NOTE

- LEASES

January 1, 2019,

the Company adopted Accounting Standards Update (“ASU”)

2016

02.

For all leases that were entered into prior to the effective date of ASC

842,

the Company elected to apply the package of practical expedients. The Company leases office space and warehouses under non-cancelable operating leases, with terms typically ranging from

one

five

years, as well as operating and finance leases for vehicles and delivery trucks, forklifts and computer equipment with various expiration dates through

2021.

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

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

Operating Leases

The components of lease expense were as follows:

	For the Year Ended
	December 31, 2019
Operating lease cost	$	1,601,678

Weighted Average Remaining Lease Term (Months)
Operating leases			51

Weighted Average Discount Rate
Operating leases			4.0	%

Finance Leases

The components of lease expense were as follows:

	For the Year Ended
	December 31, 2019		December 31, 2018
Finance leases cost:
Amortization of right-of-use assets	$	571,130	$	275,163
Interest on lease liabilities		110,274		51,637
Total finance leases cost	$	681,404	$	326,800

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

	For the Year Ended
	December 31, 2019		December 31, 2018

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases		110,274		51,537

Supplemental balance sheet information related to leases was as follows:

	December 31 2019			December 31, 2018

Finance Leases
Property and equipment, at cost	$	2,793,731		$	1,484,911
Accumulated depreciation		(1,293,130	)		(810,753	)
Property and equipment, net	$	1,500,601		$	674,158

Weighted Average Remaining Lease Term (Months)
Finance leases		54			27

Weighted Average Discount Rate
Finance leases		7.51	%		8.05	%

Maturities of lease liabilities were as follows

Twelve months ending December 31,	Operating Leases			Finance Leases
2020	$	4,956,356		$	373,715
2021		4,423,554			362,024
2022		3,860,092			334,223
2023		3,330,372			313,160
2024		2,184,500			227,788
Total Lease Payments		18,754,874			1,610,910
Less Imputed Interest		(1,599,290	)		(277,501	)
Total	$	17,155,584		$	1,333,409

July 2, 2018,

AnHeart entered into

two

separate leases for

two

buildings located in Manhattan, New York, at

273

Fifth Avenue and

275

Fifth Avenue, for

years and

years, respectively, which are net leases, meaning that AnHeart is required to pay all costs associated with the buildings, including utilities, maintenance and repairs. HF Holding provided a guaranty for all rent and related costs of the leases, including costs associated with the construction of a

two

-story structure at

273

Fifth Avenue and rehabilitation of the building at

275

Fifth Avenue.

February 23, 2019,

HF Group executed an agreement to transfer all of its ownership interest in AnHeart to Jianping An, a resident of New York, for a sum of

$20,000.

The transfer of ownership was completed on

May 2, 2019.

However, the transfer of ownership does

not

release HF Holding’s guaranty of AnHeart’s obligations or liabilities under the original lease agreements. Under the terms of the sale to Ms. An, AnHeart executed provided a security interest in all AnHeart assets and a covenant that the Company will be assigned the leases if AnHeart defaults. Further, AnHeart 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.