed Consolidated Financial Statements	65
	Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	4136
	Item 3 Quantitative and Qualitative Disclosures about Market Risk	5647
	Item 4 Controls and Procedures	5647

PART II.	OTHER INFORMATION
	Item 1 Legal Proceedings	5849
	Item 1A Risk Factors	5949
	Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	5950
	Item 3 Defaults Upon Senior Securities	6050
	Item 4 Mine Safety Disclosures	6050
	Item 5 Other Information	6050
	Item 6 Exhibits	6150

SIGNATURE PAGE		6251

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


		As of				As of
		September 30, 2020		December 31, 2019				June 30, 2021		December 31, 2020
ASSETS	ASSETS						ASSETS
CURRENT ASSETS:	CURRENT ASSETS:						CURRENT ASSETS:
Cash	Cash	$	9,180,314	$	14,538,286		Cash	$	13,425,792	$	9,580,853
Accounts receivable, net	Accounts receivable, net	24,511,153		50,027,134			Accounts receivable, net	30,308,639		24,857,322
Accounts receivable - related parties, net	Accounts receivable - related parties, net	883,331		4,202,870			Accounts receivable - related parties, net	1,921,415		1,261,463
Inventories, net	Inventories, net	61,691,395		77,531,854			Inventories, net	64,061,582		58,535,040
Advances to suppliers - related parties, net	Advances to suppliers - related parties, net	297,848		745,135			Advances to suppliers - related parties, net	0		196,803
Other current assets	Other current assets	4,704,736		4,374,338			Other current assets	3,819,451		4,614,164
TOTAL CURRENT ASSETS	TOTAL CURRENT ASSETS	101,268,777		151,419,617			TOTAL CURRENT ASSETS	113,536,879		99,045,645

Property and equipment, net	Property and equipment, net	138,107,128		37,538,147			Property and equipment, net	134,755,748		136,869,085
Security deposits - related parties		0		591,380
Operating lease right-of-use assets	Operating lease right-of-use assets	693,982		17,155,584			Operating lease right-of-use assets	16,326,011		931,630
Long-term investments	Long-term investments	2,361,888		2,296,276			Long-term investments	2,425,625		2,377,164
Intangible assets, net	Intangible assets, net	178,520,225		186,687,950			Intangible assets, net	170,352,500		175,797,650
Goodwill	Goodwill	68,511,941		406,703,348			Goodwill	68,511,941		68,511,941
Deferred tax assets	Deferred tax assets	75,411		78,993			Deferred tax assets	59,079		57,478
Other long-term assets	Other long-term assets	349,662		372,499			Other long-term assets	1,253,212		694,490
TOTAL ASSETS	TOTAL ASSETS	$	489,889,014	$	802,843,794		TOTAL ASSETS	$	507,220,995	$	484,285,083

CURRENT LIABILITIES:	CURRENT LIABILITIES:						CURRENT LIABILITIES:
Bank overdraft	Bank overdraft	$	5,548,970	$	14,952,510		Bank overdraft	$	15,018,435	$	14,839,747
Lines of credit		25,208,939		41,268,554
Line of credit							Line of credit	19,111,822		18,279,062
Accounts payable	Accounts payable	33,685,243		39,689,911			Accounts payable	41,668,144		28,602,570
Accounts payable - related parties	Accounts payable - related parties	2,663,255		4,521,356			Accounts payable - related parties	1,956,629		1,572,427
Advances from customers - related parties		6,147		0
Current portion of long-term debt, net	Current portion of long-term debt, net	7,736,016		2,726,981			Current portion of long-term debt, net	5,804,100		5,641,259
Current portion of obligations under finance leases	Current portion of obligations under finance leases	292,917		280,243			Current portion of obligations under finance leases	272,648		286,903
Current portion of obligations under operating leases	Current portion of obligations under operating leases	264,335		4,322,503			Current portion of obligations under operating leases	610,256		308,148
Accrued expenses and other liabilities	Accrued expenses and other liabilities	5,212,229		2,610,538			Accrued expenses and other liabilities	5,123,479		6,178,144
Obligations under interest rate swap contracts	Obligations under interest rate swap contracts	1,357,434		73,158			Obligations under interest rate swap contracts	393,479		993,516
TOTAL CURRENT LIABILITIES	TOTAL CURRENT LIABILITIES	81,975,485		110,445,754			TOTAL CURRENT LIABILITIES	89,958,992		76,701,776

Long-term debt, net	Long-term debt, net	87,372,668		18,535,016			Long-term debt, net	85,142,465		88,008,803
Promissory note payable - related party	Promissory note payable - related party	7,000,000		0			Promissory note payable - related party	5,500,000		7,000,000
Obligations under finance leases, non-current	Obligations under finance leases, non-current	832,973		1,053,166			Obligations under finance leases, non-current	630,774		766,885
Obligations under operating leases, non-current	Obligations under operating leases, non-current	429,647		12,833,081			Obligations under operating leases, non-current	15,930,735		623,482
Deferred tax liabilities	Deferred tax liabilities	49,144,170		52,320,045			Deferred tax liabilities	45,078,908		46,382,704
TOTAL LIABILITIES	TOTAL LIABILITIES	226,754,943		195,187,062			TOTAL LIABILITIES	242,241,874		219,483,650

SHAREHOLDERS’ EQUITY:	SHAREHOLDERS’ EQUITY:						SHAREHOLDERS’ EQUITY:
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized , 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		0		0
Common Stock, $0.0001 par value, 100,000,000 shares authorized, 53,050,211 shares issued, and 52,145,096 shares outstanding as of September 30, 2020 and December 31, 2019, respectively		5,305		5,305
Treasury Stock, at cost, 905,115 shares as of September 30, 2020 and December 31, 2019, respectively		(12,038,030)		(12,038,030)
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively							Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 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 outstanding as of June 30, 2021 and December 31, 2020, respectively							Common Stock, $0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	5,191		5,191
Additional paid-in capital	Additional paid-in capital	599,617,009		599,617,009			Additional paid-in capital	583,723,206		587,579,093
Retained earnings (accumulated deficit)		(328,742,988)		15,823,661
Total shareholders’ equity attributable to HF Foods Group Inc.		258,841,296		603,407,945
Noncontrolling interests		4,292,775		4,248,787
Accumulated deficit							Accumulated deficit	(322,030,870)		(327,150,398)
TOTAL SHAREHOLDER'S EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.							TOTAL SHAREHOLDER'S EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.	261,697,527		260,433,886
Non-controlling interests							Non-controlling interests	3,281,594		4,367,547
TOTAL SHAREHOLDERS’ EQUITY							TOTAL SHAREHOLDERS’ EQUITY	264,979,121		264,801,433
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY							TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	507,220,995	$	484,285,083

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

Table of Contents

TOTAL SHAREHOLDERS’ EQUITY 263,134,071 607,656,732
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 489,889,014 $ 802,843,794
HF FOODS GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020

Net revenue - third parties	$	190,460,529	$	101,105,691	$	347,451,896	$	271,814,931
Net revenue - related parties	3,085,707		3,454,405		5,476,168		8,548,501
TOTAL NET REVENUE	193,546,236		104,560,096		352,928,064		280,363,432

Cost of revenue - third parties	154,919,694		80,707,172		282,559,053		222,666,532
Cost of revenue - related parties	3,492,238		3,240,140		5,805,116		8,109,071
TOTAL COST OF REVENUE	158,411,932		83,947,312		288,364,169		230,775,603

GROSS PROFIT	35,134,304		20,612,784		64,563,895		49,587,829

DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES	29,903,759		25,092,568		58,031,254		54,499,161

INCOME (LOSS) FROM OPERATIONS	5,230,545		(4,479,784)		6,532,641		(4,911,332)

Other Income (Expenses)
Interest income	0		132		0		263
Interest expense	(709,342)		(324,319)		(1,451,483)		(2,275,888)
Goodwill impairment loss	0		0		0		(338,191,407)
Other income	473,190		264,730		912,749		670,380
Change in fair value of interest rate swap contracts	(112,256)		(1,264,254)		1,318,636		(1,264,254)
Total Other Income (Expenses), net	(348,408)		(1,323,711)		779,902		(341,060,906)

INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT)	4,882,137		(5,803,495)		7,312,543		(345,972,238)

PROVISION (BENEFIT) FOR INCOME TAXES	1,377,098		(1,489,305)		1,984,305		(1,971,516)
NET INCOME (LOSS)	3,505,039		(4,314,190)		5,328,238		(344,000,722)
Less: net income (loss) attributable to non-controlling interests	(91,557)		(255,287)		208,710		(57,877)
NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.	$	3,596,596	$	(4,058,903)	$	5,119,528	$	(343,942,845)

Earnings (loss) per common share - basic and diluted	$	0.07	$	(0.08)	$	0.10	$	(6.60)
Weighted average shares - basic and diluted	51,913,411		52,145,096		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 ~~OPERATIONS~~CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)

For the three months ended September 30, For the nine months ended September 30,
2020 2019 2020 2019
Net revenue - third parties $ 137,631,565 $ 70,568,373 $ 409,375,346 $ 211,520,517
Net revenue - related parties 2,287,377 5,130,504 10,907,028 13,697,588
TOTAL NET REVENUE 139,918,942 75,698,877 420,282,374 225,218,105
Cost of revenue - third parties 112,535,923 58,598,428 335,147,332 174,634,207
Cost of revenue - related parties 2,220,161 4,908,301 10,384,355 13,172,741
TOTAL COST OF REVENUE 114,756,084 63,506,729 345,531,687 187,806,948
GROSS PROFIT 25,162,858 12,192,148 74,750,687 37,411,157
DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES 25,050,419 9,969,785 79,549,580 31,428,998
INCOME (LOSS) FROM OPERATIONS 112,439 2,222,363 (4,798,893) 5,982,159
Other Income (Expenses)
Interest income 133 113,930 396 418,397
Interest expenses (840,851) (482,099) (3,116,739) (1,207,217)
Goodwill impairment loss 0 0 (338,191,407) 0
Other income 270,452 281,619 940,832 905,149
Change in fair value of interest rate swap contracts (20,022) 0 (1,284,276) 0
Total Other Income (Expenses), net (590,288) (86,550) (341,651,194) 116,329
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) (477,849) 2,135,813 (346,450,087) 6,098,488
PROVISION (BENEFIT) FOR INCOME TAXES (80,910) 607,142 (2,052,426) 1,715,532
NET INCOME (LOSS) (396,939) 1,528,671 (344,397,661) 4,382,956
Less: net income attributable to noncontrolling interests 226,865 181,106 168,988 339,683
NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC. $ (623,804) $ 1,347,565 $ (344,566,649) $ 4,043,273
Earnings (loss) per common share - basic and diluted $ (0.01) $ 0.06 $ (6.61) $ 0.18
Weighted average shares - basic and diluted 52,145,096 22,258,557 52,145,096 22,198,290


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity Attributable to HF Foods Group Inc.		Non-controlling Interests		Total Shareholders’ Equity
	Number of Shares	Amount		Number of Shares	Amount
Balance at January 1, 2021	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
Net income	—	—		—			—		3,596,596		3,596,596		(91,557)		3,505,039
Acquisition of non-controlling interest	—	—		—	—		(3,855,887)		—		(3,855,887)		(1,144,113)		(5,000,000)
Distribution to shareholders	—	—		—	—		—		—		—		(77,550)		(77,550)
Balance at June 30, 2021	51,913,411	$	5,191	0	$	0	$	583,723,206	$	(322,030,870)	$	261,697,527	$	3,281,594	$	264,979,121



Balance at January 1, 2020	53,050,211	$	5,305	(905,115)	$	(12,038,030)	$	599,617,009	$	15,823,661	$	603,407,945	$	4,248,787	$	607,656,732
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
Net loss	—	—		—	—		—		(4,058,903)		(4,058,903)		(255,287)		(4,314,190)
Balance at June 30, 2020	53,050,211	$	5,305	(905,115)	$	(12,038,030)	$	599,617,009	$	(328,119,184)	$	259,465,100	$	4,065,910	$	263,531,010

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~~

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

(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
Balance at January 1, 2020 52,145,096 $ 5,305 (12,038,030) $ 599,617,009 $ 15,823,661 $ 603,407,945 $ 4,248,787 $ 607,656,732
Net income (loss) — — — — (339,883,942) (339,883,942) 197,410 (339,686,532)
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
Net loss — — — — (4,058,903) (4,058,903) (255,287) (4,314,190)
Balance at June 30, 2020 52,145,096 5,305 (12,038,030) 599,617,009 (328,119,184) 259,465,100 4,065,910 263,531,010
Net income (loss) — — — — (623,804) (623,804) 226,865 (396,939)
Balance at September 30, 2020 52,145,096 $ 5,305 (12,038,030) $ 599,617,009 $ (328,742,988) $ 258,841,296 $ 4,292,775 $ 263,134,071
Balance at January 1, 2019 22,167,486 $ 2,217 0 $ 22,920,603 $ 10,433,984 $ 33,356,804 $ 1,104,678 $ 34,461,482
Net income — — — — 1,672,813 1,672,813 120,758 1,793,571
Balance at March 31, 2019 22,167,486 2,217 0 22,920,603 12,106,797 35,029,617 1,225,436 36,255,053
Net income — — — 1,022,895 1,022,895 37,819 1,060,714
Distribution to shareholders — — — — — (90,000) (90,000)
Balance at June 30, 2019 22,167,486 2,217 0 22,920,603 13,129,692 36,052,512 1,173,255 37,225,767
Net income — — — — 1,347,565 1,347,565 181,106 1,528,671
Exercise of Stock Options 182,725 18 — (18) — — — —
Buyback of common stock from a shareholder in exchange for notes receivable (905,115) — (12,038,030) — — (12,038,030) — (12,038,030)
Distribution to shareholders — — — — — — (90,000) (90,000)
Balance at September 30, 2019 21,445,096 $ 2,235 (12,038,030) $ 22,920,585 $ 14,477,257 $ 25,362,047 $ 1,264,361 $ 26,626,408


	For the Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net Income (Loss)	$	5,328,238	$	(344,000,722)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	9,091,499		8,995,488
Goodwill impairment loss	0		338,191,407
Gain from disposal of equipment	(48,521)		(20,349)
Allowance for doubtful accounts	(22,945)		2,924,148
Allowance for inventories	66,609		43,496
Deferred tax benefit	(1,305,397)		(2,497,040)
Income from equity method investment	(48,461)		(50,337)
Unrealized change in fair value of interest rate swap contracts	(600,037)		1,264,254
Changes in operating assets and liabilities:
Accounts receivable, net	(5,428,372)		23,751,669
Accounts receivable - related parties, net	(659,952)		3,153,318
Inventories, net	(5,593,151)		10,705,175
Advances to suppliers - related parties	196,803		615,503
Other current assets	794,714		649,096
Security deposit - related parties	0		58,880
Other long-term assets	(574,644)		12,188
Accounts payable	13,065,571		(9,402,330)
Accounts payable - related parties	384,202		(2,130,874)
Operating lease liability	(321,032)		(200,163)
Accrued expenses and other liabilities	(1,054,664)		354,844
Net cash provided by operating activities	13,270,460		32,417,651

Cash flows from investing activities:
Purchase of property and equipment	(663,667)		(209,964)
Proceeds from disposal of equipment	68,767		90,879
Payment made for acquisition of B&R Realty	0		(94,004,068)
Payment made for acquisition of non-controlling interest	(5,000,000)		0
Net cash used in investing activities	(5,594,900)		(94,123,153)

Cash flows from financing activities:
Proceeds from bank overdraft	178,688		0
Repayment of bank overdraft	0		(7,367,573)
Proceeds from line of credit	358,185,458		275,070,371
Repayment of line of credit	(357,418,298)		(284,450,866)
Proceeds from long-term debt	0		75,614,612
Repayment of long-term debt	(2,975,553)		(2,873,572)
Repayment of promissory note payable - related party	(1,500,000)		0
Repayment of obligations under finance leases	(150,366)		(135,737)
Cash distribution to shareholders	(150,550)		(125,000)
Net cash provided by (used in) financing activities	(3,830,621)		55,732,235

Net increase (decrease) in cash	3,844,939		(5,973,267)
Cash at beginning of the period	9,580,853		14,538,286
Cash at end of the period	$	13,425,792	$	8,565,019

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 nine months ended September 30,
2020 2019
Cash flows from operating activities:
Net Income (loss) $ (344,397,661) $ 4,382,956
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense 13,479,736 2,173,723
Goodwill impairment loss 338,191,407 0
Gain from disposal of equipment (24,681) (68,626)
Allowance for doubtful accounts 2,024,471 (50,090)
Allowance for inventories 119,737 0
Deferred tax expense (benefit) (3,172,293) 147,117
Income from equity method investment (65,612) 0
Change in fair value of interest rate swap contracts 1,284,276 0
Changes in operating assets and liabilities:
Accounts receivable, net 23,306,471 1,366,791
Accounts receivable - related parties, net 3,319,539 (385,352)
Inventories, net 15,720,722 (7,650,285)
Advances to suppliers - related parties, net 447,287 536,343
Other current assets (294,372) (1,107,448)
Security deposit - related parties 58,880 0
Other long-term assets (3,512) 100,472
Accounts payable (6,097,690) 1,254,651
Accounts payable - related parties (1,858,101) 355,930
Operating lease liability (291,659) 0
Income tax payable 0 13,343
Accrued expenses and other liabilities 2,564,201 (626,901)
Net cash provided by operating activities 44,311,146 442,624
Cash flows from investing activities:
Purchase of property and equipment (410,288) (5,381,138)
Proceeds from disposal of equipment 160,659 275,699
Cash received from notes receivable 0 290,071
Payment made for notes receivable 0 (108,750)
Proceeds from long-term notes receivable to related parties 0 386,358
Payment made for long-term notes receivable to related parties 0 (260,933)
Payment made for acquisition of B&R Realty, net (94,004,068) 0
Net cash used in investing activities (94,253,697) (4,798,693)
Cash flows from financing activities:
Repayment of bank overdraft (9,403,540) 0
Proceeds from lines of credit 411,386,096 15,364,481
Repayment of lines of credit (427,544,110) (11,694,146)
Proceeds from long-term debt 75,600,006 6,100,878
Repayment of long-term debt (5,121,353) (3,605,740)
Repayment of obligations under finance leases (207,520) (315,393)
Cash distribution to shareholders (125,000) (180,000)
Net cash provided by financing activities 44,584,579 5,670,080
Net increase (decrease) in cash (5,357,972) 1,314,011
Cash at beginning of the period 14,538,286 5,489,404
Cash at end of the period $ 9,180,314 $ 6,803,415

~~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. and subsidiaries (collectively “HF Group”, or the “Company”) is a leading Asian food service distributor that markets and distributes fresh produce, frozen and dry food, and non-food products to primarily Asian restaurants and other food service customers throughout the Southeast, Pacific and Mountain West regions in the United States. The Company is the result of a successful merger between two complementary market leaders, HF Group Holding Corporation ("HF Holding") and B&R Global Holdings, Inc. ("B&R Global") on November 4, 2019.

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~~On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in the stockholders of HF Holding becoming the majority shareholders of Atlantic, and changed its name to HF Foods Group Inc. On November 4, 2019, the Company consummated a merger transaction, resulting in B&R Global becoming a wholly owned subsidiary of HF Group. On January 17, 2020, B&R Global acquired all the subsidiaries' equity membership interests under B&R Group Realty Holding, LLC ("BRGR"), which owned warehouse facilities that were being leased to B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana. See further transaction details below.

Formation 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”)

In accordance with Financial Accounting Standards Board’s (“FASB") Accounting Standards Codification (“ASC”) 805-50-25, the transaction consummated through the Exchange Agreement has been accounted for as a transaction among entities under common control since the same shareholders controlled all these 11 entities prior to the execution of the Agreement. The consolidated financial statements of the Company have been prepared to report results of operations for the period in which the transfer occurred as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period presented, in this case January 1, 2018. Results of operations for the period presented comprise those of the previously separate entities combined from the beginning of the period to the end of the period. By eliminating the effects of intra-entity transactions in determining the results of operations for the period before the combination, those results were on substantially the same basis as the results of operations for the period after the date of combination. The effects of intra-entity transactions on current assets, current liabilities, revenue, and cost of revenue for periods presented and on retained earnings at the beginning of the periods presented are eliminated to the extent possible. Furthermore, ASC 805-50-45-5 indicates that the financial

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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.

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

~~Name~~

Date of formation /
incorporation

Place of formation /
incorporation

Percentage
of legal
ownership
by HF Group

~~Principal activities~~

~~Parent:~~

~~HF Holding~~

~~October 11, 2017~~

~~North Carolina~~

~~100%~~

~~Holding company~~

~~Subsidiaries:~~

~~Han Feng~~

~~January 14, 1997~~

~~North Carolina~~

~~100%~~

~~Food service distributor~~

~~August 6, 2002~~

~~North Carolina~~

~~100%~~

~~Logistic service provider~~

~~MFD~~

~~April 15, 1999~~

~~North Carolina~~

~~100%~~

~~Logistic service provider~~

~~R&N Holdings~~

~~November 21, 2002~~

~~North Carolina~~

~~100%~~

~~Real estate holding company~~

~~R&N Lexington~~

~~May 27, 2010~~

~~North Carolina~~

~~100%~~

~~Real estate holding company~~

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

~~July 10, 2019~~

~~North Carolina~~

~~100%~~

~~Real estate holding company~~

~~Kirnsway~~

~~May 24, 2006~~

~~North Carolina~~

~~100%~~

~~Design and printing services provider~~

~~Chinesetg~~

~~July 12, 2011~~

~~New York~~

~~100%~~

~~Design and printing services provider~~

~~NSF~~

~~December 17, 2008~~

~~Florida~~

~~100%~~

~~Food service distributor~~

~~September 12, 2001~~

~~Florida~~

~~100%~~

~~Logistic service provider~~

~~Kirnland~~

~~April 11, 2006~~

~~Georgia~~

~~66.67%~~

~~Food service distributor~~

~~HG Realty~~

~~May 11, 2012~~

~~Georgia~~

~~100%~~

~~Real estate holding company~~

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

~~December 10, 2019~~

~~North Carolina~~

~~60%~~

~~Food processing company~~

Reverse Acquisition of HF Holding

~~Effective~~

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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. ("HF Merger Sub"), a Delaware subsidiary formed by Atlantic,~~reverse acquisition transaction resulting in HF Holding the stockholders of HF Holding, and Zhou Min Ni, as representative of the stockholders of HF Holding. Pursuant to the Atlantic Merger Agreement, HF Holding merged with HF Merger Sub and HF Holding becamebecoming 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 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.

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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)~~(iii) 2,587,655 shares originally issued to the pre-Transactions stockholders of ~~Atlantic.~~Atlantic, less 400,000 shares sold back to Atlantic by one of Atlantic’s pre-Transactions shareholders in conjunction with the Atlantic Transactions.

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.~~Atlantic Transactions.

HF Holding Entities Organized or Acquired Post-Atlantic Merger

On July 10, 2019, the Company, through its subsidiary Han Feng, formed a new real estate holding company, R&N ~~Charlotte.~~Charlotte, L.L.C. ("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~~established a new ~~food processing company,~~entity, HF Foods Industrial, L.L.C. ("HFFI"), as owner of 60% of member ~~interests.~~interests, to operate as a food processing company.

~~Business Combination~~On October 1, 2020, the Company, through its subsidiary HF Group Holding, formed a wholly-owned new real estate lease holding company, 273 Fifth Avenue, L.L.C. ("273 Co").

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

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

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Name

Date of Formation /
Incorporation

Place of Formation /
Incorporation

Percentage
of Legal
Ownership
by HF Group

Principal Activities

Parent:

HF Holding

October 11, 2017

North Carolina, USA

100%

Holding Company

Subsidiaries:

Han Feng

January 14, 1997

North Carolina, USA

100%

Foodservice distributor

Kirnland

April 11, 2006

Georgia, USA

100%

Foodservice distributor

NSF

December 17, 2008

Florida, USA

100%

Foodservice distributor

HFFI

December 10, 2019

North Carolina, USA

60%

Food processing company

Chinesetg

July 12, 2011

New York, USA

100%

Design and printing services provider

Kirnsway

May 24, 2006

North Carolina, USA

100%

Design and printing services provider

September 12, 2001

Florida, USA

100%

Logistic service provider

MFD

April 15, 1999

North Carolina, USA

100%

Logistic service 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

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 Co

October 10, 2020

Delaware, USA

100%

Real estate lease holding company

Merger with B&R Global

~~Effective~~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 Holdings, Inc. ("B&R Global"), the stockholders of B&R Global (the ”B&R Global Stockholders”), and Xiao Mou Zhang, as representative of the stockholders (the “Business Combination”). Upon the closing of the transactions contemplated by the B&R Merger Agreement (the “Closing”), Merger Sub merged with and into B&R Global,transaction resulting in B&R Global becoming a wholly owned subsidiary of ~~HF Group. HF Group~~the Company (the "Business Combination"). At closing, the Company acquired 100% of the ~~ownership~~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~~the Company 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.

~~Formed~~B&R Global was formed in 2014 as a holding company to acquire and consolidate the various operating entities (listed below) under one ~~roof,~~roof. Through its subsidiaries, B&R Global ~~through its subsidiaries,~~ supplies ~~food~~foodservice items to approximately ~~6,800~~5,000 restaurants across 11 Western states, and combined with HF Group, creates what the Company believes is the largest food distributor to Asian restaurants in the United States. The combined entity now has 14 distribution centers strategically located in 9 states across the Southeast, Pacific and Mountain West regions of the United States and operates a fleet of over 340 refrigerated vehicles. With approximately 960 employees supported by 2 call centers in China, HF Group now serves over 10,000 restaurants in 21 states and provides round-the-clock sales and service support to its customers, who mainly converse in Mandarin or Chinese dialects.states.

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

Name

Date of ~~formation~~Formation /
~~incorporation~~Incorporation

Place of ~~formation~~Formation /
~~incorporation~~Incorporation

Percentage
of ~~legal~~Legal
~~ownership~~Ownership
by B&R
Global

Principal ~~activities~~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%

Foodservice distributor

Min Food ~~service~~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%

Foodservice distributor

Ocean West Food ~~service~~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,~~Rongcheng Trading, LLC (“~~GW”~~RC”)

~~March 7,~~January 31, 2006

California, USA

100%

Foodservice distributor

Win Woo Trading, LLC (‘WW”)

January 23, 2004

California, USA

100%

Foodservice distributor

Irwindale Poultry, LLC (“IP”)

December 27, 2017

California, USA

100%

Poultry processing company

Lin’s Farms, LLC (“LNF”)

July 2, 2014

Utah, USA

100%

Poultry processing company

Kami Trading Inc. (“KAMI”)

November 20, 2013

California, USA

100%

Import service provider

American Fortune Foods Inc. (“AF”)

February 19, 2014

California, USA

100%

~~Food~~Logistic and import service ~~distributor~~

~~B&L Trading, LLC (“BNL”)~~

~~July 18, 2013~~

~~Washington, USA~~

~~100%~~

~~Food service distributor~~

~~Min Food, Inc. (“MIN”)~~

~~May 29, 2014~~

~~California, USA~~

~~60.25%~~

~~Food service distributor~~provider

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

July 17, 2014

Delaware, USA

100%

Logistic service provider

~~Ocean West Food Services,~~Best Choice Trucking, LLC (“~~OW”~~BCT”)

~~December 22,~~January 1, 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 company~~Logistic service provider

~~Best Choice~~Fuso Trucking ~~LLC~~Corp. (“~~BCT”~~FUSO”)

January 1,20, 2015

California, USA

VIE*

Logistic service provider

GM Food Supplies, Inc. (“GM”)

March 22, 2016

California, USA

100%

Logistic service provider

Golden Well Inc. (“GWT”)

November 8, 2011

California, USA

100%

Logistic service provider

Happy FM Group, Inc. (“HFM”)

April 9, 2014

California, USA

100%

Logistic service provider

Hayward Trucking, Inc. (“HRT”)

September 5, 2012

California, USA

100%

Logistic service provider

KYL Group, Inc. (“KYL”)

April 18, 2014

Nevada, USA

100%

Logistic service provider

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

~~February 19, 2014~~

~~California, USA~~

~~100%~~

~~Logistic and import service provider~~

~~Happy FM Group, Inc. (“HFM”)~~

~~April 9, 2014~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~GM Food Supplies, Inc. (“GM”)~~

~~March 22, 2016~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

Lin’s Distribution Inc., Inc. (“LIN”)

February 2, 2010

Utah, USA

100%

Logistic service provider

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

~~July 2, 2014~~December 21, 2017

~~Utah,~~California, USA

100%

~~Poultry processing company~~Logistic service provider

New Berry Trading, LLC (“NBT”)

September 5, 2012

California, ~~USA~~

~~100%~~

~~Logistic service provider~~

~~Hayward Trucking, Inc. (“HRT”)~~

~~September 5, 2012~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~Fuso Trucking Corp. (“FUSO”)~~

~~January 20, 2015~~

~~California, USA~~

VIE*

~~Logistic service provider~~

~~Yi Z Service, LLC (“YZ”)~~

~~October 2, 2017~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~Golden Well, Inc. (“GWT”)~~

~~November 8, 2011~~

~~California, USA~~

~~100%~~

~~Logistic service provider~~

~~Kami Trading, Inc. (“KAMI”)~~

~~November 20, 2013~~

~~California, USA~~

~~100%~~

~~Import service provider~~

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

~~May 19, 2015~~

~~Washington,~~ USA

100%

Logistic service provider

Royal Service, Inc. (“RS”)

December 29, 2014

Oregon, USA

100%

Logistic service provider

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

~~December 21,~~May 19, 2015

Washington, USA

100%

Logistic service provider

Yi Z Service LLC (“YZ”)

October 2, 2017

California, USA

100%

Logistic service provider

*~~At the acquisition date~~On November 4, 2019 and as of ~~September~~June 30, ~~2020,~~2021, B&R Global ~~consolidates~~consolidated FUSO, which is considered as a variable interest entity (“VIE”) under U.S. GAAP, due to its pecuniary and contractual interest in this entity as a result of the funding arrangements outlined in the entity.

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 ("BRGR"),~~BRGR, and 9 subsidiary limited liability companies wholly owned by BRGR (the “BRGR Subsidiaries”) (the “Realty Acquisition”). Pursuant to the Purchase Agreement, B&R Global acquired all equity membership interests in the BRGR Subsidiaries, which own 10 warehouse facilities that were being leased by the Company for its operations in California,

~~Table of Contents~~

Arizona, Utah, Colorado, Washington, and Montana for purchase consideration of $101,269,706. Consideration for the Realty Acquisition was funded by

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(i) $75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 1110 for additional information), (ii) issuance by B&R Global of a $7.0 million Unsecured Subordinated Promissory Note (the “Note”) to BRGR, and (iii) payment of $18.7 million from funds drawn from the Company’s revolving credit facility.

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

Name

Date of ~~formation~~Formation /
~~incorporation~~Incorporation

Place of ~~formation~~Formation /
~~incorporation~~Incorporation

Percentage of ~~legal~~Legal
~~ownership~~Ownership by B&R Global

Principal ~~activities~~Activities

A & Kie, LLC ("AK")

March 26, 2010

Arizona, USA

100%

Real estate holding company

B & R Realty, LLC ("BRR")

August 28, 2013

California, USA

100%

Real estate holding company

Big Sea Realty, LLC ("BSR")

April 3, 2013

Washington, USA

100%

Real estate holding company

Fortune Liberty, LLC ("FL")

November 22, 2006

Utah, USA

100%

Real estate holding company

Genstar Realty, LLC ("GSR")

February 27, 2012

California, USA

100%

Real estate holding company

Hardin St Properties, LLC ("HP")

December 5, 2012

Montana, USA

100%

Real estate holding company

Lenfa Food, LLC ("LF")

February 14, 2002

Colorado, USA

100%

Real estate holding company

Lucky Realty, LLC ("LR")

September 3, 2003

California, USA

100%

Real estate holding company

Murray Properties, LLC ("MP")

February 27, 2013

Utah, USA

100%

Real estate holding company

The combined entity, resulting from the merger of B&R Global and HF Group, has 13 distribution centers strategically located in 8 states across the Southeast, Pacific and Mountain West regions of the United States and serves over 10,000 restaurants across 22 states with a fleet of over 300 refrigerated vehicles, a workforce of over 780 employees and subcontractors. The Company is also supported by 2 call centers in China which provide round-the-clock sales and service supports to its customers, who mainly converse in Mandarin or Chinese dialects.

NOTE 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 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, ~~2019~~2020 and ~~2018.~~2019. Operating results for the ~~three and nine~~six month periods ended ~~September~~June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~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 ~~September~~June 30, ~~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 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 included in the Company’s unaudited condensed consolidated balance sheets, statements of operations, and statements of cash flows are as follows:

109

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		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Current assets	Current assets	$	386,051	$	158,184	Current assets	$	388,729	$	47,822
Non-current assets	Non-current assets	137,477		301,803		Non-current assets	97,946		115,934
Total assets	Total assets	$	523,528	$	459,987	Total assets	$	486,675	$	163,756

Current liabilities	Current liabilities	$	776,918	$	805,666	Current liabilities	$	655,401	$	496,234
Non-current liabilities	Non-current liabilities	46,008		69,321		Non-current liabilities	26,548		39,475
Total liabilities	Total liabilities	$	822,926	$	874,987	Total liabilities	$	681,949	$	535,709


		For the three months ended September 30,				For the nine months ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net revenue	Net revenue	$	531,194	$	0	$	1,612,999	$	0	Net revenue	$	747,831	$	415,377	$	1,201,005	$	1,081,805
Net income	Net income	$	16,157	$	0	$	115,602	$	0	Net income	$	150,584	$	34,667	$	176,679	$	99,445

For the three months ended September 30, For the nine months ended September 30,
2020 2019 2020 2019
Net cash provided by operating activities $ 32,697 $ 0 $ 366,899 $ 0
Net cash used in financing activities (15,359) 0 (260,971) 0
Net increase in cash and cash equivalents $ 17,338 $ 0 $ 105,928 $ 0


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Net cash provided by (used in) operating activities	$	(34,231)	$	19,978	$	52,512	$	334,202
Net cash provided by (used in) financing activities	(6,586)		(23,475)		9,855		(245,612)
Net increase (decrease) in cash and cash equivalents	$	(40,817)	$	(3,497)	$	62,367	$	88,590

~~Noncontrolling~~Non-controlling Interests

U.S. GAAP requires that ~~noncontrolling~~non-controlling 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.

On May 28, 2021, the Company, through its subsidiary HF Group Holding, purchased the 33.33% noncontrolling interest of the stock in Kirnland for $5,000,000. In accordance with ASC 810-10-45-23, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions. Therefore, no gain or loss shall be recognized. As a result of this transaction, noncontrolling interests were reduced by $1,144,113 and the remaining difference of $3,855,887 was charged to additional paid-in capital.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019, noncontrolling~~2020, non-controlling interests consisted of the following:


Name of Entity	Name of Entity	Percentage of noncontrolling interest ownership	September 30, 2020		December 31, 2019		Name of Entity	Percentage of Non-controlling Interest Ownership	June 30, 2021		December 31, 2020
Kirnland	Kirnland	33.33%	$	1,417,443	$	1,292,623	Kirnland	0%	$	0	$	1,384,780
MIN	MIN	39.75%	928,533		896,980		MIN	39.75%	1,116,222		889,596
MS	MS	35.00%	458,496		459,126		MS	35.00%	451,673		459,816
OW	OW	32.50%	1,488,303		1,600,058		OW	32.50%	1,713,699		1,633,355
Total	Total		$	4,292,775	$	4,248,787	Total		$	3,281,594	$	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, ~~and intangible assets,~~ lease assumptions, impairment of long-lived assets, long-term investments, ~~and~~ goodwill, the purchase

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price allocation and fair value of ~~noncontrolling~~non-controlling 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 months or ~~fewer months~~shorter to be cash equivalents. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had 0 cash ~~equivalents.~~equivalents, respectively.

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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019, the~~2020, allowances for doubtful accounts were ~~$1,373,921~~$723,918 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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the valuation allowance was ~~$136,665~~$232,946 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	Automobiles	3	—	7
Buildings and improvements	Buildings and improvements	7	—	39	Buildings and improvements	7	—	39
Furniture and fixtures	Furniture and fixtures	4	—	10	Furniture and fixtures	4	—	10
Machinery and equipment	Machinery and equipment	3	—	10	Machinery and equipment	3	—	10

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

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The excess of (i) the total of cost of acquisition, fair value of the ~~noncontrolling~~non-controlling 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 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”) 2017-4,~~ ~~Intangibles - Goodwill andOther(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 ~~that~~ the carrying value of a reporting unit exceeds its fair value, the Company measures any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

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~~Useful Lives ~~(years)~~(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.

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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 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 0t record any impairment loss on its long-term investments as of ~~September~~June 30, ~~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 0t record any impairment loss on its long-lived assets as of ~~September~~June 30, ~~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 ~~2014-9,~~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.

For the three and ~~nine~~six month periods ended ~~September~~June 30, ~~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:

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		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended				For the Six Months Ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Arizona	Arizona	$	8,418,352	$	0	$	25,344,389	$	0	Arizona	$	12,376,972	$	6,914,288	$	23,516,574	$	16,926,037
California	California	43,159,185		0		145,316,702		0		California	71,711,341		34,492,561		124,782,760		102,157,517
Colorado	Colorado	9,177,067		0		25,618,734		0		Colorado	11,027,852		7,532,674		20,503,418		16,441,667
Florida	Florida	17,167,155		22,833,584		47,562,057		68,717,635		Florida	22,711,792		11,309,093		42,610,687		30,394,902
Georgia	Georgia	12,524,287		16,051,306		34,699,175		48,801,770		Georgia	16,632,853		8,072,633		31,241,879		22,174,887
North Carolina	North Carolina	28,688,103		36,813,987		79,672,578		107,698,700		North Carolina	33,703,273		21,266,959		63,216,780		50,984,476
Utah	Utah	13,717,413		0		39,010,162		0		Utah	13,584,123		10,294,374		26,919,728		25,292,749
Washington	Washington	7,067,380		0		23,058,577		0		Washington	11,798,030		4,677,514		20,136,238		15,991,197
Total	Total	$	139,918,942	$	75,698,877	$	420,282,374	$	225,218,105	Total	$	193,546,236	$	104,560,096	$	352,928,064	$	280,363,432

Shipping and Handling Costs

Shipping and handling costs, which include costs related to the selection of products and their delivery to customers, are included in distribution, selling and administrative expenses. Shipping and handling costs were ~~$5,167,163~~$4,399,210 and ~~$3,093,138~~$3,526,249 for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, and ~~2019,~~$2,473,438 and ~~$1,640,914 and $1,014,288~~$968,016 for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

~~Leases~~

~~On January 1, 2019, the~~The Company adopted ASU ~~2016-2,~~2019-12 (“ASU 2019-12”), ~~Leases ("Topic 842")~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~. For all leases that were entered into prior~~, 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 condensed~~Company's consolidated ~~statements of operations.~~ financial statements.

Leases

The ~~adoption of~~ Company accounts for leases following ASU 2016-02, Leases (Topic 842) ("Topic ~~842 resulted in the presentation of $21.2 million of operating lease assets and operating lease liabilities on the consolidated balance sheet as of January 1, 2019 on a pro forma basis.~~ 842").

As a result of the Realty Acquisition (see Note 86 for additional information), 9 leases previously included in the operating lease asset and liabilities balance were eliminated during consolidation. As of ~~September~~June 30, ~~2020 and December 31, 2019,~~2021, the balances for operating lease assets were $16,326,011 and liabilities were ~~$693,982~~$16,540,991. As of December 31, 2020, the balances for operating lease assets were $931,630 and ~~$17,155,584, respectively.~~liabilities were $931,630. See Note 1311 for additional information.

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The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of finance lease liabilities, and finance lease liabilities, non-current on the consolidated balance sheets.

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

Earnings Per Share

The Company computes earnings per share (“EPS”) in accordance with ASC Topic 260 (“ASC 260”), Earnings per Share. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There is 0 anti-dilutive effect for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~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,~~ current portion of long-term debt, current portion of obligations under finance and operating leases, ~~and~~ accrued expenses and other liabilities and Obligations under interest rate swap contracts approximate their fair value based on the short-term maturity of these instruments.

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

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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

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Credit risk

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

Concentration risk

There were no receivables from any one customer representing more than 10% of the Company’s consolidated gross accounts receivable at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

For the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, no supplier accounted for more than 10% of the total cost of revenue. As of ~~September~~June 30, ~~2020,~~2021, there ~~was 1~~were four suppliers that accounted for a combined 53% of total outstanding advance payments, and no supplier that accounted for ~~19%~~advance payments to related parties. As of December 31, 2020, two suppliers accounted for a combined 40% of total outstanding advance payments, and one supplier ~~that~~ accounted for ~~98% of advance payments to related parties.~~ ~~As of December 31, 2019, 2 suppliers accounted for 34% and 15% of total outstanding advance payments, respectively, and these 2 suppliers accounted for 70% and 30%~~96% of advance payments to related parties, respectively.

Reclassifications

Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation. These reclassifications have no impact on previously reported net loss.

Recent Accounting Pronouncements

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

~~In December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”),~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~, which is intended to simplify various aspects related to managerial accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company will adopt this ASU within the annual reporting period of December 31, 2021. The Company is currently assessing the impact of adopting this standard, but based on its preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

NOTE 3 - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following:

As of September 30,
2020 As of December 31,
2019
Accounts receivable $ 25,885,074 $ 50,651,104
Less: allowance for doubtful accounts (1,373,921) (623,970)
Accounts receivable, net $ 24,511,153 $ 50,027,134

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	As of June 30, 2021		As of December 31, 2020
Accounts receivable	$	31,032,557	$	25,766,504
Less: allowance for doubtful accounts	(723,918)		(909,182)
Accounts receivable, net	$	30,308,639	$	24,857,322

Movement of allowance for doubtful accounts is as follows:


		For the Nine Months Ended					For the Six Months Ended
		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020
Beginning balance	Beginning balance	$	623,970	$	658,104	Beginning balance	$	909,182	$	623,970
Provision for doubtful accounts		2,024,471		(50,090)
Less: write off/recovery		(1,274,520)		(31,665)
Increase (decrease) in provision for doubtful accounts						Increase (decrease) in provision for doubtful accounts	(22,945)		2,924,148
Less: write off/ (recovery)						Less: write off/ (recovery)	(162,319)		(1,264,660)
Ending balance	Ending balance	$	1,373,921	$	576,349	Ending balance	$	723,918	$	2,283,458

~~NOTE 4 - NOTES RECEIVABLE~~

On September 30, 2018, the Company entered into a line of credit promissory note agreement with Feilong Trading, Inc, ("Feilong"), a supplier to the Company. Pursuant to the promissory note agreement, Feilong was permitted to borrow up to $4,000,000 from time to time. The note bore interest at the rate of 5% per annum on the unpaid balance, compounded monthly. On March 1 2019, the Company and Feilong agreed to extend the expiration date to March 1, 2024. Meanwhile, the Company’s major shareholder and Co-CEO, Mr. Zhou Min Ni agreed to personally guarantee the repayment of all outstanding balances relating this note receivable.

On September 30, 2019, the Company and Mr. Ni entered into a Loan Purchase and Sale Agreement (the "Loan Sale Agreement"). Pursuant to the Loan Sale Agreement, the entire outstanding balance of $3,622,505 owed by Feilong to the Company was sold to Mr. Ni in exchange for 272,369 shares of common stock of the Company, which shares were received and recorded as treasury stock by the Company as of September 30, 2019. In connection with the sale of this note receivable, the Company also required 89,882 additional shares of common stock of the Company owned by Mr. Ni to be placed in an escrow account for a period of one year until September 30, 2020 (the “Escrow Period”), which would then be delivered to the Company in part or in full, if the volume weighted average price ("VWAP") of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the Escrow Period was less than $13.30.

On October 9, 2020, in accordance with the terms of the Loan Sale Agreement, the Company and Mr. Ni determined and agreed that the 250-day VWAP immediately preceding September 30, 2020 was $10.59, and consequently, 69,719 of the Escrow Shares were transferred to and recorded as treasury stock by the Company, and the remaining 20,163 Escrow Shares were returned to Mr. Ni. Following this event, the balance due from Feilong to the Company is considered fully settled.

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NOTE 54 - LONG-TERM INVESTMENTS

Long-term investments consisted of the following:


		Ownership as of September 30, 2020	As of September 30, 2020		As of December 31, 2019			Ownership as of June 30, 2021	As of June 30, 2021		As of December 31, 2020
Asahi Food, Inc.							Asahi Food, Inc.	49%	$	625,625	$	577,164
Pt. Tamron Akuatik Produk Industri	Pt. Tamron Akuatik Produk Industri	12%	$	1,800,000	$	1,800,000	Pt. Tamron Akuatik Produk Industri	12%	1,800,000		1,800,000
Asahi Food, Inc.		49%	561,888		496,276
Long-term investments			$	2,361,888	$	2,296,276
Total							Total		$	2,425,625	$	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 0 impairment as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 for these investments.

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NOTE 65 - PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:


		As of September 30, 2020		As of December 31, 2019			As of June 30, 2021		As of December 31, 2020
Automobiles	Automobiles	$	24,740,366	$	24,340,652	Automobiles	$	23,600,349	$	24,544,094
Building	Building	71,285,127		17,721,292		Building	71,285,127		71,285,127
Building improvements	Building improvements	9,639,748		9,079,737		Building improvements	10,014,650		9,807,234
Furniture and fixtures	Furniture and fixtures	223,996		220,169		Furniture and fixtures	227,430		223,996
Land	Land	52,125,900		3,391,858		Land	52,125,900		52,125,900
Machinery and equipment	Machinery and equipment	13,413,088		11,414,764		Machinery and equipment	14,224,457		13,498,211
Subtotal	Subtotal	171,428,225		66,168,472		Subtotal	171,477,913		171,484,562
Less: accumulated depreciation	Less: accumulated depreciation	(33,321,097)		(28,630,325)		Less: accumulated depreciation	(36,722,165)		(34,615,477)
Property and equipment, net	Property and equipment, net	$	138,107,128	$	37,538,147	Property and equipment, net	$	134,755,748	$	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 86 for additional information.

Depreciation expense was ~~$4,870,523~~$3,012,537 and ~~$2,160,538~~$3,264,862 for the ~~nine~~six month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$1,605,661~~$1,485,846 and ~~$731,731 for the three month periods ended September 30, 2020 and 2019, respectively.~~

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

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

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

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


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

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

~~Identifiable intangible assets~~	~~188,503,000~~
~~Goodwill~~	~~406,703,348~~
~~Intangible assets acquired~~	~~595,206,348~~

~~Noncontrolling interests~~	~~2,941,000~~
~~Total consideration~~	$	~~576,699,494~~

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

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

For the three months ended September 30,
2020 For the nine months ended September 30,
2020
Net Revenue $ 81,539,397 $ 258,348,564
Net Loss $ (1,995,233) $ (9,652,554)

The following table presents the Company’s unaudited pro forma results for the three and nine month periods ended September 30, 2019, as if the Business Combination had occurred on January 1, 2019. The unaudited pro forma financial information presented includes the effects of adjustments related to the amortization of acquired intangible assets, and excludes other non-recurring transaction costs directly associated with the acquisition such as legal and other professional service fees. Statutory rates were used to calculate income taxes.

For the three months ended September 30,
2019 For the nine months ended September 30,
2019
Pro forma net revenue $ 205,065,301 $ 622,054,119
Pro forma net income $ 1,931,220 (1) $ 6,516,015 (1)
Pro forma net income attributable to HF Group $ 1,531,202 (1) $ 5,580,237 (1)
Pro forma earnings per common share - basic and diluted $ 0.03 $ 0.11
Pro forma weighted average shares - basic and diluted 52,145,096 52,145,096

~~(1)Includes intangibles asset amortization expense of $2,722,575~~$1,607,452 for the three months ended ~~September~~June 30, ~~2019~~2021 and ~~8,167,725 for the nine months ended September 30, 2019,~~2020, respectively.

NOTE 86 - ACQUISITION OF B&R REALTY SUBSIDIARIES

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

The Company notes that substantially all of the fair value of the gross assets acquired is concentrated in a group of similar assets (land and buildings all used for warehousing and distribution purposes). As such, the acquisition of BRGR Subsidiaries would be deemed an asset acquisition under ASC 805-10-55, and the total purchase price is allocated on a relative fair value basis to the net assets acquired.

Consideration for the acquisition was funded by (i) $75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 1210 for additional information), (ii) issuance by B&R Global of a $7.0 million Unsecured Subordinated Promissory Note to BRGR maturing on January 17, 2030, and (iii) payment of $18.7 million from funds drawn from the Company’s revolving credit facility. The reissuance of the mortgage-backed term loans released BRGR from its

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obligations to the lenders under the First Amended Credit Agreement (See Note 1110 for additional information) and predecessor financing arrangements.

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


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

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

NOTE 97 - GOODWILL AND ACQUIRED INTANGIBLE ASSETS

Goodwill

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

HF B&R Global Total
Balance at December 31, 2019 $ 0 $ 406,703,348 $ 406,703,348
Impairment loss 0 (338,191,407) (338,191,407)
Balance at September 30, 2020 $ 0 $ 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 June 30, 2021	$	0	$	68,511,941	$	68,511,941

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

Towards the end of first quarter of fiscal year 2020, the Company experienced a significant decline in business volume due to mandatory stay-at-home orders issued by governmental authorities in response to the intensification of the COVID-19 pandemic. The Company determined that the B&R Global reporting unit was very sensitive to these declines and that it was more likely than not that an impairment may exist. The Company, therefore, performed an analysis of the fair value of the B&R Global reporting unit as of March 31, 2020 using a discounted cash flow method for goodwill impairment testing purposes. Based upon the analysis, the Company concluded that the carrying value of its B&R Global reporting unit exceeded its fair value by approximately $338.2 million. As a result, the company recorded the amount as impairment loss during the first quarter of fiscal year 2020.

The Company estimated the fair values of the B&R Global reporting unit using the income approach, discounting projected future cash flows based upon management’s expectations of the current and future operating environment. The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital ("WACC"), future revenue, profitability, perpetual growth rates and fair values of assets and liabilities. The fair value conclusions as of March 31, 2020 for the reporting unit are highly sensitive to changes in the WACC, which consider observable data about ~~guideline~~guidelines on publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization. The Company also observed that the WACC applied on March 31, 2020 increased significantly from the original WACC value as of the acquisition date, mainly driven by the increased risk and

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

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

~~Based on the quarterly results ended September 30, 2020 and the current~~Using historic monthly sales run rate ~~which is in line with~~and forecasted sales run rates for the ~~forecast and assumptions used in the analysis of the fair value of the B&R Global reporting unit as of March 31, 2020,~~next year, the Company ~~determined that~~performed goodwill impairment assessment and concluded no further impairment is ~~needed for the quarter ended September~~required as of June 30, 2020. The impact of the COVID-19 pandemic on estimated future cash flows is uncertain and will largely depend on the outcome of future events, which could result in further goodwill impairments going forward. The company will complete its annual impairment test in the fourth quarter of fiscal 2020.2021.

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 amortization period of approximately 10 years and 20 years, respectively. The components of the intangible assets are as follows:


		As of September 30, 2020						As of December 31, 2019							As of June 30, 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	Tradenames	$	29,303,000	$	(2,686,108)	$	26,616,892	$	29,303,000	$	(488,383)	$	28,814,617	Tradenames	$	29,303,000	$	(4,883,833)	$	24,419,167	$	29,303,000	$	(3,418,683)	$	25,884,317
Customer relationships	Customer relationships	159,200,000		(7,296,667)		151,903,333		159,200,000		(1,326,667)		157,873,333		Customer relationships	159,200,000		(13,266,667)		145,933,333		159,200,000		(9,286,667)		149,913,333
Total	Total	$	188,503,000	$	(9,982,775)	$	178,520,225	$	188,503,000	$	(1,815,050)	$	186,687,950	Total	$	188,503,000	$	(18,150,500)	$	170,352,500	$	188,503,000	$	(12,705,350)	$	175,797,650

~~Since COVID-19 has had an adverse impact on the Company’s customers, which was a triggering event, the~~The Company performed interim long-lived asset ~~quantitative~~ impairment ~~tests~~evaluation as of ~~September~~June 30, ~~2020.~~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, 0The Company performed long-lived impairment ~~was recorded for the finite lived assets~~assessment and concluded no further impairment is required as of ~~September~~June 30, ~~2020.~~ 2021.

HF Group’s amortization expense for intangible assets was $2,722,575 and ~~$8,167,725~~$5,445,150 for the three and ~~nine~~six month periods respectively ended ~~September~~June 30, 2021 and June 30, 2020, ~~respectively, and nil for the three and nine month periods ended September 30, 2019,~~ respectively. Estimated future amortization expense for intangible assets is presented below:


Twelve months ending September 30,		Amount
2021		$	10,890,300
Twelve months ending June 30,				Twelve months ending June 30,	Amount
2022	2022	10,890,300		2022	$	10,890,300
2023	2023	10,890,300		2023	10,890,300
2024	2024	10,890,300		2024	10,890,300
2025	2025	10,890,300		2025	10,890,300
2026				2026	10,890,300
Thereafter	Thereafter	124,068,725		Thereafter	115,901,000
Total	Total	$	178,520,225	Total	$	170,352,500

NOTE 108 - 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~~9 Line of Credit, and Note 1210 Long-Term Debt). The Company does not use any other derivative financial instruments for trading or speculative purposes.

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On August 20, 2019, HF Group entered into 2 IRS contracts with East West Bank (the "EWB IRS") for initial notional amounts of $1.05 million and $2.625 million, respectively. The EWB IRS contracts were entered into in conjunction with 2

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

On June 24, 2020, HF Group entered into a forward starting IRS contract with JP Morgan Chase Bank (the "JPM IRS") for a fixed $80 million notional amount, effective from June 30, 2021 and expiring on June 30, 2025, as a means to partially hedge its existing floating rate loans exposure. On March 3, 2021, the Company unwound the JPM IRS. The contract was unwound with a view that 1-month LIBOR will continue to remain low in the foreseeable future despite the spike at the long end of the yield curve. The Company ~~has existing term loans as~~recorded a gain of ~~September 30, 2020~~$718,600 in the first quarter of approximately $73.5 million which was pegged to a floating rate of 1-month LIBOR plus 1.875% per annum, as well as a revolving line of credit with an outstanding balance of $25.2 million as of September 30, 2020 that was pegged to 1-month LIBOR plus 1.375% per annum. Under the terms of the JPM IRS contract, the Company will receive interest at prevailing 1-month LIBOR and pay fixed interest at 0.413% plus the agreed bank spread starting from July 31, 2021 through July 31, 2025 inclusive.2021.

The Company evaluated the above mentioned interest rate swap contracts currently in place and did not designate those as cash flow hedges. Hence, the fair value change on the aforementioned interest rate swap contracts are accounted for and recognized as change in fair value of interest rate swap contracts in the unaudited condensed consolidated statements of operations.

As of ~~Sept~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company has determined that the fair value of the interest rate swap obligations was ~~$1,357,434~~$393,479 and ~~$73,158,~~$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 119 - ~~LINES~~LINE OF CREDIT

~~On July 1, 2016, Han Feng, HF Group’s main operating entity, entered into a line of credit agreement with East West Bank.~~ The line of credit agreement provided for a revolving credit in the amount of $14,500,000. The line of credit was secured by virtually all assets of Han Feng, the premises and an adjoining undeveloped parcel of land owned by R&N Holdings, and premises owned by R&N Lexington. The principal and all accrued unpaid interest were originally due in May 2018 and then extended to May 27, 2019, in order to provide an uninterrupted credit facility while the renewal of the line of credit was being reviewed by the bank. Interest was based on the prime rate less 0.15%, but in no event less than 3.25% per annum, and was payable monthly. On April 18, 2019, this $5,156,018 obligation was repaid in full with proceeds from theJPM Credit Agreement ~~with East West Bank entered into on April 18, 2019, as described below.~~

On November 14, 2012, NSF, another operating entity, entered into a line of credit agreement with Bank of America. The line of credit agreement provided for a revolving credit in the amount of $4,000,000. The line of credit was secured by 3 real properties owned by NSF and guaranteed by the 2 shareholders of the Company, as well as by BB, a subsidiary of the Company. The maximum borrowings were determined by certain percentages of eligible accounts receivable and inventories. The principal and all accrued unpaid interest were originally due in January 2018 and subsequently extended to February 2020. Interest was based on the LIBOR rate plus 2.75%. On April 18, 2019, this $954,984 obligation was paid off in full with proceeds from the Credit Agreement with East West Bank entered into on April 18, 2019, as described below.

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

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to maintain certain financial ratios. On November 4, 2019, the balance of the Credit Agreement was paid off from borrowings under the Amended and Restated Credit Agreement entered into in connection with the closing of the merger with B&R Global as described below. The outstanding balance paid off, including accrued interest, was $13,864,481.

On November 4, 2019, the Company entered into an Amended and Restated Credit Agreement (the "First Amended Credit Agreement") with JP Morgan Chase Bank, N.A. (“JP Morgan”). The First Amended Credit Agreement providedprovides for a $100 million asset-secured revolving credit facility ~~(the "Facility")~~ maturing on November 4, 2022, with an option to renew at the bank’s discretion. ~~This line of~~The credit facility was collateralized by all assets of the Company and was also guaranteed by ~~B&R Group Realty~~BRGR and ~~B&R Realty~~BRGR Subsidiaries, which ~~B&R Realty~~BRGR Subsidiaries were subsequently acquired by the Company on January 17, 2020 (See Note 86 for additional information). The ~~First Amended~~JPM Credit Agreement was later superseded by ~~the~~a Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") ~~on January 17, 2020, contained financial covenants requiring the Company on a consolidated basis to maintain a Fixed Charge Coverage Ratio of 1.10 to 1.00, determined~~ as ~~of the end of each fiscal quarter for the four fiscal quarter periods then ended.~~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 the Second Amended Credit Agreement with ~~JP Morgan,~~JPMorgan, as Administrative Agent, and certain lender parties thereto, including Comerica Bank. The Second Amended Credit Agreement, provides for (i) a $100 million asset-secured revolving credit facility maturing on November 4, 2022 (the “Revolving Facility”), and (ii) mortgage-secured ~~Term Loans~~term loan of $75.6 ~~million.~~ million ("Term Loan").

The ~~Second Amended Credit Agreement amends and restates the~~ existing ~~$55.0 million of real estate term loans evidenced by the First Amended Credit Agreement. As of January 17, 2020, the existing~~revolving 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 BRGR Subsidiaries, which ~~the Company~~B&R Global had been leasing for its operations in California, Arizona, Utah, Colorado, Washington, and Montana. The Second Amended Credit Agreement contained certain financial covenants and as of ~~September~~June 30, ~~2020,~~2021, the Company was in compliance with the covenants under the Second Amended Credit Agreement. The outstanding principal balance on the line of credit as of ~~September~~June 30, ~~2020~~2021 was ~~$25.2~~$19.1 million.

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NOTE 1210 - LONG-TERM DEBT

Long-term debt at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows:

Bank name Maturity Interest rate as of September 30,
2020 As of September 30,
2020 As of December 31,
2019
East West Bank – (a) August 2027 - September 2029 3.83 % — 4.25% $ 6,866,540 $ 6,989,016
Capital Bank – (b) October 2027 3.85% 4,822,768 4,967,075
Bank of America – (c) April 2021 - December 2029 3.73 % — 5.51% 6,138,879 4,263,663
JP Morgan (d) February 2023 – January 2030 2.03 % — 2.16% 75,630,548 2,702,371
BMO Harris Bank – (e) April 2022 - January 2024 5.87 % — 5.99% 320,394 508,564
Peoples United Bank – (e) December 2022-January 2023 6.69 % — 7.53% 805,964 1,114,993
Other finance companies – (e) October 2020 – March 2024 3.90 % — 6.14% 523,591 716,315
Total debt 95,108,684 21,261,997
Less: current portion (7,736,016) (2,726,981)
Long-term debt $ 87,372,668 $ 18,535,016


Bank name	Maturity	Interest rate as of June 30, 2021			As of June 30, 2021		As of December 31, 2020
Bank of America – (a)	November 2021 - December 2029	3.73%	—	5.51%	$	5,622,528	$	5,905,472
BMO Harris Bank N.A. – (b)	April 2022 - January 2024	5.87%	—	5.99%	194,952		280,164
East West Bank – (c)	August 2027 - September 2029	3.83%	—	4.25%	6,704,883		6,802,271
First Horizon Bank – (d)	October 2027	3.85%			4,673,127		4,773,378
J.P. Morgan Chase – (e)	February 2023 - January 2030	1.97%	—	2.09%	72,802,325		74,687,806
Peoples United Bank – (b)	December 2022 - January 2023	6.69%	—	7.53%	559,274		725,282
Other finance institutions – (b)	July 2022 - March 2024	3.90%	—	6.14%	389,476		475,689
Total debt					90,946,565		93,650,062
Less: current portion					(5,804,100)		(5,641,259)
Long-term debt					$	85,142,465	$	88,008,803

The terms of the various loan agreements related to long-term bank borrowings require the Company to comply with certain financial covenants. As of ~~September~~June 30, 2021 and December 31, 2020, the Company was in compliance. ~~As of December 31, 2019, the Company was in violation of one covenant and a waiver was obtained from Bank of America for the covenant violation.~~

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

~~Table~~(a)Guaranteed by 2 subsidiaries of ~~Contents~~

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

~~(a)~~(b)Secured by vehicles.

(c)Guaranteed by 5 subsidiaries of the Company, Han Feng, TT, MFD, R&N Holdings and R&N ~~Lexington,~~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.

~~(b)~~(d)Guaranteed by ~~two shareholders,~~one shareholder and spouse, as well as Han Feng. Also secured by a real property owned by HG Realty. Balloon payment for this debt is $3,116,687.

~~(c)~~Guaranteed by two subsidiaries of the Company, NSF and BB, and also secured by real property, equipment and fixtures, inventories, receivables and all other personal property owned by NSF. Balloon payment is $1,382,046.

~~(d)~~(e)Real estate term loan with a principal balance of ~~$73,510,296~~$71,264,205 as of ~~September~~June 30, ~~2020~~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 ~~$2,120,252~~$1,538,120 as of ~~September~~June 30, ~~2020~~2021 is secured by specific vehicles and equipment as defined in loan agreements.

~~(e)Secured by vehicles.~~

The future maturities of long-term debt as of ~~September~~June 30, ~~2020~~2021 are as follows:


Twelve months ending September 30,		Amount
2021		$	7,736,016
Twelve months ending June 30,				Twelve months ending June 30,	Amount
2022	2022	5,624,708		2022	$	5,804,100
2023	2023	4,382,446		2023	5,157,805
2024	2024	3,758,076		2024	4,177,128
2025	2025	3,705,811		2025	4,032,473
2026				2026	4,069,472
Thereafter	Thereafter	69,901,627		Thereafter	67,705,587
Total	Total	$	95,108,684	Total	$	90,946,565

NOTE 1311 - LEASES

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,

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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 finance lease assets and finance lease liabilities at inception, with lease expense recognized as interest expense and amortization of the lease payment.

Operating Leases

The components of lease expense were as follows:


		For the Three Months Ended						For the Nine Months Ended							For the Three Months Ended						For the Six Months Ended
		September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019				June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Operating lease cost	Operating lease cost	$	301,734		$	184,002		$	1,058,611		$	476,262		Operating lease cost	$	513,066		$	253,820		$	1,085,201		$	756,877

Weighted Average Remaining Lease Term (Months)	Weighted Average Remaining Lease Term (Months)													Weighted Average Remaining Lease Term (Months)
Operating leases	Operating leases	32			26			32			26			Operating leases	302			34			302			34

Weighted Average Discount Rate	Weighted Average Discount Rate													Weighted Average Discount Rate
Operating leases	Operating leases	4.1		%	5.1		%	4.1		%	5.1		%	Operating leases	2.17		%	4.10		%	2.17		%	4.10		%

Finance Leases

The components of lease expense were as follows:

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		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended				For the Six Months Ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Finance leases cost:	Finance leases cost:									Finance leases cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	$	139,687	$	139,686	$	419,060	$	431,444	Amortization of right-of-use assets	$	80,984	$	139,687	$	168,160	$	279,373
Interest on lease liabilities	Interest on lease liabilities	21,647		25,697		72,767		86,303		Interest on lease liabilities	16,718		23,218		37,343		51,120
Total finance leases cost	Total finance leases cost	$	161,334	$	165,383	$	491,827	$	517,747	Total finance leases cost	$	97,702	$	162,905	$	205,503	$	330,493

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

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Operating cash flows from finance leases $ 21,647 $ 25,697 $ 72,767 $ 86,303


	For the Three Months Ended				For the Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Operating cash flows from finance leases	$	16,718	$	23,218	$	37,343	$	51,120

Supplemental balance sheet information related to leases was as follows:


		September 30, 2020			December 31, 2019				June 30, 2021			December 31, 2020
Finance Leases	Finance Leases							Finance Leases
Property and equipment, at cost	Property and equipment, at cost	$	2,793,731		$	2,793,731		Property and equipment, at cost	$	2,793,731		$	2,793,731
Accumulated depreciation	Accumulated depreciation	(1,712,190)			(1,293,130)			Accumulated depreciation	(1,999,478)			(1,831,318)
Property and equipment, net	Property and equipment, net	$	1,081,541		$	1,500,601		Property and equipment, net	$	794,253		$	962,413

Weighted Average Remaining Lease Term (Months)	Weighted Average Remaining Lease Term (Months)							Weighted Average Remaining Lease Term (Months)
Finance leases	Finance leases	46			54			Finance leases	38			43

Weighted Average Discount Rate	Weighted Average Discount Rate							Weighted Average Discount Rate
Finance leases	Finance leases	7.54		%	7.51		%	Finance leases	7.59		%	7.56		%

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Maturities of lease liabilities were as follows:


Twelve months ending September 30,		Operating Leases		Finance Leases
2021		$	315,505	$	370,309
Twelve months ending June 30,						Twelve months ending June 30,	Operating Leases		Finance Leases
2022	2022	271,849		335,812		2022	$	1,011,964	$	336,501
2023	2023	196,960		331,070		2023	1,139,353		322,569
2024	2024	0		253,056		2024	964,309		274,426
2025	2025	0		40,378		2025	987,997		96,496
2026						2026	791,576		0
Thereafter						Thereafter	17,396,355		0
Total Lease Payments	Total Lease Payments	784,314		1,330,625		Total Lease Payments	22,291,554		1,029,992
Less Imputed Interest	Less Imputed Interest	(90,332)		(204,735)		Less Imputed Interest	(5,750,563)		(126,570)
Total	Total	$	693,982	$	1,125,890	Total	$	16,540,991	$	903,422

On July 2, 2018, AnHeart Inc. ("AnHeart"), a former wholly-owned subsidiary of HF Holding, entered into 2 separate leases for 2 properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively. The leases were on a triple net basis, meaning AnHeart is required to pay all costs associated with the properties, including taxes, insurance, utilities, maintenance and repairs. HF Holding provided a corporate guaranty for all rent and related costs of the leases, including costs associated with the planned construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue. The Company entered into the leases 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.~~expansion in early 2019.

On February 23, 2019, HF Holding executed an agreement to divest all of its ownership interest in AnHeart to Ms. Jianping An, a resident of New York, for the sum of $20,000. The transfer of ownership was completed on May 2, 2019. However, the divestment does not release HF Holding’s guaranty of AnHeart’s obligations or liabilities under the original lease agreements. Under the terms of the sale of AnHeart stock to Ms. An, and in consideration of the Company’s ongoing guaranty of AnHeart’s

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performance of the lease obligations, AnHeart granted to the Company a security interest in all AnHeart assets, together with a covenant that the Company will be assigned the leases, to be exercised if AnHeart defaults on the original lease agreements. Further, Ms. An has tendered an unconditional guaranty of all AnHeart liabilities arising from the leases, in favor of the Company, executed by Minsheng Pharmaceutical Group Company, Ltd., a Chinese manufacturer and distributor of herbal medicines.

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

NOTE 1412 - SUPPLEMENTAL CASH ~~FLOWS~~FLOW INFORMATION

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

For the Nine Months Ended
September 30,
2020 September 30,
2019
Supplemental disclosure of cash flow data
Cash paid for interest $ 3,220,447 $ 746,784
Cash paid for income taxes $ 517,573 $ 1,599,284
Supplemental disclosure of non-cash investing and financing activities
Property and equipment purchases from notes payable $ 2,528,554 $ 0
Issuance of promissory note for the acquisition of B&R Realty Subsidiaries $ 7,000,000 $ 0

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	For the Six Months Ended
	June 30, 2021		June 30, 2020
Supplemental disclosure of cash flow data
Cash paid for interest	$	1,477,788	$	2,321,727
Cash paid for income taxes	$	1,897,940	$	145,905

Supplemental disclosure of non-cash investing and financing activities
Right of use assets obtained in exchange for operating lease liabilities	$	15,930,393	$	0

Property and equipment purchases from notes payable	$	257,450	$	2,528,554
Issuance of promissory note for the acquisition of B&R Realty Subsidiaries	$	0	$	7,000,000

NOTE 1513 - TAXES

Corporate Income Taxes (“CIT”)

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

(i)The provision for income taxes of the Company for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 consists of the following:


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended				For the Six Months Ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Current income taxes:	Current income taxes:									Current income taxes:
Federal	Federal	$	465,519	$	260,656	$	865,737	$	1,184,630	Federal	$	1,886,083	$	40,618	$	2,849,943	$	400,218
State	State	128,825		101,534		254,131		383,782		State	217,479		35,646		439,760		125,306
Current income taxes	Current income taxes	594,344		362,190		1,119,868		1,568,412		Current income taxes	2,103,562		76,264		3,289,703		525,524
Deferred income taxes (benefit):	Deferred income taxes (benefit):									Deferred income taxes (benefit):
Federal	Federal	(411,044)		217,292		(2,329,727)		159,162		Federal	(837,524)		(1,195,341)		(1,262,732)		(1,918,683)
State	State	(264,210)		27,660		(842,567)		(12,042)		State	111,060		(370,228)		(42,666)		(578,357)
Deferred income taxes (benefit)	Deferred income taxes (benefit)	(675,254)		244,952		(3,172,294)		147,120		Deferred income taxes (benefit)	(726,464)		(1,565,569)		(1,305,398)		(2,497,040)
Total provision (benefit) for income taxes	Total provision (benefit) for income taxes	$	(80,910)	$	607,142	$	(2,052,426)	$	1,715,532	Total provision (benefit) for income taxes	$	1,377,098	$	(1,489,305)	$	1,984,305	$	(1,971,516)

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

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		As of September 30, 2020		As of December 31, 2019			As of June 30, 2021		As of December 31, 2020
Deferred tax assets:	Deferred tax assets:					Deferred tax assets:
Allowance for doubtful accounts	Allowance for doubtful accounts	$	563,153	$	373,438	Allowance for doubtful accounts	$	390,349	$	443,151
Inventories	Inventories	97,335		594,628		Inventories	613,247		481,016
Federal net operating loss	Federal net operating loss	289,732		228,637		Federal net operating loss	38,893		101,828
State net operating loss	State net operating loss	411,699		80,514		State net operating loss	11,030		257,490
Fair value change in interest rate swap contracts	Fair value change in interest rate swap contracts	336,661		0		Fair value change in interest rate swap contracts	70,875		244,622
Accrued expenses	Accrued expenses	170,749		80,100		Accrued expenses	294,217		268,813
Total deferred tax assets	Total deferred tax assets	1,869,329		1,357,317		Total deferred tax assets	1,418,611		1,796,920
Deferred tax liabilities:	Deferred tax liabilities:					Deferred tax liabilities:
Property and equipment	Property and equipment	(2,783,428)		(3,270,536)		Property and equipment	(2,383,623)		(2,660,874)
Intangibles assets	Intangibles assets	(48,154,660)		(50,327,833)		Intangibles assets	(43,901,883)		(45,461,272)
Right of Use Asset						Right of Use Asset	(152,934)		0
Total deferred tax liabilities	Total deferred tax liabilities	(50,938,088)		(53,598,369)		Total deferred tax liabilities	(46,438,440)		(48,122,146)
Net deferred tax liabilities	Net deferred tax liabilities	$	(49,068,759)	$	(52,241,052)	Net deferred tax liabilities	$	(45,019,829)	$	(46,325,226)

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


		As of September 30, 2020		As of December 31, 2019			As of June 30, 2021		As of December 31, 2020
Deferred tax assets	Deferred tax assets	$	75,411	$	78,993	Deferred tax assets	$	59,079	$	57,478
Deferred tax liabilities	Deferred tax liabilities	(49,144,170)		(52,320,045)		Deferred tax liabilities	(45,078,908)		(46,382,704)
Net deferred tax liabilities	Net deferred tax liabilities	$	(49,068,759)	$	(52,241,052)	Net deferred tax liabilities	$	(45,019,829)	$	(46,325,226)

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


		For the Nine Months Ended					For the Six Months Ended
		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020
Federal statutory tax rate	Federal statutory tax rate	21.0	%	21.0	%	Federal statutory tax rate	21.0	%	21.0	%
State statutory tax rate	State statutory tax rate	0.1	%	4.8	%	State statutory tax rate	4.3	%	0.1	%
Impact of goodwill impairment loss – permanent difference		(20.5)	%	3.4	%
Impact of goodwill impairment loss - permanent difference						Impact of goodwill impairment loss - permanent difference	0	%	(20.5)	%
U.S. permanent difference						U.S. permanent difference	1.1	%	0	%
Others	Others	0	%	(1.0)	%	Others	0.7	%	0	%
Effective tax rate	Effective tax rate	0.6	%	28.2	%	Effective tax rate	27.1	%	0.6	%

NOTE 1614 - 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 the Company, the Company officers and/or 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 ("Mr. Ni") and Mr. Xiao Mou Zhang ("Mr. Zhang") were the Co-Chief Executive Officers as of December 31, 2020. Mr. Ni resigned from all of his official posts on February 23, 2021. Upon resignation, Mr. Ni directly owned 10.7% of outstanding shares of common stock of the Company. Mr. 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 is a holder of more than 10% of the Company's securities.

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The Company had recently evaluated Mr. Zhang's ownership interest and his relationship with certain entities that were previously classified as related parties in prior financial statements. The Company noted that 4 entities with ownership ranging from 5.0% to 10% and are mainly restaurants, were deemed to be non related party in nature. The Company noted that Mr. Zhang or his family members do not manage or participate in daily operations and holds no influence over those entities. Hence, the Company concluded that those entities do not fall under the definition of related party and were excluded from the classification accordingly.

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

Further, the Company evaluated Mr. Ni's ownership interest and his relationship with certain entities that were previously classified as related parties in prior financial statement. The Company noted that 2 entities that were previously owned by Mr. Ni, 37.67% and 100% respectively, were no longer deemed to be related party in nature. The Company noted Mr. Ni had disposed off the equity interest on January 1, 2020 and September 29, 2020, respectively. Mr. Ni or his family members do not manage or participate in daily operations and holds no influence over those entities after the disposal. Hence, the Company concluded that those entities do not fall under the definition of related party anymore, and were excluded from the classification accordingly.

As a result of the Company's evaluation described above, certain related party transactions and balances for the three and six months ended June 30, 2021 and June 30, 2020, and as of June 30, 2021 and December 31, 2020 were reclassified and removed from related party disclosure to conform to current reporting period's presentation. Other than the reclassification, there are no financial impact to the prior financial statements.

The related party transactions as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 and for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 are identified as follows:

Related Party Sales and Purchases Transactions

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

a.Purchase - related parties

Below is a summary of purchases of goods and services from related parties recorded for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively:

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Name of Related Party		Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
(a)	Best Food Services, LLC	$	2,353,900	$	873,122
(b)	Eastern Fresh NJ, LLC	1,473,617		445,572
(c)	Fujian RongFeng Plastic Co., Ltd	790,212		824,602
(d)	Hanfeng (Fujian) Information Technology Co., Ltd.	0		313,187
(e)	Ocean Pacific Seafood Group, Inc.	207,847		52,143
(f)	Revolution Industry, LLC	0		541,910
(g)	Union Food, LLC	0		162,816
	Others	70,436		65,281
Total		$	4,896,012	$	3,278,633

Name of Related Party Three Months Ended
September 30, 2020 Three Months Ended
September 30, 2019
(a) Best Food Services, LLC $ 1,231,399 $ 0
(b) Eagle Food Service, LLC 26,400 24,278
(c) Eastern Fresh NJ, LLC 1,185,398 1,504,118
(d) Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”) 0 79,089
(e) First Choice Seafood, Inc 18,522 717,139
(f) Fujian RongFeng Plastic Co., Ltd. 753,997 1,337,292
(g) Han Feng (Fujian) Information Technology Co., Ltd 556,238 1,370,461
(h) N&F Logistic, Inc. 0 344,435
(i) North Carolina Good Taste Noodle, Inc. 1,039,162 1,127,902
(j) Ocean Pacific Seafood Group Inc. 150,035 77,957
(k) Revolution Industries, LLC 655,789 788,043
(l) UGO USA, Inc. 208,333 191,944
(m) Union Foods, LLC 0 941,057
Others 129,741 8,655
Total $ 5,955,014 $ 8,512,370

(a)Mr. ~~Xiao Mou~~ Zhang ~~Co-Chief Executive Officer of the Company, owns~~previously owned 10.38% equity interest in this entity indirectly through its parent ~~company.~~company as of October 31, 2020. The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr. Zhang's children with immediate effect on November 1, 2020.

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

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

~~(d)~~(c)Mr. ~~Zhou Min Ni owns 50% equity interest in this entity.~~

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

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

~~(g)~~(d)Mr. ~~Zhou Min~~ Ni ~~owns~~previously owned 100% equity interest in this entity.

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

~~(i)Mr. Jian Ming Ni (Ex-CFO) owns 29% equity interest in this entity. Mr. Zhou Min Ni previously owned 37.34% equity in~~disposed off the ownership and ended his legal representation of this entity ~~as of 12/31/2019. Mr Ni's equity interest was disposed of~~ on ~~1/1/~~September 29, 2020.

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~~(j)~~(e)Mr. ~~Zhou Min~~ Ni owns 26% equity interest in this entity.

~~(k)~~(f)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 ("RIL"). Han Feng has acquired substantially all of the operating assets used or held for use in such business operation for an amount of $250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of RIL. Advances due from RIL at the time of transaction were an offset to the purchase payment made to RIL. Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with RIL.

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

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

Below is a summary of purchase from related parties for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively:

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Name of Related Party	Name of Related Party		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019		Name of Related Party			Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
(a)	(a)	Allstate Trading Company, Inc.	$	308,865	$	111,213	(a)	Allstate Trading Company, Inc.	~~(m)~~	$	0	$	284,968
(b)	(b)	Best Food Services, LLC	4,204,084		0		(b)	Best Food Services, LLC		3,487,139		2,972,685
(c)	(c)	Eagle Food Service, LLC	98,687		196,243		(c)	Eastern Fresh NJ, LLC		2,968,663		2,055,177
(d)	(d)	Eastern Fresh NJ, LLC	3,240,576		4,946,847		(d)	Enson Group, Inc. (formerly "Enson Group, LLC")		127,577		0
(e)	(e)	Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”)	0		181,984		(e)	First Choice Seafood, Inc.		159,752		336,739
(f)	(f)	First Choice Seafood, Inc	355,261		1,668,593		(f)	Fujian RongFeng Plastic Co., Ltd		1,590,129		1,844,955
(g)	(g)	Fujian RongFeng Plastic Co., Ltd.	2,598,952		4,403,948		(g)	Hanfeng (Fujian) Information Technology Co., Ltd.		0		1,025,212
(h)	(h)	Han Feng (Fujian) Information Technology Co., Ltd	1,581,450		2,259,539		(h)	N&F Logistics, Inc.		2,646		368,529
(i)	(i)	N&F Logistic, Inc.	368,529		1,130,403		(i)	Ocean Pacific Seafood Group, Inc.		338,426		233,175
(j)	(j)	North Carolina Good Taste Noodle, Inc.	2,734,070		3,389,766		(j)	Revolution Industry, LLC		189,701		1,045,702
(k)	(k)	Ocean Pacific Seafood Group Inc.	383,211		450,762		(k)	UGO USA, Inc.		212,384		220,740
(l)	(l)	Revolution Industries, LLC	1,701,490		2,054,234		(l)	Union Foods, LLC		0		1,246,720
~~(m)~~		UGO USA, Inc.	429,073		540,468
(n)		Union Foods, LLC	1,246,720		4,489,750
		Others	171,901		174,711			Others		160,966		88,345
Total	Total		$	19,422,869	$	25,998,461	Total			$	9,237,383	$	11,722,947

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

(b)Mr. ~~Xiao Mou~~ Zhang ~~Co-Chief Executive Officer~~previously owned 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. The equity interest was transferred to 3 Irrevocable Trusts for the ~~Company,~~benefits of Mr. Zhang's children with immediate effect on November 1, 2020.

(c)Mr. Ni owns ~~10.38%~~30% equity interest in this entity.

(d)Mr. Ni owns 25% equity interest in this entity.

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

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

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

~~(e)Mr. Zhou Min Ni, owns 50% equity interest in this entity.~~

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

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

(g)Mr. Ni previously owned 100% equity interest in this entity. Mr Ni disposed off the ownership and ended his legal representation of this entity on September 29, 2020.

(h)Mr. ~~Zhou Min~~ Ni owns ~~100%~~25% equity interest in this entity.

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

~~(j)Mr. Jian Ming Ni (Ex-CFO) owns 29% equity interest in this entity. Mr. Zhou Min Ni owned 37.34% equity in this entity as of 12/31/2019. Mr Ni's equity interest has been disposed of on 1/1/2020.~~

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

~~(l)~~(j)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 ("RIL"). Han Feng has acquired substantially all of the operating assets used or held for use in such business operation for an amount of $250,000 plus the original wholesale purchase value of all verified, useable cabbage and egg roll mix inventory of RIL. Advances due from RIL at the time of transaction were an offset to the purchase payment made to RIL. Going forward, Han Feng has taken the egg roll production business in house and ceased its vendor relationship with RIL.

~~(m)~~(k)Mr. ~~Zhou Min~~ Ni owns 30% equity interest in this entity.

~~(n)~~(l)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.

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b. Sales - related parties

Below is a summary of sales to related parties recorded for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively:

~~Table of Contents~~


Name of Related Party		Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
(a)	ABC Food Trading, LLC	$	506,306	$	169,145
(b)	Asahi Food, Inc.	223,377		103,385
(c)	Best Food Services, LLC	327,113		14,414
(d)	Eagle Food Service, LLC	1,067,346		878,396
(e)	Eastern Fresh NJ, LLC	76,145		507,821
(f)	Enson Group, Inc. (formerly "Enson Group, LLC")	26,601		123,820
(g)	Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”)	553,985		0
(h)	First Choice Seafood, Inc.	7,615		1,145,984
(i)	Heng Feng Food Services, Inc.	64,878		155,705
(j)	N&F Logistics, Inc.	160,466		172,216
	Others	71,875		183,519
Total		$	3,085,707	$	3,454,405

Name of Related Party Three Months Ended
September 30, 2020 Three Months Ended
September 30, 2019
(a) ABC Food Trading, LLC $ 371,162 $ 0
(b) Asahi Food, Inc. 144,479 0
(c) Best Food Services, LLC 77,357 0
(d) Eagle Food Service, LLC 1,067,890 1,742,733
(e) Eastern Fresh NJ, LLC 134,549 1,019,427
(f) Enson Group, LLC 29,608 161,268
(g) Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”) 9,097 1,064,244
(h) Fortune One Foods, Inc. 28,149 238,633
(i) Heng Feng Food Service, Inc. 113,546 352,000
(j) N&F Logistic, Inc. 293,100 523,807
(k) UGO USA, Inc. 15,440 16,500
Others 3,000 11,892
Total $ 2,287,377 $ 5,130,504

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

(c)Mr. ~~Xiao Mou~~ Zhang ~~owns~~previously owned 10.38% equity interest in this entity indirectly through its parent ~~company.~~company as of October 31, 2020. The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr. Zhang's children with immediate effect on November 1, 2020.

(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 ~~the Chairman and Co-Chief Executive Officer of the Company,~~ 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 50% equity interest in this entity.

(h)Mr. ~~Zhou Min~~ Ni owns ~~17.5%~~25% equity interest in this ~~entity.~~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.

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

Below is a summary of sales to related parties recorded for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively:

Name of Related Party Nine Months Ended
September 30, 2020 Nine Months Ended
September 30, 2019
(a) ABC Food Trading, LLC $ 1,419,460 $ 0
(b) Asahi Food, Inc. 365,669 0
(c) Best Food Services, LLC 258,046 0
(d) Eagle Food Service, LLC 3,504,915 5,221,409
(e) Eastern Fresh NJ, LLC 1,583,842 2,848,802
(f) Enson Group, LLC 302,360 483,412
(g) Enson Philadelphia, Inc. 125,684 117,595
(h) Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”) 49,313 1,314,727
(i) First Choice Seafood, Inc. 1,378,208 0
(j) Fortune one Foods, Inc. 264,915 638,497
(k) Heng Feng Food Service, Inc. 640,732 1,199,353
(l) N&F Logistic, Inc. 846,342 1,769,214
(m) The Big Catch Alhambra, LLC 57,048 0
(n) UGO USA, Inc. 52,023 54,243
Others 58,471 50,336
Total $ 10,907,028 $ 13,697,588

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Name of Related Party		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
(a)	ABC Food Trading, LLC	$	1,220,212	$	1,048,298
(b)	Asahi Food, Inc.	341,133		221,190
(c)	Best Food Services, LLC	400,792		180,689
(d)	Eagle Food Service, LLC	2,076,021		2,437,025
(e)	Eastern Fresh NJ, LLC	99,338		1,449,294
(f)	Enson Group, Inc. (formerly "Enson Group, LLC")	53,113		272,752
(g)	Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”)	554,949		40,216
(h)	First Choice Seafood, Inc.	82,144		1,378,208
(i)	Heng Feng Food Services, Inc.	104,854		527,186
(j)	N&F Logistics, Inc.	367,133		553,242
	Others	176,479		440,401
Total		$	5,476,168	$	8,548,501

(b)The ~~company~~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 ~~the Chairman and Co-Chief Executive Officer of the Company,~~ owns 30% equity interest in this entity.

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

(g)Mr. ~~Zhou Min~~ Ni owns ~~23.33%~~50% equity interest in this entity.

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

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

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

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

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

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

~~(m)Mr. Xiao Mou Zhang owns 10% equity interest in this entity.~~

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

~~Related Party Balances~~

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

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

Name of Related Party As of September 30,
2020 As of December 31,
2019
(a) ABC Food Trading, LLC $ 253,896 $ 238,513
(b) Asahi Food, Inc. 75,763 34,265
(c) Eagle Food Service, LLC 410,245 979,591
(d) Eastern Fresh NJ, LLC 0 1,511,075
(e) Enson Group, LLC 0 341,200
(f) Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”) 98,540 348,833
(g) Heng Feng Food Service, Inc. 0 477,541
(h) N&F Logistic, Inc. 14,446 119,241
Others 30,441 152,611
Total $ 883,331 $ 4,202,870

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

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

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

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

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

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

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

~~(h)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 as of September 30, 2020 and December 31, 2019.~~

~~b. Accounts payable - related parties, net~~

All the accounts payable to related parties occurred in the ordinary course of business and are payable upon demand without interest. Below is a summary of accounts payable with related parties as of September 30, 2020 and December 31, 2019, respectively:

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Name of Related Party As of September 30,
2020 As of December 31,
2019
(a) Best Food Services, LLC $ 316,255 $ 987,487
(b) Eastern Fresh NJ, LLC 261,381
(c) First Choice Seafood, Inc. 85,720 0
(d) Fujian RongFeng Plastic Co.,Ltd 434,754 1,684,192
(e) Golden Poultry, LLC 0 248,901
(f) Han Feng Information Technology (Jinhua), Inc. 445,751 166,971
(g) North Carolina Good Taste Noodle, Inc. 781,752 992,353
(h) UGO USA, Inc. 93,970 340,087
Others 243,672 101,365
Total $ 2,663,255 $ 4,521,356

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

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

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

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

~~(e)Mr. Zhou Min Ni owns 40% equity interest in this entity. In late 2019, this entity transferred its business to Union Foods, LLC, which is~~ 30% equity interest indirectly owned by Tina Ni, one of Mr. Zhou Min Ni’s family members through its parent company, and 10% of equity interest owned by Anthony Zhang, one of Mr. Xiao Mou Zhang's family member.

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

~~(g)Mr. Jian Ming Ni (Ex-CFO) owns 29% equity interest in this entity. Mr. Zhou Min Ni owned 37.34% equity in this entity as of 12/31/2019. Mr Ni's equity interest has been disposed of on 1/1/2020.~~

~~(h)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 as of September 30, 2020 and December 31, 2019, respectively:

Name of Related Party As of September 30,
2020 As of December 31,
2019
(a) Ocean Pacific Seafood Group, Inc. $ 7,506 $ 223,303
(b) Revolution Industry, LLC 290,342 521,832
Total $ 297,848 $ 745,135

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

~~(b)Raymond Ni, one of Mr. Zhou Min Ni’s family members, owns 100% equity interest in this entity.~~

d.~~Advances from customers - related parties, net~~

The Company also periodically receives advances from its related parties for business purposes. These advances are interest free and due upon demand. The balance for advances from customers involving related parties was $6,147 as of September 30, 2020 and there were 0 advances from customers involving related parties as of December 31, 2019.

~~e. Subordinated debt - related parties~~

B&R Global issued a $7.0 million Unsecured Subordinated Promissory Note to BRGR. The note bears an interest rate of 6% per annum that matures in January 2030. At September 30, 2020, accrued interest payable was NaN.

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 as of December 31, 2019. As a

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result of the Realty Acquisition referenced in Note 8, rent deposits previously classified as made by related parties became intercompany balances and were eliminated as of September 30, 2020. There were 0 related party rent deposits as of September 30, 2020.

Lease Agreements ~~with~~- Related Parties

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

R&N Holdings ~~leases~~leased a facility to ~~a related party~~UGO USA Inc. under an operating lease agreement ~~expiring in 2024.~~which was mutually terminated by both parties effective April 1, 2021. Rental income for the three months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$11,400 and $11,400, respectively, and the~~ ~~nine~~ ~~months ended September 30, 2020 and 2019 was $34,200 and $34,200, respectively.~~

~~R&N Holdings also leases a facility to a related party under an operating lease agreement expiring in 2022. Rental income for the three months ended September 30, 2020 and 2019 was $10,500~~NaN and $10,500, respectively, and the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 was $7,000 and ~~2019 was $31,500 and $31,500~~,$21,000, respectively.

HG Realty leases a warehouse to ~~a related party~~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 ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was $120,000 and $120,000, respectively, and the ~~nine~~six months ended ~~September 30, 2020 and 2019 was $360,000 and $360,000, respectively.~~

~~R&N Lexington leases certain portion of a warehouse space to a related party under an operating lease agreement expiring on~~ June 30, ~~2025. Rental income for the three months ended September 30,~~2021 and 2020 was $240,000 and ~~2019 was $15,000 and NaN, respectively, and the nine months ended September 30, 2020 and 2019 was $15,000 and NaN,~~$240,000, respectively.

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

In 2020, Kirnland renewed a warehouse lease from ~~a related party~~Yoan Chang Trading Inc. ("Yoan") under an operating lease agreement expiring on December 31, 2020. In February 2021, Kirnland executed a new 5-year operating lease agreement with Yoan effective January 1, 2021 and expiring on December 31, 2025. Rent incurred to the related party was ~~$30,000~~$77,428 and $30,000 for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$90,000~~$154,856 and ~~$90,000~~$60,000 for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively.

~~Notes Receivable from~~ Related ~~Parties~~Party Balances

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

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

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

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

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

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~~On March 1, 2018, the Company entered into~~Below is 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~~summary of ~~$5,000 for 60 months, including interest,~~accounts receivable with a final payment of $284,453. The loan bore interest of 5% per annum. Interest was computed on the outstanding balance on the basis of the actual number of days elapsed in a year of 360 days. The principal plus interest was to be paid off no later than April 30, 2023.

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

On September 30, 2019, the Company and Mr. Ni entered into a Loan Purchase and Sale Agreement (the "Loan Sale Agreement"). Pursuant to the Loan Sale Agreement, all such notes receivable stated above, having then a combined outstanding balance of $8,415,525 ("Total Notes Receivable"), were sold to Mr. Zhou Min Ni in exchange for 632,746 shares of common stock of the Company, which shares were received andrelated parties recorded ~~in treasury stock by the Company~~ as of ~~September~~June 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 30,2021 and December 31, 2020, (the “Escrow Period”), which will then be delivered to the Company in part or in full, if the volume weighted average price ("VWAP") of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the Escrow Period is less than $13.30. respectively:

On October 9, 2020, in accordance with the terms of the Loan Sale Agreement, the Company and Mr. Ni determined and agreed that the 250-day VWAP was $10.59, and that, therefore, 161,966 of the Escrow Shares would be transferred to and recorded as treasury stock by the Company and the remaining 46,840 Escrow Shares would be returned to Mr. Ni. Following which, the Total Notes Receivable guaranteed by Mr. Ni is considered fully settled.


Name of Related Party		As of June 30, 2021		As of December 31, 2020
(a)	ABC Food Trading, LLC	$	137,063	$	18,816
(b)	Asahi Food, Inc.	144,363		68,766
(c)	Best Food Services, LLC	250,153		1,250
(d)	Eagle Food Service, LLC	478,097		697,538
(e)	Eastern Fresh NJ, LLC	102,442		0
(f)	Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”)	567,950		325,596
(g)	Fortune One Foods, Inc.	86,150		36,250
(h)	Heng Feng Food Services, Inc.	64,878		0
(i)	N&F Logistics, Inc.	61,940		113,247
	Others	28,379		0
Total		$	1,921,415	$	1,261,463

(a)Mr. Zhang previously owned 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr. Zhang's children with immediate effect on November 1, 2020.

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

(c)Mr. Zhang previously owned 10.38% equity interest in this entity indirectly through its parent company as of October 31, 2020. The equity interest was transferred to 3 Irrevocable Trusts for the benefits of Mr. Zhang's children with immediate effect on November 1, 2020.

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

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

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

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

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

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

All accounts receivable from these related parties are current and considered fully collectible. No allowance is deemed necessary as of June 30, 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 June 30, 2021 and December 31, 2020, respectively:


Name of Related Party		As of June 30, 2021		As of December 31, 2020
(a)	Best Food Services, LLC	$	479,757	$	588,920
(b)	Eastern Fresh NJ, LLC	464,106		427,795
(c)	Enson Group, Inc. (formerly "Enson Group, LLC")	75,794		25,368
(d)	Fujian RongFeng Plastic Co., Ltd	767,593		69,429
(e)	Hanfeng Information Technology (Jinhua), Inc.	0		107,258
(f)	Heng Feng Food Services, Inc.	0		116,436
(g)	UGO USA, Inc.	0		211,003
	Others	169,379		26,218
Total		$	1,956,629	$	1,572,427

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

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

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

(e)Mr. Ni owns 37% equity interest in this entity.

(f)Mr. Ni owns 45% equity interest in this entity.

(g)Mr. 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.

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


Name of Related Party		As of June 30, 2021		As of December 31, 2020
(a)	Ocean Pacific Seafood Group, Inc.	$	0	$	7,101
(b)	Revolution Industry, LLC	0		189,702
Total		$	0	$	196,803

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

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

d.Promissory note payable - related party

B&R Global issued a $7.0 million Unsecured Subordinated Promissory Note to BRGR in January 2020 as part of the payment for the acquisition of BRGR (Refer to Note 6). The note bears an interest rate of 6% per annum that matures in January 2030. At June 30, 2021, outstanding balance was $5.5 million and accrued interest payable was NaN.

NOTE 1715 - SEGMENT REPORTING

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

On February 23, 2021, former co-CEO Zhou Min Ni resigned and Xiao Mou Zhang assumed the ~~business~~role of ~~B&R Global in November 2019, the Company distinguishes revenues, costs and expenses between HF and B&R Global in its internal reporting.~~sole CEO. As a result, the Company ~~has~~reassessed its performance evaluation process and determined 2 ~~reportable~~relevant reporting segments ~~HF covering Southeastern Coast of U.S.~~- sales to independent restaurants and ~~B&R Global covering~~wholesale. Frequency, volume and profit margins are uniquely different between the ~~Pacific and Mountain West regions of U.S., and has re-presented the segment~~2 reporting segments. Segment reporting for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2019 as follows.~~2020 were re-presented below.

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

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The following table presents net sales by segment for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively:


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended				For the Six Months Ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net revenue	Net revenue									Net revenue
HF		$	58,379,545	$	75,698,877	$	161,933,810	$	225,218,105
B&R Global		81,539,397		0		258,348,564		0
Sales to independent restaurants										Sales to independent restaurants	$	187,516,460	$	98,620,662	$	340,557,245	$	265,892,978
Wholesale										Wholesale	6,029,776		5,939,434		12,370,819		14,470,454
Total	Total	$	139,918,942	$	75,698,877	$	420,282,374	$	225,218,105	Total	$	193,546,236	$	104,560,096	$	352,928,064	$	280,363,432

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


	For the Three Months Ended June 30, 2021
	Sales to Independent Restaurants		Wholesale		Total
Revenue	$	187,516,460	$	6,029,776	$	193,546,236
Cost of revenue	$	152,284,008	$	6,127,924	$	158,411,932
Gross profit (loss)	$	35,232,452	$	(98,148)	$	35,134,304
Depreciation and amortization	$	4,126,735	$	132,699	$	4,259,434
Cash capital expenditures	$	208,614	$	6,880	$	215,494


	For the Three Months Ended June 30, 2020
	Sales to Independent Restaurants		Wholesale		Total
Revenue	$	98,620,662	$	5,939,434	$	104,560,096
Cost of revenue	$	78,415,142	$	5,532,170	$	83,947,312
Gross profit	$	20,205,520	$	407,264	$	20,612,784
Depreciation and amortization	$	4,089,634	$	246,298	$	4,335,932
Cash capital expenditures	$	46,652	$	3,060	$	49,712


	For the Six Months Ended June 30, 2021
	Sales to Independent Restaurants		Wholesale		Total
Revenue	$	340,557,245	$	12,370,819	$	352,928,064
Cost of revenue	$	276,225,791	$	12,138,378	$	288,364,169
Gross profit	$	64,331,454	$	232,441	$	64,563,895
Depreciation and amortization	$	8,257,595	$	299,959	$	8,557,554
Cash capital expenditures	$	640,404	$	23,263	$	663,667


	For the Six Months Ended June 30, 2020
	Sales to Independent Restaurants		Wholesale		Total
Revenue	$	265,892,978	$	14,470,454	$	280,363,432
Cost of revenue	$	217,144,426	$	13,631,177	$	230,775,603
Gross profit	$	48,748,552	$	839,277	$	49,587,829
Depreciation and amortization	$	8,260,460	$	449,552	$	8,710,012
Cash capital expenditures	$	199,127	$	10,837	$	209,964

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For the Three Months Ended September 30, 2020
HF B&R Global Total
Revenue $ 58,379,545 $ 81,539,397 $ 139,918,942
Cost of revenue $ 47,253,270 $ 67,502,814 $ 114,756,084
Gross profit $ 11,126,275 $ 14,036,583 $ 25,162,858
Depreciation and amortization $ 760,706 $ 3,708,936 $ 4,469,642
Total capital expenditures $ 25,177 $ 175,147 $ 200,324

For the Three Months Ended September 30, 2019
HF B&R Global Total
Revenue $ 75,698,877 $ 0 $ 75,698,877
Cost of revenue $ 63,506,729 $ 0 $ 63,506,729
Gross profit $ 12,192,148 $ 0 $ 12,192,148
Depreciation and amortization $ 738,904 $ 0 $ 738,904
Total capital expenditures $ 224,366 $ 0 $ 224,366

For the Nine Months Ended September 30, 2020
HF B&R Global Total
Revenue $ 161,933,810 $ 258,348,564 $ 420,282,374
Cost of revenue $ 130,159,122 $ 215,372,565 $ 345,531,687
Gross profit $ 31,774,688 $ 42,975,999 $ 74,750,687
Depreciation and amortization $ 2,279,286 $ 11,200,450 $ 13,479,736
Total capital expenditures $ 75,726 $ 334,562 $ 410,288

For the Nine Months Ended September 30, 2019
HF B&R Global Total
Revenue $ 225,218,105 $ 0 $ 225,218,105
Cost of revenue $ 187,806,948 $ 0 $ 187,806,948
Gross profit $ 37,411,157 $ 0 $ 37,411,157
Depreciation and amortization $ 2,173,723 $ 0 $ 2,173,723
Total capital expenditures $ 5,381,138 $ 0 $ 5,381,138

The following table presents total assets by reportable segment as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively:


		As of September 30, 2020		As of December 31, 2019			As of June 30, 2021		As of December 31, 2020
Total assets:	Total assets:					Total assets:
HF		$	59,948,040	$	80,514,529
B&R Global		429,940,974		722,329,265
Sales to independent restaurants						Sales to independent restaurants	$	491,418,936	$	456,775,742
Wholesale						Wholesale	15,802,059		27,509,341
Total Assets	Total Assets	$	489,889,014	$	802,843,794	Total Assets	$	507,220,995	$	484,285,083

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

NOTE 1816 - COMMITMENT AND CONTINGENCIES

~~Table~~revises its estimates when additional information becomes available. With respect to our outstanding legal matters, we believe that the amount or estimable range of ~~Contents~~

reasonably possible loss will not, either individually or in the ~~allegations. 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 ~~September 30, 2020 and December 31, 2019.~~

~~Various labor and employment claims have been filed~~operations, or ~~asserted against Happy FM Group Inc., alleging that this subsidiary failed to pay all wages owed to~~cash flows. However, the outcome of litigation is inherently uncertain. Therefore, if one or more ~~employees under~~of these ordinary-course legal matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period, could be materially adversely affected.

As previously disclosed, an analyst report published in March 2020 suggested certain improprieties in the ~~California Labor Code as well as other related violations. These~~Company’s operations, many of which later became the subject of allegations ~~all have been denied. Management believes there is no merit to the cases~~in 2 putative class actions and ~~will vigorously defend the cases. Therefore, the Company did not accrue any loss contingency for this matter~~2 derivative actions that were filed on ~~its consolidated financial statements as of September 30, 2020.~~

Onor after March 29, 2020 plaintiff Jesus Mendoza (“Mendoza”) filed a putative shareholder securities class action lawsuit (the Class Action Lawsuit”) in the United States District Court for the Central District of California against the Company, ~~and~~the Company's then current directors, and/or certain of ~~its present and former~~the Company’s then current officers, ~~(collectively, the “Class Action Defendants”) for alleged violations~~alleging violation of ~~Sections 10(b) and 20(a)~~securities laws or breach of ~~the Securities Exchange Act of 1934 styled~~ ~~Mendoza v. HF Foods Group Inc., et al.,~~ ~~Civil Action No. 2:20-CV-2929-ODW-JPR (C.D. Cal.).~~

~~On April 30, 2020, plaintiff Walter Ponce-Sanchez (“Ponce-Sanchez”) filed a substantially similar putative shareholder securities class action lawsuit (the “Ponce-Sanchez Lawsuit”)~~fiduciary duties in ~~the United States District Court for the Central District of California against the same defendants named in the Class Action Lawsuit (collectively, the “Ponce-Sanchez Defendants” and~~connection with ~~the Class Action Defendants, the “Defendants”) styled~~ ~~Ponce-Sanchez v. HF Foods Group Inc., et al.~~, Civil Action No. 2:20-CV-3967-ODW-JPR (C.D. Cal.). The Ponce-Sanchez Lawsuit has now been consolidated with the Class Action Lawsuit and both cases will proceed under the Class Action Lawsuit docket. The complaints both allegeclaims that the ~~Defendants made materially false and (or) misleading statements that caused losses to investors. Additionally, the complaints both allege that the Defendants~~Company failed to disclose in public statements that the Company engaged in certain related party transactions, that insiders and related parties were enriching themselves by misusing shareholder funds, and that the Company masked the true number of free-floating ~~shares. Neither complaint quantifies any alleged damages, but, in addition~~shares (the “Class Actions”). The Company intends to ~~attorneys’ fees and costs, they seek~~continue to recover damages on behalf of themselves and other persons who purchased or otherwise acquired Company stock during the putative class period from August 23, 2018 through March 23, 2020 at allegedly inflated prices and purportedly suffered financial harm as a result. On October 13, 2020, the Court appointed Yun F. Yee as lead plaintiff and approved Mr. Yee’s counsel as lead counselvigorously defend these lawsuits. These cases now are all pending in the Class Action Lawsuit. On October 28, 2020, the Court entered a scheduling order setting December 4, 2020 as the deadline for lead plaintiff to file the Consolidated Amended Complaint and setting a schedule for Defendants' anticipated motion to dismiss. The Class Action Lawsuit does not quantify any alleged damages. The Company disputes these allegations and intends to defend the consolidated actions vigorously.

~~On June 15, 2020, Mendoza filed a shareholder derivative lawsuit on behalf of the Company as a nominal defendant (the “Mendoza Derivative Lawsuit”) in the United States~~U.S. District Court for the Central District of California against certain of the Company’s present and former directors and officers (collectively, the “Mendoza Derivative Defendants”) styled Mendoza v. Zhou Min Ni, et al., Civil Action No. 2:20-CV-5300-ODW-JPR (C.D. Cal.). The complaint in the Mendoza Derivative Lawsuit is based largely on the same allegations as set forth in the Class Action Lawsuit discussed above and alleges violations of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties , unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. The Mendoza Derivative Lawsuit does not quantify any alleged damages, but, in addition to attorneys’ fees and costs, Mendoza seeks to recover damages on behalf of the Company for purported financial harm and to have the court order changes in the Company’s corporate governance. The Mendoza Derivative Defendants and the Company dispute these allegations and intend to defend the Mendoza Derivative Lawsuit vigorously. On July 8, 2020, the Court ordered that all proceedings in the Mendoza Derivative Lawsuit be stayed until such time as the Court has finally resolved the Mendoza Defendants’ anticipatedCalifornia. A motion to dismiss the ~~Class Action Lawsuit.~~amended securities fraud complaint was filed on January 19, 2021, which is pending. The derivative actions are stayed pending the outcome of that motion to dismiss. In response to the analyst report, the Company's Board of Directors appointed a Special Committee of Independent Directors to conduct an internal independent investigation with the assistance of counsel (“Special Committee”).

~~At this stage,~~

In addition, the SEC initiated a formal, non-public investigation of the Company, and the SEC informally requested, and later issued a subpoena for, documents and other information. The subpoena relates to but is ~~unable to determine whether a future loss will be incurred due~~not necessarily limited to the ~~consolidated~~matters identified in the Class ~~Action Lawsuit or~~Actions. The Special Committee and the ~~Mendoza Derivative Lawsuit, or estimate a range of loss, if any; accordingly, no amounts~~Company are cooperating with the SEC. The SEC and the Special Committee investigations are ongoing. There have been ~~accrued~~no changes to the status of these proceedings as described in the ~~Company’s financial statements as of September 30,~~Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

~~On August 21, 2020, Plaintiff Jim Bishop filed~~While the Special Committee has reached no final conclusions in conjunction with its investigation, it has made a ~~putative shareholder derivative lawsuit (the “Bishop Lawsuit”) in the United States District Court for the District~~number of ~~Delaware against certain of the Company’s present~~recommendations to management regarding improvements to Company operations and ~~former directors and officers, as well as the Company (collectively, the “Bishop Defendants”) styled~~ ~~Jim Bishop v. Zhou Min Ni, et al., Civil Action No. 1:20-cv-01103-RGA (D. Del.). The Bishop Lawsuit complaint alleges claims that are virtually the same as those alleged in the Mendoza II Lawsuit. The Bishop Lawsuit does~~structure, including but not ~~quantify any alleged damages.But in addition~~limited to attorneys’ fees and costs, Mr. Bishop seeks to recover damages on behalf of the Company for purported financial harm and to have the Court order changes to the Company’s corporate governance. The Bishop Defendants will seek to have the Bishop Lawsuit stayed until such time as the Court has finally resolved the Mendoza Defendants’ anticipated motion to dismiss the securities class action claims in the consolidated Mendoza Lawsuit.

~~Table of Contents~~

its dealings with related parties.

The ~~Bishop Defendants~~Company has also instituted structural changes including the retirement of the former Co-Chief Executive Officer and Chairman of the Board. The Company now has an independent Chairman of the Board. In addition, the Company recently hired an in-house General Counsel and Chief Compliance Officer, who will report to the Chief Executive Officer and the Company dispute and intend to defend vigorously the allegations in the Bishop Lawsuit, assuming it proceeds. On October 20, 2020, Mr. Bishop and the Bishop Defendants filed a Joint Stipulation to Stay Litigation with the Court. In response, the Court entered a docket order on October 21, 2020, indicating that the Bishop Lawsuit could have been brought in the Central District of California where the Mendoza Derivative Lawsuit is pending already, and directing that any party opposing a transferChairman of the case to the Central District of California should submit a brief in support of that position by November 4, 2020. The Court further directed that the Bishop Defendants do not need to respond to the complaint until the transfer issue is resolved. This case remains in early procedural posture. At this stage, the Company is unable to determine whether a future loss will be incurred due to the Bishop Lawsuit or estimate a range of loss, if any; accordingly, no amounts have been accrued in the Company’s financial statements as of September 30, 2020.Board. (See Note 17, Subsequent Events)

NOTE 1917 - SUBSEQUENT EVENTS

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The Company evaluated subsequent events through ~~November~~August 9, ~~2020,~~2021, which is the date the financial statements were available to be issued.

On ~~October 9, 2020, in accordance with~~August 2, 2021, the ~~terms~~Company appointed Ms. Christine Chang to become the General Counsel and Chief Compliance Officer of the ~~Loan Sale Agreement dated September 30, 2019 between the~~ Company, and Mr. Ni (See Note 4 and Note 16 on Notes Receivable from Related Parties), the parties had determined and agreed that the 250-day VWAP immediately preceding September 30, 2020 was $10.59, and that, therefore, a total of 231,685 of the Escrow Shares were transferred to and recorded as treasury stock by the Company, and the remaining 67,003 Escrow Shares were returned to Mr. Ni. Hence,effective as of ~~November 9, 2020, the total outstanding shares of the Company's common stocks have been reduced from 52,145,096 to 51,193,411 shares.~~September 8, 2021.

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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 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;~~

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

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

•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, ~~2019.~~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.

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ITEM 2. 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

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

The Company ~~was originally incorporated in Delaware on May 19, 2016 as~~is the result of a ~~special purpose acquisition company under the name Atlantic in order to acquire, through a~~successful merger ~~share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination, one or more businesses or entities.~~

Effective August 22, 2018, Atlantic consummated the transactions contemplated by the Atlantic Merger Agreement, dated as of March 28, 2018, by and among Atlantic, HF Merger Sub, a Delaware subsidiary formed by Atlantic, HF Holding, the stockholders ofbetween two complementary market leaders, HF Holding and Zhou Min Ni, as representative of the stockholders of HF Holding. Pursuant to the Atlantic Merger Agreement, HF Holding merged with HF Merger Sub and HF Holding became the surviving entity and a wholly-owned subsidiary of Atlantic. Additionally, upon the closing of the transactions contemplated by the Atlantic Merger Agreement , the stockholders of HF Holding became the holders of a majority of the shares of common stock of Atlantic, and Atlantic changed its name to HF Foods Group Inc.

~~Effective~~B&R Global on November 4, 2019, HF Group consummated the transactions contemplated by a the B&R Global Merger Agreement, dated as of June 21, 2019, by and among the Company, Merger Sub, B&R Global, the B&R Global Stockholders, and Xiao Mou Zhang, as representative of the B&R Global Stockholders. Upon the closing of the transactions contemplated by the B&R Global Merger Agreement, Merger Sub merged with and into B&R Global, resulting in B&R Global becoming a wholly owned subsidiary of HF Group. HF Group acquired 100% of the controlling interest of B&R Global, in exchange for 30,700,000 shares of HF Group Common Stock. The aggregate fair value of the consideration paid by HF Group in the business combination was approximately $576,699,494, 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 BRGR Subsidiaries, which own warehouse facilities that were being leased to the Company for its operations in California, Arizona, Utah, Colorado, Washington, and Montana. Co-CEO of the Company, Xiao Mou Zhang, managed and owned an 8.91% interest in BRGR. The total purchase price for the acquisition was $101,269,706, which was based on independent fair market value appraisals of the properties owned by the 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 used for warehousing and distribution purposes). As such, the acquisition of 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 three and nine month periods ended September 30, 2020 is not comparable to the same period of~~ 2019. As such, the Company has presented our results of operations for the three and nine month periods ended September 30, 2020 and 2019, as well as the unaudited pro forma combined results of operations for the three and nine month periods ended September 30, 2020 and 2019. For more information, see section titled “Supplemental Unaudited Pro Forma Combined Financial Information”.

~~Outlook~~

The Company plans to continue to expand its business through the 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.

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Financial Overview

Our net revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$420.3~~$352.9 million, an increase of ~~$195.1~~$72.5 million, or ~~86.6%~~25.9%, from ~~$225.2~~$280.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019, as a result of the business combination with B&R Global on November 4, 2019.~~2020. Net ~~loss~~income attributable to ~~HF Group’s~~ stockholders for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$344.6~~$5.1 million, ~~a decrease~~an increase of $348.6 million, or ~~8,622.0%~~101.5%, compared to net ~~income~~loss of $343.9 million attributable to ~~HF Group’s~~ stockholders ~~of $4.0 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2019. This is~~2020. The net loss for the six months ended June 30, 2020 was mainly due to a significant goodwill impairment of $338.2 million taken in first quarter of 2020 (see Note 97 to our financial statements for additional information) as well as sharp declines in sales prompted by the severe impact of the COVID-19 pandemic. ~~There were also new charges in other non-cash items, such as amortization of intangible assets resulting from the acquisition of B&R Global, which did not exist in the prior period.~~ Adjusted EBITDA for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$13.7~~$20.8 million, an increase of ~~$3.8~~$13.0 million, or ~~39.4%~~167.9%, from ~~$9.9~~$7.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~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 the Business Combination took place on January 1, 2019, our net revenue for the nine months ended September 30, 2020 would have been $420.3 million, a decrease of $201.8 million, or 32.4% from $622.1 million for the nine months ended September 30, 2019. Net loss attributable to HF Group’s stockholders for the nine months ended September 30, 2020 would have been $344.6 million, a decrease of $350.1 million, or 6,251.8%, from net income attributable to HF Group’s stockholder of $5.6 million for the nine months ended September 30, 2019. Adjusted EBITDA for the nine months ended September 30, 2020 would have been $13.7 million, a decrease of $12.5 million, or 47.7%, from $26.2 million for the nine months ended September 30, 2019. For additional information on our pro-forma results, see the section entitled “SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION” below.

COVID-19 Impact

~~For~~In March 2020, due to the ~~first two months of 2020, the~~COVID-19 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 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 beginning from the last two weeks of March 2020 through June 2020, negatively impacting our overall ~~net income and adjusted EBITDA~~financial results in the first and second quarter ended March 31, 2020 and June 30, 2020. ~~Our net sales during the last two weeks of the first quarter decreased approximately 67% compared to pro-forma sales in the same period ended March 31, 2019.~~

The impact of COVID-19 continued to worsen in April 2020, resulting in as much as a 75% decrease in net weekly sales compared to pro-forma sales in the comparable prior year period and resulting in the Company making the decision to temporarily shut down the operation of a few distribution centers in North Carolina, Georgia and Florida, which were reopened on April 27, 2020. In response to the COVID-19 pandemic, beginning 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. Some of the notable actions ~~include:~~included:

•actively ~~managing~~managed our variable costs to better align with prevailing sales volumes by instituting temporary furloughs, reducing our delivery schedules and temporarily shutting down the operation of several distribution centers, resulting in approximately 40% overall cost reduction since April 2020 as compared to pre-COVID-19 levels; Pre-COVID level of revenue is based on the proforma revenue for the same period in 2019.

•~~improving~~improved working capital by focusing on receivables collection efforts while working with our vendors on temporarily extended terms;

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

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

•~~securing~~secured new partnerships with other online grocery retailers.

The above ~~decisive actions have resulted in an overall improvement of our available line of credit that had enabled the Company to navigate through this unprecedented pandemic. Cost~~cost cutting measures and more efficient operations ensured that the Company had positive cash flow to pay down the revolving ~~credit. With increased revolving~~ credit ~~availability,~~line, resulting in an overall improvement of our available line of credit that has enabled the Company ~~is more prepared for future unexpected turns during~~to navigate through this unprecedented pandemic.

In the ~~pandemic. Following~~second half of 2020, the ~~lowest monthly sales volume in April, weekly~~Company's net sales recovered to ~~over 50% and 60% of pre-COVID-19 levels in the months of May and June, respectively. From July 2020 to the time of this report, we have been experiencing relatively stabilized sales volume of~~ about 70% of ~~pre-~~

~~Table~~pre-COVID business volume (based on proforma net revenue for the second half of ~~Contents~~

~~COVID-19 levels~~2019). The company's net sales continued to recover strongly in 2021 and the recovery rate further increased to approximately 93% of pre-COVID business volume (based on ~~an aggregate basis.~~proforma net revenue for the three months ended June 30, 2019) for the three months ended June 30, 2021. Based on current sales volumes and adjusted cost

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structures, the company is generating ~~weekly~~ positive operating cash flows on a weekly basis and does not have immediate liquidity concerns, especially if sales volume continues to remain stable or improve further.

The impact of the COVID-19 pandemic continues to evolve and the country recently sees a resurgence of COVID-19 in various areas, therefore, we are currently unable to fully predict the extent to which our business, results of operations, or financial condition, will ultimately be impacted. We do not expect economic and operating conditions for our business to recover to pre-COVID-19 levels until consumers are once again feeling safe, 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. Any future resurfacing and worsening of the COVID-19 pandemic may adversely impact our sales and liquidity position.

We remain optimistic on the long-term prospects for our business. Although ~~the timetable for returning~~we continue to ~~normalcy is unknown,~~face intermittent government restrictions on our customers' business operations, we believe that our current level of sales volume will increase over time as the effects of the COVID-19 pandemic slowly dissipate and consumer demand for food 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 a company like HF Group, which has the necessary expertise and deep understanding of our unique customer base. We believe we are differentiated from 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 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, 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 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.~~changes, and as impact of inflation affects overall business.

Distribution, Selling and Administrative Expenses (DSA Expenses)

Distribution, selling and administrative expenses consist primarily 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.

EBITDA and Adjusted EBITDA

The Company uses EBITDA to measure ~~operation~~operating performance, defined as net income before interest expense, income taxes, and depreciation and amortization. In addition, management uses Adjusted EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization, further adjusted to exclude certain unusual, non-cash, non recurring ~~cost reduction, and other adjustment items.~~income or expenses. Management believes that Adjusted EBITDA is less susceptible to variances in actual performance resulting from non-recurring expenses, extraordinary charges, and other non-cash charges and more reflective of other factors that affect our operating performance. 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

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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 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 are 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:

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•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 ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

The following table sets forth a summary of our consolidated results of operations for the three month periods ended ~~September~~June 30, ~~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 September 30,				Changes					For the Three Months Ended June 30,				Changes
		2020		2019		Amount		%			2021		2020		Amount		%
Net revenue	Net revenue	$	139,918,942	$	75,698,877	$	64,220,065	84.8	%	Net revenue	$	193,546,236	$	104,560,096	$	88,986,140	85.1	%
Cost of revenue	Cost of revenue	114,756,084		63,506,729		51,249,355		80.7	%	Cost of revenue	158,411,932		83,947,312		74,464,620		88.7	%
Gross profit	Gross profit	25,162,858		12,192,148		12,970,710		106.4	%	Gross profit	35,134,304		20,612,784		14,521,520		70.4	%
Distribution, selling and administrative expenses	Distribution, selling and administrative expenses	25,050,419		9,969,785		15,080,634		151.3	%	Distribution, selling and administrative expenses	29,903,759		25,092,568		4,811,191		19.2	%
Income from operations		112,439		2,222,363		(2,109,924)		(94.9)	%
Income (loss) from operations										Income (loss) from operations	5,230,545		(4,479,784)		9,710,329		216.8	%
Interest income	Interest income	133		113,930		(113,797)		(99.9)	%	Interest income	—		132		(132)		100.0	%
Interest expenses	Interest expenses	(840,851)		(482,099)		(358,752)		74.4	%	Interest expenses	(709,342)		(324,319)		(385,023)		(118.7)	%
Other income, net	Other income, net	270,452		281,619		(11,167)		(4.0)	%	Other income, net	473,190		264,730		208,460		78.7	%
Change in fair value of interest rate swap contracts	Change in fair value of interest rate swap contracts	(20,022)		—		(20,022)		(100.0)	%	Change in fair value of interest rate swap contracts	(112,256)		(1,264,254)		1,151,998		91.1	%
Income (loss) before income tax provision	Income (loss) before income tax provision	(477,849)		2,135,813		(2,613,662)		(122.4)	%	Income (loss) before income tax provision	4,882,137		(5,803,495)		10,685,632		184.1	%
Provision (benefit) for income taxes	Provision (benefit) for income taxes	(80,910)		607,142		(688,052)		(113.3)	%	Provision (benefit) for income taxes	1,377,098		(1,489,305)		2,866,403		192.5	%
Net income (loss)	Net income (loss)	(396,939)		1,528,671		(1,925,610)		(126.0)	%	Net income (loss)	3,505,039		(4,314,190)		7,819,229		181.2	%
Less: net income attributable to noncontrolling interests		226,865		181,106		45,759		25.3	%
Less: net income (loss) attributable to non-controlling interests										Less: net income (loss) attributable to non-controlling interests	(91,557)		(255,287)		163,730		64.1	%
Net income (loss) attributable to HF Foods Group Inc.	Net income (loss) attributable to HF Foods Group Inc.	$	(623,804)	$	1,347,565	$	(1,971,369)	(146.3)	%	Net income (loss) attributable to HF Foods Group Inc.	$	3,596,596	$	(4,058,903)	$	7,655,499	188.6	%

Net Revenue

Net revenue was mainly derived from sales to independent restaurants (Chinese/Asian restaurants) and supplemented by a non-core wholesale operations to smaller distributors.

The following table sets forth the breakdown of net revenue:


	For the Three Months Ended June 30,
	2021				2020				Changes
	Amount		%		Amount		%		Amount		%
Net revenue
Sales to independent restaurants	$	187,516,460	96.9	%	$	98,620,662	94.3	%	$	88,895,798	90.1	%
Wholesale	6,029,776		3.1	%	5,939,434		5.7	%	90,342		1.5	%
Total	$	193,546,236	100.0	%	$	104,560,096	100.0	%	$	88,986,140	85.1	%

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Net revenue derived from sales to independent restaurants increased by $88.9 million, or 90.1%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase over the same period last year was primarily a result of return of business volume prompted by easing of COVID related restrictions in 2021, as opposed to the severe impact on sales caused by COVID-19 in the same period last year.

We conduct wholesale operations as a supplemental business to our core food service distribution to restaurants by purchasing full truckloads of product from suppliers and redistributing to smaller distributors. These larger purchases generally help the Company to improve our overall bargaining power with suppliers. Net revenue from wholesale operations for the three months ended June 30, 2021 remained relatively stable with a marginal increase of $0.1 million, or 1.5%, as compared to the same period last year.

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 June 30,						Changes
	2021			2020			Amount			%
Sales to independent restaurants
Net revenue	$	187,516,460		$	98,620,662		$	88,895,798		90.1	%
Cost of revenue	152,284,008			78,415,142			73,868,866			94.2	%
Gross profit	$	35,232,452		$	20,205,520		$	15,026,932		74.4	%
Gross Margin	18.8		%	20.5		%	(1.7)		%

Wholesale
Net revenue	$	6,029,776		$	5,939,434		$	90,342		1.5	%
Cost of revenue	6,127,924			5,532,170			595,754			10.8	%
Gross profit (loss)	$	(98,148)		$	407,264		$	(505,412)		(124.1)	%
Gross Margin	(1.6)		%	6.9		%	(8.5)		%

Total sales
Net revenue	$	193,546,236		$	104,560,096		$	88,986,140		85.1	%
Cost of revenue	158,411,932			83,947,312			74,464,620			88.7	%
Gross profit	$	35,134,304		$	20,612,784		$	14,521,520		70.4	%
Gross Margin	18.2		%	19.7		%	(1.5)		%

Cost of revenue was $158.4 million for the three months ended June 30, 2021, an increase of $74.5 million, or 88.7%, from $83.9 million for the three months ended June 30, 2020. The increase in cost of revenue outpaced the increase in net revenue this period due to food cost inflation experienced in 2021 in general as opposed to same period last year.

Gross profit for the three months ended June 30, 2021 was $35.1 million, an increase of $14.5 million, or 70.4%, from $20.6 million for the three months ended June 30, 2020. The increase consisted of a $15.0 million increase in gross profit from sales to independent restaurants, offset by $0.5 million loss from sale of "soon-to-expired" inventories to some wholesale customers. Excluding the single transaction that generated the loss from "soon-to-expire" inventories, normalized wholesale gross margin is 8.1% for the three months ended June 30, 2021.

Gross margin decreased from 19.7% for the three months ended June 30, 2020 to 18.2% (18.5% normalized for the $0.5 million decrease in gross margin from sale of "soon-to-expire" inventories) for the three months ended June 30, 2021, attributable mainly to higher food cost of about 12% experienced in 2021 in general which were not fully passed on to customers. In addition, gross margin mix is also affected by gradual recovery in lower margin sales to the buffet restaurants that were practically non-existent in the same period last year during the peak of the COVID-19 pandemic closures, a segment of our customers on the West Coast region which typically have higher sales volume but at lower margin.

Distribution, Selling and Administrative Expenses (DSA Expenses)

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DSA Expenses were $29.9 million and $25.1 million for the three months ended June 30, 2021 and 2020, respectively, representing a $4.8 million, or 19.2%, increase despite an increase in sales of 85.1% in the same comparative period. The increase is comprised of 1) $0.5 million (11% of the total increase) from legal cost arising from the legal defense of class action lawsuits and related internal investigations, 2) Salaries and wages increased by $2.3 million (47% of total increase) due to revenue growth, 3) Truck and fuel costs increased by $1.4 million (29% of total increase) again due to revenue growth, and 4) Equipment repairs and rentals in addition to other expenses increased by $0.6 million (13% of total increase) in operational support of sales growth.

Interest Expense

Interest expenses were $0.7 million for the three months ended June 30, 2021, an increase of $0.4 million, or about 118.7%, compared with $0.3 million for the three months ended June 30, 2020. However, interest expense of $0.3 million for the three months ended June 30, 2020 was skewed by a reclassification (reduction) of $0.7 million of unrealized mark-to-market (MTM) derivative loss previously captured under interest expense in prior quarter. Normalized interest expense for the three months ended June 30, 2020 would have been $1.0 million, resulting in an effective $0.3 million decrease for the three months ended June 30, 2021 compared to three months ended June 30, 2020. The effective decrease in interest expense was attributed to lower utilization of the line of credit and decrease in floating interest rate tie to our credit facilities. The Company's floating rate debt decreased by $16.6 million (15.3%) from $108.5 million as of June 30, 2020 to $91.9 million as of June 30, 2021. Correspondingly, the average floating interest rates for the 3 months period ended June 30 also decreased by approximately 0.4% from 2020 to 2021, hence resulting in effective net decrease of about 30%.

Other Income

Other income consists primarily of non-operating income and rental income. Other income was $0.5 million for the three months ended June 30, 2021 and $0.3 million June 30, 2020.

Change in Fair Value of Interest Rate Swap Contracts

Change in fair value of interest rate swap contracts stemmed from mark to market fair value change of three interest rate swap contracts. See Note 8 to our financial statements for additional information.

Income Tax Provision (Benefit)

Provision for income taxes increased by $2.9 million, or 192.5%, from a tax benefit of $1.5 million for the three months ended June 30, 2020 to a tax provision of $1.4 million for the three months ended June 30, 2021, as a result of the increase in income before income tax provision, comparing with a significant loss in the same period of 2020.

Net Income Attributable to Noncontrolling interests

Net income attributable to noncontrolling interests was derived from three subsidiaries with minority ownership outside the Company and decreased by $0.2 million, or 64.1%, from net loss of $0.3 million for the three months ended June 30, 2020 to a net loss of $0.1 million for the three months ended June 30, 2021. The increase was attributed to overall increase in net income attributable to the noncontrolling from all subsidiaries.

Net Income (Loss) Attributable to Our Stockholders

As a result of all analysis above, net income attributable to our stockholders was $3.6 million for the three months ended June 30, 2021, and net loss attributable to our stockholders was $4.1 million for the three months ended June 30, 2020.

EBITDA and 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:

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	For the Three months ended June 30,						Changes
	2021			2020			Amount			%
Net income (loss)	$	3,505,039		$	(4,314,190)		$	7,819,229		181.2	%
Interest expense	709,342			324,319			385,023			118.7	%
Income tax provision (benefit)	1,377,098			(1,489,305)			2,866,403			192.5	%
Depreciation & Amortization	4,259,434			4,335,932			(76,498)			(1.8)	%
EBITDA	9,850,913			(1,143,244)			10,994,157			961.7	%
Unrealized change in fair value of interest rate swap contracts	112,256			1,264,254			(1,151,998)			(91.1)	%
COVID-19 bad debt reserve (recovery)	—			1,886,781			(1,886,781)			(100.0)	%
Non-recurring expenses*	1,957,857			1,405,671			552,186			39.3	%
Adjusted EBITDA	$	11,921,026		$	3,413,462		$	8,507,564		249.2	%
Percentage of revenue	6.2		%	3.3		%	2.9		%	88.7	%

* For the three months ended June 30, 2021, non-recurring expenses comprised $2.0 million for legal fees related to the defense of class action lawsuits and an internal investigation stemming from the lawsuits (see Note 16 to our financial statements for additional information.).

Adjusted EBITDA was $11.9 million for the three months ended June 30, 2021, an increase of $8.5 million, or 249.2%, compared to $3.4 million for the three months ended June 30, 2020 resulting primarily from the $7.8 million (181.2%) increase in net income.

There was no COVID-19 bad debt reserve in the three months ended June 30, 2021.

Results of Operations for the Six Months Ended June 30, 2021 and 2020

The following table sets forth a summary of our consolidated results of operations for the six month periods ended June 30, 2021 and 2020. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.


	For the Six Months Ended June 30,				Changes
	2021		2020		Amount		%
Net revenue	$	352,928,064	$	280,363,432	$	72,564,632	25.9	%
Cost of revenue	288,364,169		230,775,603		57,588,566		25.0	%
Gross profit	64,563,895		49,587,829		14,976,066		30.2	%
Distribution, selling and administrative expenses	58,031,254		54,499,161		3,532,093		6.5	%
Income (loss) from operations	6,532,641		(4,911,332)		11,443,973		233.0	%
Interest income	—		263		(263)		(100.0)	%
Interest expenses	(1,451,483)		(2,275,888)		824,405		(36.2)	%
Goodwill impairment loss	—		(338,191,407)		338,191,407		(100.0)	%
Other income, net	912,749		670,380		242,369		36.2	%
Change in fair value of interest rate swap contracts	1,318,636		(1,264,254)		2,582,890		204.3	%
Income (loss) before income tax provision	7,312,543		(345,972,238)		353,284,781		102.1	%
Provision (benefit) for income taxes	1,984,305		(1,971,516)		3,955,821		200.6	%
Net income (loss)	5,328,238		(344,000,722)		349,328,960		101.5	%
Less: net income (loss) attributable to non-controlling interests	208,710		(57,877)		266,587		460.6	%
Net income (loss) attributable to HF Foods Group Inc.	$	5,119,528	$	(343,942,845)	$	349,062,373	101.5	%

Net Revenue

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

The following table sets forth the breakdown of net revenue:

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		For the Three Months Ended September 30,													For the Six Months Ended June 30,
		2020				2019				Change					2021				2020				Changes
		Amount		%		Amount		%		Amount		%			Amount		%		Amount		%		Amount		%
Net revenue	Net revenue													Net revenue
Sales to independent restaurants	Sales to independent restaurants	$	134,167,324	95.9	%	$	70,218,330	92.8	%	$	63,948,994	91.1	%	Sales to independent restaurants	$	340,557,245	96.5	%	$	265,892,978	94.8	%	$	74,664,267	28.1	%
Wholesale	Wholesale	5,751,618		4.1	%	5,480,547		7.2	%	271,071		4.9	%	Wholesale	12,370,819		3.5	%	14,470,454		5.2	%	(2,099,635)		(14.5)	%
Total	Total	$	139,918,942	100.0	%	$	75,698,877	100.0	%	$	64,220,065	84.8	%	Total	$	352,928,064	100.0	%	$	280,363,432	100.0	%	$	72,564,632	25.9	%

Net revenue derived from sales to independent restaurants increased by ~~$64.2~~$74.7 million, or ~~84.8%~~28.1%, ~~during~~for the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 as compared to the ~~three~~six months ended ~~September~~June 30, ~~2019.~~2020. The increase over the same period last year was primarily a result of return of business volume due to easing COVID-19 restrictions in 2021, as opposed to the ~~acquisition~~severe impact on sales caused by COVID-19 in the same period last year. Net revenue for the six months ended June 30, 2020 included the first two months of ~~B&R Global in November 2019, which contributed an aggregate net revenue~~business volume derived prior to the outbreak of ~~$81.5 million comprised of $3.5 million in sales to wholesale customers and $78.0 million in sales to independent restaurants. The increase, however,~~COVID-19 whereas the remaining months till June 30, 2020 was offset by an aggregate decrease in revenue of $17.3 million comprised of $14.0 million in sales to independent restaurants and $3.3 million in sales to wholesale customers from legacy HF. This decrease was a result of lower sales brought aboutimpacted by the ~~COVID-19 pandemic. The negative impact of the COVID-19~~ pandemic, ~~on our restaurant customers led to~~however we have seen a ~~significant decline~~gradual and steady recovery in the net revenue for both HF and B&R Global for the three months ended September 30, 2020. For pro forma financial information, see the section entitled “SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION” below.2021.

We conduct wholesale operations as a supplemental business to our 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.~~distributors. These larger purchases can improve overall bargaining power with suppliers by increasing total order quantity. Net revenue from wholesale for the ~~three~~six months ended ~~September~~June 30, ~~2020 increased~~2021 decreased by ~~$0.3~~$2.1 million, or ~~4.9%~~14.5%, as compared to the ~~three~~six months ended ~~September~~June 30, ~~2019,~~2020, mainly due to ~~the acquisition~~continued impact of ~~B&R Global.~~

~~Cost of Sales~~COVID-19 and ~~Gross Profit~~a $1.1 million special purchase in April 2020 that did not repeat in 2021.

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 September 30,						Changes						For the six months ended June 30,						Changes
		2020			2019			Amount			%			2021			2020			Amount			%
Sales to independent restaurants	Sales to independent restaurants												Sales to independent restaurants
Net revenue	Net revenue	$	134,167,324		$	70,218,330		$	63,948,994		91.1	%	Net revenue	$	340,557,245		$	265,892,978		$	74,664,267		28.1	%
Cost of revenue	Cost of revenue	109,339,945			58,286,433			51,053,512			87.6	%	Cost of revenue	276,225,791			217,144,426			59,081,365			27.2	%
Gross profit	Gross profit	$	24,827,379		$	11,931,897		$	12,895,482		108.1	%	Gross profit	$	64,331,454		$	48,748,552		$	15,582,902		32.0	%
Gross Margin	Gross Margin	18.5		%	17.0		%	1.5		%	8.8	%	Gross Margin	18.9		%	18.3		%	0.6		%

Wholesale	Wholesale												Wholesale
Net revenue	Net revenue	$	5,751,618		$	5,480,547		$	271,071		4.9	%	Net revenue	$	12,370,819		$	14,470,454		$	(2,099,635)		(14.5)	%
Cost of revenue	Cost of revenue	5,416,139			5,220,296			195,843			3.8	%	Cost of revenue	12,138,378			13,631,177			(1,492,799)			(11.0)	%
Gross profit	Gross profit	$	335,479		$	260,251		$	75,228		28.9	%	Gross profit	$	232,441		$	839,277		$	(606,836)		(72.3)	%
Gross Margin	Gross Margin	5.8		%	4.7		%	1.1		%	23.4	%	Gross Margin	1.9		%	5.8		%	(3.9)		%

Total sales	Total sales												Total sales
Net revenue	Net revenue	$	139,918,942		$	75,698,877		$	64,220,065		84.8	%	Net revenue	$	352,928,064		$	280,363,432		$	72,564,632		25.9	%
Cost of revenue	Cost of revenue	114,756,084			63,506,729			51,249,355			80.7	%	Cost of revenue	288,364,169			230,775,603			57,588,566			25.0	%
Gross profit	Gross profit	$	25,162,858		$	12,192,148		$	12,970,710		106.4	%	Gross profit	$	64,563,895		$	49,587,829		$	14,976,066		30.2	%
Gross Margin	Gross Margin	18.0		%	16.1		%	1.9		%	11.8	%	Gross Margin	18.3		%	17.7		%	0.6		%

Cost of revenue was ~~$114.8~~$288.4 million for the ~~three~~six months ended ~~September~~June 30, ~~2020,~~2021, an increase of ~~$51.2~~$57.6 million, or ~~80.7%~~25.0%, from ~~$63.5~~$230.8 million for the ~~three~~six months ended ~~September~~June 30, ~~2019.~~2020. The increase ~~was mainly tied to the incremental sales resulting from the acquisition of B&R Global, with about $64.2 million and $3.3 million~~ in cost of revenue is a direct result of increase in net revenue for ~~sales to~~the period. Inflation impact on newer sourced product cost is also reflected in the increase in cost of revenue.

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independent restaurants and wholesale customers, respectively. This increase was offset by a decrease of $16.3 million cost of revenue due to reduced sales from the legacy HF business segment resulting from the COVID-19 pandemic.

Gross profit for the six months ended June 30, 2021 was ~~$25.2~~$64.6 million, an increase of $15.0 million, or 30.2%, from $49.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2020, an increase of $13.0 million, or 106.4%, from $12.2 million for the three months ended September 30, 2019.~~2020. The increase consisted of a ~~$14.0~~$15.6 million increase in gross profit from ~~the acquisition~~sales to independent restaurants as direct result of ~~B&R Global,~~better customer mix with higher margin, and a$0.6 million decrease ~~of $1.0 million~~ in gross profit from wholesale customers. Normalized for the ~~legacy HF business segment.~~$0.5 million decrease in gross margin from sale of "soon-to-expire" inventories, wholesale gross margin is 6.6%

Gross margin increased from ~~16.1%~~17.7% for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020 to ~~18.0%~~18.3% (18.5% normalized for the ~~three~~$0.5 million decrease in gross margin from sale of "soon-to-expire" inventories) for the six months ended ~~September~~June 30, ~~2020,~~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 ~~from the acquisition of B&R Global,~~ and ~~the significant~~a drop in lower margin 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 and Administrative Expenses (DSA Expenses)~~

DSA Expenses were $25.1 million and $10.0 million for the three months ended September 30, 2020 and 2019, respectively, representing a $15.1 million, or 151.3%, increase. The increase was mainly attributable to the Business Combination with B&R Global, which contributed an aggregate DSA Expenses of $14.9 million comprised of $12.2 million in DSA Expenses incurred during the normal course of business operation and amortization expense of $2.7 million relating to the intangible assets acquired from the Business Combination. The Company also incurred $1.9 million of non-recurring legal expenses associated with the defense of the securities class action lawsuit (See Note 18) and special internal investigation. The overall increase was partially offset by $0.8 million reversal of reserve for doubtful accounts receivable and $0.9 million decrease in DSA Expenses related to legacy HF operations as a result of cost cutting initiatives in response to the outbreak of COVID-19.

~~Interest Expenses~~

Interest expenses primarily stemmed from utiltization of lines of credit, finance leases, and long-term debts. Interest expenses were $0.8 million for the three months ended September 30, 2020, an increase of $0.3 million, or about 74.4%, compared with $0.5 million for the three months ended September 30, 2019. The increase was mainly attributable to the incremental credit utilization as a result of the acquisition of B&R Global and the Realty Acquisition but partially offset by lower interest rates compared to the prevailing interest rate same period last year.

~~Other Income~~

~~Other income consists primarily of non-operating income and rental income. Other income was $0.3 million for the three months ended September 30, 2020 and 2019.~~

~~Change in Fair Value of 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. See Note 10 for more details.~~

~~Income Tax Provision (Benefit)~~

Provision for income taxes decreased by $0.7 million or 113.3%, from $0.6 million for the three months ended September 30, 2019 to a tax benefit of $0.1 million for the three months ended September 30, 2020, as a result of the decrease in income before income tax provision.

~~Net Income Attributable to Noncontrolling interests~~

Net income attributable to noncontrolling interests was derived from four minority owned subsidiaries and increased by $0.05 million, or 25.3%, from net income of $0.18 million for the three months ended September 30, 2019 to a net income of $0.23 million for the three months ended September 30, 2020. The increase was attributed to $0.12 million of net income attributable to noncontrolling interests brought in by B&R Global, and offset by $0.07 million decrease of net income attributable to noncontrolling interest from Kirnland for the three months ended September 30, 2020.

~~Net Income (Loss) Attributable to Our Stockholders~~

~~Table of Contents~~

As a result of all analysis above, net loss attributable to our stockholders was $0.6 million for the three months ended September 30, 2020, and net income attributable to our stockholders was $1.3 million for the three months ended September 30, 2019.

~~EBITDA and 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
September 30, Change
2020 2019 Amount %
Net income (loss) $ (396,939) $ 1,528,671 $ (1,925,610) (126.0) %
Interest expenses 840,851 482,099 358,752 74.4 %
Income tax provision (80,910) 607,142 (688,052) (113.3) %
Depreciation & Amortization 4,474,892 738,904 3,735,988 505.6 %
EBITDA 4,837,894 3,356,816 1,481,078 44.1 %
Change in fair value of interest rate swap contracts 20,022 — 20,022 100.0 %
COVID-19 bad debt reserve recovery (750,945) — (750,945) 100.0 %
Non-recurring (income) expenses* 1,866,415 (625,000) 2,491,415 (398.6) %
Adjusted EBITDA $ 5,973,386 $ 2,731,816 $ 3,241,570 118.7 %
Percentage of revenue 4.3 % 3.6 % 0.7 % 19.4 %

* For the three months ended September 30, 2019, non-recurring expenses represented an expense adjustment previously accrued for potential loss contingency relating to a negligence claim for damages. The claim was subsequently settled in November 2019 in the amount of $0.4 million. For the three months ended September 30, 2020, non-recurring expenses comprised of $1.9 million for legal fees related to the defense of class action lawsuit and internal investigation stemming from the lawsuit (see Note 18 for additional information).

Adjusted EBITDA was $6.0 million for the three months ended September 30, 2020, an increase of $3.2 million, or 118.7%, compared to $2.7 million for the three months ended September 30, 2019, attributed primarily to the recent acquisitions of B&R Global and BRGR Subsidiaries, partially offset by the negative impact of COVID-19 to business operations, legal defense of class action lawsuit and associated internal investigation, and change in fair value of interest rates swap contracts.

Recent acquisitions of B&R Global and BRGR Subsidiaries provided for a $3.7 million increase in depreciation and amortization from intangible and fixed assets and $0.4 million increase in interest expenses.

The ongoing COVID-19 pandemic continues to suppress business volume that resulted in a $1.9 million decrease in net income, and consequently $0.7 million decrease in income tax provision. The special reserve for doubtful accounts receivable related to COVID-19 saw a recovery of $0.8 million due to Company's effort in collection.

The upswing in non-recurring income and expenses category should be viewed in two separate components - income and expenses. 2019's balance represented a $0.6 million income while 2020's balance consisted of $1.9 million of expenses associated with the legal defense of the class action lawsuit and related internal investigation, resulting in a net movement of $2.5 million.

~~Results of Operations for the Nine Months Ended September 30, 2020 and 2019~~

The following table sets forth a summary of our consolidated results of operations for the nine months ended September 30, 2020 and 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

~~Table of Contents~~

For the Nine Months Ended September 30, Changes
2020 2019 Amount %
Net revenue $ 420,282,374 $ 225,218,105 $ 195,064,269 86.6 %
Cost of revenue 345,531,687 187,806,948 157,724,739 84.0 %
Gross profit 74,750,687 37,411,157 37,339,530 99.8 %
Distribution, selling and administrative expenses 79,549,580 31,428,998 48,120,582 153.1 %
Income (loss) from operations (4,798,893) 5,982,159 (10,781,052) (180.2) %
Interest income 396 418,397 (418,001) (99.9) %
Interest expenses (3,116,739) (1,207,217) (1,909,522) 158.2 %
Goodwill impairment loss (338,191,407) — (338,191,407) (100.0) %
Other income, net 940,832 905,149 35,683 3.9 %
Change in fair value of interest rate swap contracts (1,284,276) — (1,284,276) (100.0) %
Income (loss) before income tax provision (346,450,087) 6,098,488 (352,548,575) (5,780.9) %
Provision (benefit) for income taxes (2,052,426) 1,715,532 (3,767,958) (219.6) %
Net income (loss) (344,397,661) 4,382,956 (348,780,617) (7,957.7) %
Less: net income attributable to noncontrolling interests 168,988 339,683 (170,695) (50.3) %
Net income (loss) attributable to HF Foods Group Inc. $ (344,566,649) $ 4,043,273 $ (348,609,922) (8,622.0) %

~~Net Revenue~~

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

~~The following table sets forth the breakdown of net revenue:~~

For the nine months ended September 30,
2020 2019 Change
Amount % Amount % Amount %
Net revenue
Sales to independent restaurants $ 400,060,302 95.2 % $ 210,802,187 93.6 % $ 189,258,115 89.8 %
Wholesale 20,222,072 4.8 % 14,415,918 6.4 % 5,806,154 40.3 %
Total $ 420,282,374 100.0 % $ 225,218,105 100.0 % $ 195,064,269 86.6 %

Net revenue increased by $195.1 million, or 86.6%, during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. This was attributable primarily to the acquisition of B&R Global, which brought in additional $258.3 million of total revenue comprised of $10.1 million in sales to wholesale customers and $248.2 million in sales to independent restaurants. The increase was offset by a decrease in revenue of $63.2 million comprised of $59.0 million in sales to independent restaurants and $4.2 million in sales to wholesale customers of legacy HF due to lower sales resulting from COVID-19 pandemic. The negative impact of the pandemic on our restaurant customers beginning in the last two weeks of March 2020 through the end of September 2020 has led to a significant decline in the net revenue for both HF and B&R Global for the nine months ended September 30, 2020. See the section entitled “SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION” below.

We conduct wholesale operations as a supplemental business to 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. These larger purchases can improve overall bargaining power with suppliers by increasing total order quantity. Net revenue from wholesale for the nine months ended September 30, 2020 increased by $5.8 million, or 40.3%, as compared to the nine months ended September 30, 2019, due to the acquisition of B&R Global.

~~Cost of 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:~~

~~Table of Contents~~

For the nine Months Ended September 30, Changes
2020 2019 Amount %
Sales to independent restaurants
Net revenue $ 400,060,302 $ 210,802,187 $ 189,258,115 89.8 %
Cost of revenue 326,484,372 173,986,745 152,497,627 87.6 %
Gross profit $ 73,575,930 $ 36,815,442 $ 36,760,488 99.9 %
Gross Margin 18.4 % 17.5 % 0.9 % 5.1 %
Wholesale
Net revenue $ 20,222,072 $ 14,415,918 $ 5,806,154 40.3 %
Cost of revenue 19,047,315 13,820,203 5,227,112 37.8 %
Gross profit $ 1,174,757 $ 595,715 $ 579,042 97.2 %
Gross Margin 5.8 % 4.1 % 1.7 % 41.5 %
Total sales
Net revenue $ 420,282,374 $ 225,218,105 $ 195,064,269 86.6 %
Cost of revenue 345,531,687 187,806,948 157,724,739 84.0 %
Gross profit $ 74,750,687 $ 37,411,157 $ 37,339,530 99.8 %
Gross Margin 17.8 % 16.6 % 1.2 % 7.2 %

Cost of revenue was $345.5 million for the nine months ended September 30, 2020, an increase of $157.7 million, or 84.0%, from $187.8 million for the nine months ended September 30, 2019. The increase was mainly attributable to the acquisition of B&R Global, with $206 million and $9.4 million in cost of revenue for sales to independent restaurants and wholesale customers, respectively. This increase was offset by a decrease of $57.7 million cost of revenue from legacy HF due to reduced sales resulting from the COVID-19 pandemic.

Gross profit was $74.8 million for the nine months ended September 30, 2020, an increase of $37.3 million, or 99.8%, from $37.4 million for the nine months ended September 30, 2019. The increase was attributable primarily to B&R Global, with $42.3 million and $0.7 million in gross profit derived from sales to independent restaurants and wholesale customers, respectively. This increase was offset by a decrease $5.7 million gross profit from legacy HF due to reduced sales resulting from the COVID-19 pandemic.

Gross margin increased from 16.6% for the nine months ended September 30, 2019 to 17.8% for the nine months ended September 30, 2020, attributable mainly to margin increase in the second and third quarter of 2020 due to two primary factors: (1) elimination of lower margin sales to the buffet restaurants still 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 a lower ~~margin; and (2) sell-through of existing lower cost inventories at a~~ ~~higher gross margin in the second and third quarter of 2020 in line with the general increase in food prices.~~margin.

Distribution, Selling and Administrative Expenses (DSA Expenses)

~~Distribution, selling~~DSA Expenses were and ~~administrative expenses were $79.5 million and $31.4~~$54.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, representing a ~~$48.1~~$3.5 million, or ~~153.1%~~6.5%, ~~increase.~~increase despite an increase in sales of 25.9% in the same comparative period. The increase ~~was mainly attributable~~is primarily due to ~~the Business Combination with B&R Global, which contributed~~ an ~~aggregate cost of $48.6 million comprised of $40.4~~additional $3.5 million in ~~distribution, selling and administrative expenses, and the amortization expense of $8.2 million relating to the intangible assets acquired from the Business Combination, $3.3 million of~~ non-recurring legal expenses ~~associated with~~connected to the ~~defense of the securities class action lawsuit (See Note 18)~~ongoing internal and special internal investigation, and $1.1 million attributed to special accounts receivable reserve accrual. The overall increase was offset by a decrease of $4.8 million cost reduction in deliveries charges as a result of the outbreak of COVID-19.SEC investigation.

Interest Expense

Interest ~~expense are primarily generated from utilization of lines of credit, capital leases, and long-term debt. Interest~~ expenses ~~was $3.1~~were $1.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020, an increase~~2021, a decrease of ~~$1.9~~$0.8 million, or ~~158.2%~~about 36.2%, compared with ~~$1.2~~$2.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~increase~~decrease in interest expense was ~~mainly attributable~~attributed to ~~increased lines~~lower utilization of ~~credit~~

~~Table~~the line of ~~Contents~~

~~usage after~~credit and decrease in actual interest rate due to the ~~business combination with B&R Global and additional long-term~~floating rate nature of some of our credit facilities. The Company's floating rate debt ~~with B&R Realty Subsidiaries, with total~~decreased $16.6 million (15.3%) from $108.5 million as of June 30, 2020 to $91.9 million as of June 30, 2021. Average floating interest ~~expenses of $1.8 million~~rates for the ~~nine~~six months period ended ~~September~~June 30 ~~2020.~~ also decreased by approximately 0.97% from 2020 to 2021, hence further contributing to lower interest expense in this period.

Goodwill Impairment Loss

Goodwill impairment loss was $338.2 million for the ~~nine~~six months ended ~~September~~June 30, 2020 and nil for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2021. See Note 97 to our financial statements for additional information.

Other Income

Other income consists primarily of non-operating income and rental income. Other income was ~~$0.94~~$0.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020, an increase of $0.03 million, or 3.9%, compared with $0.91~~2021 and $0.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

Change in Fair Value of Interest Rate Swap Contracts

Change in fair value of interest rate swap contracts stemmed from mark to market fair value ~~change~~unrealized gain of ~~four~~$0.6 million in three interest rate swap ~~contracts.~~contracts and $0.7 million realized gain on the termination of JPM IRS contract. See ~~note 10~~Note 8 to our financial statements for ~~more detail.~~additional information.

Income Tax Provision (Benefit)

Provision for income taxes ~~decreased~~increased by ~~$3.8~~$4.0 million, or ~~219.6%~~200.6%, from ~~$1.7 million for the nine months ended September 30, 2019 to~~ a tax benefit of ~~$2.1~~$2.0 million for the ~~nine~~six months ended ~~September~~June 30, 2020 to a tax provision of $2.0 million for the six months ended June 30, 2021, as a result of the ~~decrease~~increase in income before income ~~taxes in the nine months ended September 30, 2020.~~tax provision.

Net Income Attributable to Noncontrolling interests

Net income attributable to ~~noncontrolling~~non-controlling interests was derived from ~~four~~three subsidiaries with minority ~~owned subsidiaries~~ownership outside the Company and ~~decreased~~increased by ~~$0.17~~$0.3 million, or ~~50.3%~~460.6%, from ~~0.34~~net loss of $0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 to ~~$0.17~~a net income of $0.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease~~increase was ~~mainly due~~attributed to ~~$0.15 million decrease of~~increase in net income attributable to noncontrolling interest from Kirnland for the ~~three~~six months ended ~~September~~June 30, ~~2020.~~2021.

Net Income (Loss) Attributable to Our Stockholders

Table of Contents

As a result of all analysis above, net ~~loss attributable to our stockholders was $344.6 million and net~~ income attributable to our stockholders was ~~$4.0~~$5.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019 and 2020, respectively.~~2021, versus a net loss attributable to our stockholders of $343.9 million for the six months ended June 30, 2020.

EBITDA and 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 Nine Months Ended September 30, Changes
2020 2019 Amount %
Net income (loss) $ (344,397,661) $ 4,382,956 $ (348,780,617) (7,957.7) %
Interest expenses 3,116,739 1,207,217 1,909,522 158.2 %
Income tax provision (2,052,426) 1,715,532 (3,767,958) (219.6) %
Depreciation & Amortization 13,184,904 2,173,723 11,011,181 506.6 %
EBITDA (330,148,444) 9,479,428 (339,627,872) (3,582.8) %
Goodwill and asset impairment charges 338,191,407 — 338,191,407 100.0 %
Change in fair value of interest rate swap contracts 1,284,276 — 1,284,276 100.0 %
COVID-19 bad debt reserve 1,135,836 — 1,135,836 100.0 %
Non-recurring expenses* 3,272,086 375,000 2,897,086 772.6 %
Adjusted EBITDA $ 13,735,161 $ 9,854,428 $ 3,880,733 39.4 %
Percentage of revenue 3.3 % 4.4 % (1.1) % (25.0) %

~~Table of Contents~~


	For the Six Months Ended June 30,						Changes
	2021			2020			Amount			%
Net income (loss)	$	5,328,238		$	(344,000,722)		$	349,328,960		101.5	%
Interest expense	1,451,483			2,275,888			(824,405)			(36.2)	%
Income tax provision (benefit)	1,984,305			(1,971,516)			3,955,821			200.6	%
Depreciation & Amortization	8,557,554			8,710,012			(152,458)			(1.8)	%
EBITDA	17,321,580			(334,986,338)			352,307,918			(105.2)	%
Goodwill impairment loss	—			338,191,407			(338,191,407)			100.0	%
Unrealized Change in fair value of interest rate swap contracts	(601,836)			1,264,254			(1,866,090)			100.0	%
Realized gain on termination of interest rate swap contract	(716,800)			—			(716,800)			—	%
COVID-19 bad debt reserve (recovery)	(178,250)			1,886,781			(2,065,031)			100.0	%
Non-recurring expenses*	4,970,477			1,405,671			3,564,806			253.6	%
Adjusted EBITDA	$	20,795,171		$	7,761,775		$	13,033,396		167.9	%
Percentage of revenue	5.9		%	2.8		%	3.1		%	112.8	%

* For the ~~nine~~six months ended ~~September~~June 30, 2019, non-recurring expenses represented a non-recurring expense accrued for potential loss contingency relating to negligence claim(s) for damages. This claim was settled in November 2019 in the amount of $0.4 million. For the nine months ended September 30, 2020,2021, non-recurring expenses comprised of ~~$3.3~~$5.0 million offor legal ~~fee~~fees related to the defense of ~~the~~ class action ~~lawsuit~~lawsuits and an internal investigation stemming from the ~~lawsuit~~lawsuits (see Note 1816 to our financial statements for additional ~~information)~~information.).

Adjusted EBITDA was ~~$13.7~~$20.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, an increase of ~~39.4%,~~$13.0 million, or ~~$3.9 million~~ 167.9%, compared to ~~$9.9~~$7.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019. Primary contributors for~~2020. Goodwill impairment loss was a one time transaction affecting 2020 but not 2021. Excluding the ~~movement~~$338.2 million of goodwill impairment loss, the increase in ~~Adjusted EBITDA are COVID-19 impact~~net income was $11.1 million which was primarily attributed to ~~business, acquisition~~a 0.61% gross margin improvement, income tax provision increased $4.0 million as result of ~~B&R Global~~increased income before tax and ~~BRGR subsidiaries,~~an additional $3.5 million add back of non-recurring expenses related to the legal defense of class action ~~lawsuit~~lawsuits and an associated internal investigation, ~~and~~while being offset by a $0.6 million million subtraction of change in fair value ~~change in~~of interest rate swap ~~contracts.~~contracts and $0.7 million subtraction of realized gain on the termination of interest rate swap contract .

Business restriction stemming out of COVID-19, which started in late March of 2020 and is still ongoing, caused severe detrimental impact to our customers and consequently our business volumes, resulting in $10.6 million decrease in net income (excluding goodwill impairment loss), $3.8 million decrease in income tax provision due to the Company reflecting an income tax benefit as a result of lower taxable income and higher prior period estimated payments, increase of $1.1 million inThe special reserve for doubtful accounts receivable related to ~~COVID-19.(see~~ COVID-19 ~~impact section~~saw a recovery of $0.2 million due to Company's effort in ~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of HF Foods Group Inc.)~~collection.

The Company's recent acquisitions of B&R Global and BRGR subsidiaries resulted in $11.0 million increase in depreciation and amortization from intangible and fixed assets, and $1.9 million in interest expenses.

There is a $2.9 million increase in non-recurring expenses associated with the legal defense of the class action lawsuit and related internal investigation. Change in fair value of interest rate swaps resulted in a $1.3 million add back to the adjusted EBITDA.

~~Supplemental Unaudited Pro Forma Combined Financial Information~~

As described above, the Company completed the Business Combination with B&R Global on November 4, 2019. For comparative purposes, the Company is presenting supplemental unaudited pro forma combined statements of operations for the three and nine month periods ended September 30, 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.

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.

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~~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:

For the Three Months Ended September 30, 2019
HF B&R
Global Adjustments Pro Forma
Combined
Net revenue $ 75,698,877 $ 129,366,424 $ — $ 205,065,301
Net income $ 1,528,671 $ 3,125,125 $ (2,722,575) (1) $ 1,931,221
Net income attributable to HF Foods Group Inc. $ 1,347,565 $ 2,906,213 $ (2,722,575) $ 1,531,203

~~(1)Includes intangibles asset amortization expense of $2,722,575 for the three months ended September 30, 2019.~~

For the Nine Months Ended September 30, 2019
HF B&R
Global Adjustments Pro Forma
Combined
Net revenue $ 225,218,105 $ 396,836,014 $ — $ 622,054,119
Net income $ 4,382,956 $ 10,300,784 $ (8,167,725) (1) $ 6,516,015
Net income attributable to HF Foods Group Inc. $ 4,043,273 $ 9,704,689 $ (8,167,725) $ 5,580,237

~~(1)Includes intangibles asset amortization expense of $8,167,725 for the nine months ended September 30, 2019.~~

Liquidity and Capital Resources

As of September 30, 2020, we had cash of approximately $9.2 million. We have funded working capital and other capital requirements primarily by equity 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 to service debts.

On April 18, 2019, we and our operating subsidiaries Han Feng, NSF and Kirnland entered into a credit agreement with East West Bank, which replaced our prior credit agreement with East West Bank. The credit agreement provided 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 in connection with the merger with B&R, as described below.

On November 4, 2019, we entered into the First Amended Credit Agreement with JP Morgan. The First Amended Credit Agreement provided for a $100 million asset-secured revolving credit facility maturing on November 4, 2022, and 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 the 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, 2022, and 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 First Amended Credit Agreement.~~

As of ~~January 17, 2020, the existing balance~~June 30, 2021, we had cash of ~~revolving debt under the First Amended Credit Agreement in the amount of $41.2~~approximately $13.4 million ~~was rolled over~~ and ~~an additional $18.7 million available~~access to ~~the Company under the Facility was drawn. The Company used the $75.6~~approximately $80.9 million in ~~mortgage-secured term loans and $18.7~~additional funds through our $100 million ~~drawn from~~line of credit, subject to a borrowing base calculation. The strategic cost management actions undertaken following the ~~revolving credit facility to fund~~outbreak of COVID-19 in ~~part the acquisition~~late March 2020 resulted in an overall increase of the ~~B&R Realty Subsidiaries, as noted above. Borrowings under the Second Amended Credit Agreement may be used for, among other things,~~available line of credit over time. We have funded working capital and other ~~general corporate purposes of the Company~~capital requirements primarily by cash flow from operations, and its subsidiaries (including permitted acquisitions). As of September 30, 2020, $98.7 million was outstanding under the Second Amended Credit Agreement. 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 ofbank 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 to service debts.

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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, 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 food service distribution industry, the expected collectability of accounts receivable and the realization of the inventories as of ~~September~~June 30, ~~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.~~in the next 12 months. However, there is no assurance that management will be successful in our plan. There are a number of factors that could potentially arise which might result in shortfalls ~~to what is~~in anticipated cash flow, such as the demand for our products, economic conditions, government intervention related to COVID-19, competitive pricing in the 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 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 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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
		2020		2019			2021		2020
Net cash provided by operating activities	Net cash provided by operating activities	$	44,311,146	$	442,624	Net cash provided by operating activities	$	13,270,460	$	32,417,651
Net cash used in investing activities	Net cash used in investing activities	(94,253,697)		(4,798,693)		Net cash used in investing activities	(5,594,900)		(94,123,153)
Net cash provided by financing activities		44,584,579		5,670,080
Net increase (decrease) in cash and cash equivalents		$	(5,357,972)	$	1,314,011
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	(3,830,621)		55,732,235
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	$	3,844,939	$	(5,973,267)

Operating Activities

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 ~~$44.3~~$13.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020, an increase~~2021, a decrease of ~~$43.9~~$19.1 million, or ~~9911.0%~~59.1%, compared to net cash provided by operating activities of ~~$0.4~~$32.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~increase~~decrease was ~~primarily~~ the result of ~~newly acquired B&R Global with total net cash provided by operating activities of $22.3 million. The remaining increase is a combined result of an increase of $27.9 million from~~ changes in working capital items mainly resulting from ~~changes~~significant decreases in accounts receivable which were due to improved cash collection efforts in 2020 along with increased sales in 2021 resulting in higher accounts receivable balance as of June 30, 2021 compared to June 30, 2020. Inventory decreased significantly due to lower inventory purchases in 2020 as a result of the pandemic while inventory increased in 2021 due to increased inventory purchases resulting in higher inventory balances as of June 30, 2021 compared to June 30, 2020. Additionally decrease was due to decreases in other current assets, other long term assets, advance from customers - related party, goodwill impairment loss and loss from derivative instrument which were offset by an increase in net income, depreciation and amortization expense, gain from disposal of equipment, loss from derivative instruments, accounts receivable, inventories, other current assets, income tax recoverable, accrued expenses, income tax payable and depreciation and amortization expense which were offset by a decrease of $6.3 million in net income,inventory, advances to suppliers – related parties,deferred tax benefit, ~~other long term assets, accounts payable,~~ and ~~accounts payable - related parties.~~accrued expenses.

Investing Activities

Net cash used in investing activities was approximately ~~$94.3~~$5.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020, an increase~~2021, a decrease of ~~89.5~~$88.5 million, or ~~1,864.2%~~94.1%, compared to ~~4.8~~$94.1 million net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~increase~~decrease was primarily due to payment made to acquire B&R Realty Subsidiaries of ~~$94.0 million.~~$94.1 million in prior year. The ~~increase~~decrease was offset by ~~a combined result of decreased~~ cash paid for the purchase of ~~property and equipment~~noncontrolling interest of ~~$4.9~~$5.0 million ~~decrease~~ in ~~cash received from notes receivable to third parties and related parties of $0.3 million, offset by a decrease in cash proceeds from the disposal of equipment of $0.1 million.~~2021.

Financing Activities

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Net cash ~~provided by~~used in financing activities was approximately ~~$44.6~~$3.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020, an increase~~2021, a change of ~~$38.9~~$59.6 million, or ~~686.3%~~106.9%, compared with ~~$5.7~~$55.7 million of net cash provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~increase~~change was ~~due~~caused primarily asby a ~~result of the newly acquired~~non-recurring $75.6 million term loan proceed in ~~mortgage-backed term loans to fund~~prior year for the B&R Realty ~~Acquisition. The~~Acquisition and $1.5 million increase ~~was~~in repayment of notes payable - related parties. These changes were offset by a ~~net~~$7.5 million decrease ~~of $19.7 million utilization of lines of credit, an increased repayment of $1.5 million of long term debt, a decrease in proceeds of $6.1 million of long term debt, and an increase of $9.4 million~~ in repayment of bank ~~overdrafts.~~overdraft and $10.1 million increase in proceeds from line of credit.

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Commitments and Contractual Obligations

The following table presents the Company’s material contractual obligations as of ~~September~~June 30, ~~2020:~~2021:

Contractual Obligations Total Less than 1
year 1-3 years 3-5 years More than 5
years
Line of credit $ 25,208,939 $ 25,208,939 $ — $ — $ —
Long-term debt 95,108,684 7,736,016 10,007,154 7,463,887 69,901,627
Promissory note payable - related party 7,000,000 — — — 7,000,000
Finance lease obligations 1,330,625 370,309 666,882 293,434 —
Operating lease obligations 784,314 315,505 468,809 — —
Total $ 129,432,562 $ 33,630,769 $ 11,142,845 $ 7,757,321 $ 76,901,627

On July 2, 2018, AnHeart Inc., a wholly-owned subsidiary of HF Holding ("AnHeart"), entered into two separate leases for two properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively. The leases were on triple net basis, meaning AnHeart is required to pay all costs associated with the properties, including taxes, insurance, utilities, maintenance and repairs. HF Holding provided a guaranty for all rent and related costs of the leases, including costs associated with the planned construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue. 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, HF Holding delivered 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 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 divest all of 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 divestment of ownership did 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 executed a security agreement which grants us a security interest in AnHeart assets and contains a covenant to assign the leases to HF Group if AnHeart defaults on the original lease agreements. Further, 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.


Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Line of credit	$	19,111,822	$	—	$	19,111,822	$	—	$	—
Long-term debt	90,946,565		5,804,100		9,334,933		8,101,945		67,705,587
Promissory note payable - related party	5,500,000		—		—		—		5,500,000
Finance lease obligations	1,029,992		336,501		596,995		96,496		—
Operating lease obligations	22,291,554		1,011,964		2,103,662		1,779,573		17,396,355
Total	$	138,879,933	$	7,152,565	$	31,147,412	$	9,978,014	$	90,601,942

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.

Critical Accounting Policies and Estimates

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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 and nine~~six month ~~periods~~period ended ~~September~~June 30, ~~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 proportion of fixed and floating rate debts and may employ interest rate swaps as a tool from time to time to achieve that position.

As of ~~September~~June 30, ~~2020,~~2021, our aggregate floating rate debt’s outstanding principal balance was ~~$100.8~~$92.2 million, or 79.6% of total debt, consisting of long-term debt and revolving ~~lines~~line of credit (See Notes 119, 10 and ~~12)~~14). Given the historically low interest rate environment triggered by the COVID-19 pandemic, the Company adopted a more active cash flow hedge strategy to capitalize on the multi-year low interest rate and to mitigate potential rate increases through an interest rate swap contract executed with JP Morgan Chase Bank on June 24, 2020 (the "JPM IRS"). The JPM IRS contract effectively locked in the Company's future interest rate expense at aggregate rate of 2.288% per annum on the prevailing balance of the above-mentioned term loan and 1.788% per annum for a portion of the revolving line of credit up to an aggregate amount of $80 million during the contract period (see Note 11 and 12). As of September 30, 2020, approximately 79.3% of our floating rate debts have been effectively hedged for the period from June 30, 2021 to June 30, 2025, inclusive (See Note 10). The remaining 20.7% of our floatingFloating rate debt bore interest ~~rates~~rate based on the floating 1-month LIBOR plus the bank spreads. The remaining 20.4% of our debt are on fixed rate. A hypothetical 1% fluctuation in the applicable rate would cause the interest expense on our ~~unhedged~~ floating rate debt, ~~approximately $21.1 million as of September 30, 2020,~~ to change by approximately ~~$0.2~~$0.9 million per year.

Fuel Price Risk

We are also exposed to fluctuations risk in the price and availability of diesel fuel. We require significant quantities of diesel fuel for our vehicle fleet, and the inbound delivery of the products we sell is also 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 lower than in~~increased 36.5% 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 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 could increase our cost of goods sold and operating costs to deliver products to our customers.

The Company does not actively hedge the price fluctuation of diesel fuel in general. Instead, we seek to minimize fuel cost risk through delivery route optimization and improving fleet 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 weaknesses and control deficiencies in our internal control over financial reporting. The weaknesses identified include: (1) The Company has limited in-house accounting personnel with sufficient U.S. GAAP and SEC reporting experience related to complex transactions; and (2) the Company 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 of 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 ~~September~~June 30, ~~2020.~~2021. Notwithstanding the 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.

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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 weaknesses and control deficiencies in our internal control over financial reporting. The material weaknesses identified includes: (1) the Company has limited in-house accounting personnel with sufficient U.S. GAAP and SEC reporting experiences, especially related to complex transactions and new accounting pronouncements; and (2) the Company 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 of various business processes.

In order to address and resolve the foregoing material weakness, ~~during the quarter ended September 30, 2020,~~ we ~~continued~~have begun to ~~improve on our U.S. GAAP and SEC reporting knowledge relating to complex transactions and added additional resources both in terms of systems and manpower~~implement measures designed to improve our internal control over financial ~~reporting.~~reporting, including hiring additional financial personnel with requisite training and experience in the preparation of financial statements in compliance with applicable SEC requirements, formalizing our processes to generate documentation sufficient to support customer orders and purchase orders, and implementing controls to obtain documentation evidencing customer agreements to transaction amounts and account balances. System integration on accounting and procurement software between HF and B&R Global were substantially completed in March 2021. Operating on the same system strengthened internal control over financial reporting and IT general control by providing a seamless environment to perform operational and reporting functions.

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 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 weaknesses identified and described above will continue to exist.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

~~A labor~~From time to time, the Company is a party to various lawsuits, claims and ~~employment lawsuit was filed by~~other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a ~~former employee against FUSO, alleging~~claim or potential claim, it ~~failed to provide proper meal~~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 ~~rest breaks, as well as other~~can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. The Company continuously assesses the potential liability related ~~violations. FUSO believes there is no merit~~ to the ~~case~~Company’s pending litigation and ~~vigorously defending against all~~revises its estimates when additional information becomes available. With respect to our outstanding legal matters, we believe that the ~~allegations. Therefore,~~amount or estimable range of reasonably possible loss will not, either individually or in the ~~Company did not accrue any loss contingency for these matters~~aggregate, have a material adverse effect on ~~its~~our business, consolidated financial ~~statements as~~position, results of ~~September 30,~~operations, or cash flows. However, the outcome of litigation is inherently uncertain. Therefore, if one or more of these ordinary-course legal matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period, could be materially adversely affected.

As previously disclosed, an analyst report published in March 2020 suggested certain improprieties in the Company’s operations, many of which later became the subject of allegations in two putative class actions and ~~December 31, 2019.~~

Ontwo derivative actions that were filed on or after March 29, 2020 plaintiff Jesus Mendoza (“Mendoza”) filed a putative shareholder securities class action lawsuit (the Class Action Lawsuit”) in the United States District Court for the Central District of California against the Company, ~~and~~the Company's then current directors, and/or certain of ~~its present and former~~the Company’s then current officers, ~~(collectively, the “Class Action Defendants”) for alleged violations~~alleging violation of ~~Sections 10(b) and 20(a)~~securities laws or breach of ~~the Securities Exchange Act of 1934 styled~~ ~~Mendoza v. HF Foods Group Inc., et al.,~~ ~~Civil Action No. 2:20-CV-2929-ODW-JPR (C.D. Cal.).~~

~~At this stage,~~In addition, the Company is unable to determine whether a future loss will be incurred due to the consolidated Class Action Lawsuit or the Mendoza Derivative Lawsuit, or estimate a range of loss, if any; accordingly, no amounts have been accrued in the Company’s financial statements as of September 30, 2020.

On August 21, 2020, Plaintiff Jim Bishop filed a putative shareholder derivative lawsuit (the “Bishop Lawsuit”) in the United States District Court for the District of Delaware against certain of the Company’s present and former directors and officers, as well as the Company (collectively, the “Bishop Defendants”) styled ~~Jim Bishop v. Zhou Min Ni, et al.~~, Civil Action No. 1:20-cv-01103-RGA (D. Del.). The Bishop Lawsuit complaint alleges claims that are virtually the same as those alleged in the Mendoza II Lawsuit. The Bishop Lawsuit does not quantify any alleged damages.But in addition to attorneys’ fees and costs, Mr. Bishop seeks to recover damages on behalf of the Company for purported financial harm and to have the Court order changes to the Company’s corporate governance. The Bishop Defendants will seek to have the Bishop Lawsuit stayed until such time as the Court has finally resolved the Mendoza Defendants’ anticipated motion to dismiss the securities class action claims in the consolidated Mendoza Lawsuit.

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The Bishop Defendants and the Company dispute and intend to defend vigorously the allegations in the Bishop Lawsuit, assuming it proceeds. On October 20, 2020, Mr. Bishop and the Bishop Defendants filed a Joint Stipulation to Stay Litigation with the Court. In response, the Court entered a docket order on October 21, 2020, indicating that the Bishop Lawsuit could have been brought in the Central District of California where the Mendoza Derivative Lawsuit is pending already, and directing that any party opposing a transfer of the case to the Central District of California should submit a brief in support of that position by November 4, 2020. The Court further directed that the Bishop Defendants do not need to respond to the complaint until the transfer issue is resolved. This case remains in early procedural posture.At this stage, the Company is unable to determine whether a future loss will be incurred due to the Bishop Lawsuit or estimate a range of loss, if any; accordingly, no amounts have been accrued in the Company’s financial statements as of September 30, 2020.

~~The United States Securities and Exchange Commission (“SEC”) has~~SEC initiated a formal, non-public investigation of the Company, and the SEC informally requested, and later issued a ~~request~~subpoena for, ~~a variety of~~ documents and other information. The ~~document request~~subpoena relates to ~~a range of matters including,~~ but is not necessarily limited to the matters identified in the ~~Ponce-Sanchez Lawsuit~~Class Actions. The Special Committee and the ~~Mendoza Derivative Lawsuit. We~~Company are cooperating with the ~~SEC in its investigation.~~

Prior to receiving the document request from the SEC, the Company's board of directors appointed a special committee of independent directors to investigate the the matters identified in the Ponce-Sanchez Lawsuit and the Mendoza Derivative Lawsuit.

SEC. The SEC and ~~independent committee~~the Special Committee investigations are ~~in process and no conclusions~~ongoing. There have been ~~reached.~~no changes to the status of these proceedings as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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

The Company has also instituted structural changes including the retirement of the former Co-Chief Executive Officer and Chairman of the Board. The Company now has an independent Chairman of the Board. In addition, the Company recently hired an in-house General Counsel and Chief Compliance Officer, who will report to the Chief Executive Officer and the Chairman of the Board. (See Note 17, Subsequent Events)

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.

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

~~On September 30, 2019, HF Holding and Han Feng (the “Sellers”), two wholly-owned subsidiaries~~There have been no changes with respect to unregistered sales of ~~the Company, entered into and closed a Loan Purchase and Sale Agreement (the “Loan Sale Agreement”) with Zhou Min Ni, the Chairman, Chief Executive Officer, and a principal stockholder of the Company.~~

The Loan Sale Agreement provided for the nonrecourse transfer and assignment to Mr. Ni of all of the Sellers’ rights and interests, and assumption by Mr. Ni of all of the Sellers’ obligations, under four unsecured loans, with an aggregate balance of principal and accrued interest of $12 million, extended by the Sellers to companies in which Mr. Ni or his immediate family members had or have an ownership or other pecuniary interest (the “~~Related Party Loans~~”), most of which were established while HF Holding. was a privately-held business. Under the terms of the Loan Sale Agreement, Mr. Ni acquired the Related Party Loans without warranty or recourse and assumed all risks of non-collection.

~~The Related Party Loans were assigned to Mr. Ni in consideration of the transfer to HF Holding of up to 1,203,803 shares (the “Shares~~”) of common stock of the Company owned by Mr. Ni. The amount of consideration was determined by valuing the Related Party Loans at their aggregate balance of principal and accrued interest, without discount for any issues of collectability, and by valuing the Shares within a range of per-share price approximating the typical market value of the Company’s common stockequity securities as ~~reported on the Nasdaq Stock Market at two junctures~~previously disclosed in the Company’s history: (i) prior to the time of the Company’s agreement to enter into the merger with HF Holding in March 2018 (deemed for purposes of the Loan Sale Agreement to be $10.00 per share); and (ii) prior to the time of the announcement in June 2019 of the Company’s agreement to merge with B&R Global(deemed for purposes of the Loan Sale Agreement to be $13.30 per share). 298,688 of the Shares (the “~~Escrow Shares~~”) were placed in an escrow account for a period of one year; the remaining 905,115 Shares were irrevocably transferred to the Company in payment of the minimum purchase price for the Related Party Loans. In the event that the volume weighted average closing price of the Company’s common stock for the 250-trading-day period immediately preceding the expiration of the escrow period (the “~~250-day VWAP”) equaled or exceeded $13.30 per share, then all of the~~

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Escrow Shares were to be returned to Mr. Ni. In the event that the 250-day VWAP was equal to or less than 10.00 per share, then all of the Escrow Shares were to be transferred and released to the Company for cancellation. In the event that the 250-day VWAP was less than the $13.30 per share but greater than $10.00 per share, then a portion of the Escrow Shares, calculated on a sliding scale, were to be transferred and released to the Company for cancellation and the balance were to be returned to Mr. Ni.

On October 9, 2020, in accordance with the terms of the Loan Sale Agreement, the Sellers and Mr. Ni agreed that the 250-day VWAP was $10.59, and that, therefore, 231,685 of the Escrow Shares would be transferred to HF Holding and that the remaining 67,003 Escrow Shares would be returned to Mr. Ni. The 231,685 Escrow Shares transferred to HF Holding were subsequently canceled.Previous Report.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

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


Exhibit No.						Description
~~10.1~~						~~Letter Agreement with Kong Hian Victor Lee dated December 6, 2019~~31.1

~~10.2~~						~~Amendment to Letter Agreement with Kong Hian Victor Lee dated October 1, 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)

6150

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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~~Xiao Mou Zhang
			~~Zhou Min Ni~~Xiao Mou Zhang Chief Executive Officer ~~(Principal executive officer)~~

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

Date: ~~November~~August 9, ~~2020~~2021

6251


TOTAL SHAREHOLDERS’ EQUITY	263,134,071		607,656,732
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	489,889,014	$	802,843,794


	For the three months ended September 30, 2019			For the nine months ended September 30, 2019
Pro forma net revenue	$	205,065,301		$	622,054,119
Pro forma net income	$	1,931,220	(1)	$	6,516,015	(1)
Pro forma net income attributable to HF Group	$	1,531,202	(1)	$	5,580,237	(1)

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

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


	HF		B&R Global		Total
Balance at December 31, 2019	$	0	$	406,703,348	$	406,703,348
Impairment loss	0		(338,191,407)		(338,191,407)
Balance at September 30, 2020	$	0	$	68,511,941	$	68,511,941


Bank name	Maturity	Interest rate as of September 30, 2020				As of September 30, 2020		As of December 31, 2019
East West Bank – (a)	August 2027 - September 2029	3.83	%	—	4.25%	$	6,866,540	$	6,989,016
Capital Bank – (b)	October 2027	3.85%				4,822,768		4,967,075
Bank of America – (c)	April 2021 - December 2029	3.73	%	—	5.51%	6,138,879		4,263,663
JP Morgan (d)	February 2023 – January 2030	2.03	%	—	2.16%	75,630,548		2,702,371
BMO Harris Bank – (e)	April 2022 - January 2024	5.87	%	—	5.99%	320,394		508,564
Peoples United Bank – (e)	December 2022-January 2023	6.69	%	—	7.53%	805,964		1,114,993
Other finance companies – (e)	October 2020 – March 2024	3.90	%	—	6.14%	523,591		716,315
Total debt						95,108,684		21,261,997
Less: current portion						(7,736,016)		(2,726,981)
Long-term debt						$	87,372,668	$	18,535,016


Name of Related Party		Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
(a)	Best Food Services, LLC	$	1,231,399	$	0
(b)	Eagle Food Service, LLC	26,400		24,278
(c)	Eastern Fresh NJ, LLC	1,185,398		1,504,118
(d)	Enson Seafood GA, Inc. (formerly “GA-GW Seafood, Inc.”)	0		79,089
(e)	First Choice Seafood, Inc	18,522		717,139
(f)	Fujian RongFeng Plastic Co., Ltd.	753,997		1,337,292
(g)	Han Feng (Fujian) Information Technology Co., Ltd	556,238		1,370,461
(h)	N&F Logistic, Inc.	0		344,435
(i)	North Carolina Good Taste Noodle, Inc.	1,039,162		1,127,902
(j)	Ocean Pacific Seafood Group Inc.	150,035		77,957
(k)	Revolution Industries, LLC	655,789		788,043
(l)	UGO USA, Inc.	208,333		191,944
(m)	Union Foods, LLC	0		941,057
	Others	129,741		8,655
Total		$	5,955,014	$	8,512,370


	For the Three Months Ended September 30, 2019
	HF		B&R Global		Adjustments			Pro Forma Combined
Net revenue	$	75,698,877	$	129,366,424	$	—		$	205,065,301
Net income	$	1,528,671	$	3,125,125	$	(2,722,575)	(1)	$	1,931,221
Net income attributable to HF Foods Group Inc.	$	1,347,565	$	2,906,213	$	(2,722,575)		$	1,531,203