NOTE

- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. The 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 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 (

) has power to direct the activities that most significantly affect the economic performance of the VIE, and (

) 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

December 31, 2019

and

2018,

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

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

	December 31, 2019		December 31, 2018
Current assets	$	158,184	$	-
Non-current assets		301,803		-
Total assets	$	459,987	$	-
Current liabilities	$	805,666	$	-
Non-current liabilities		69,321		-
Total liabilities	$	874,987	$	-

	For the year ended December 31
	2019		2018
Net revenue	$	420,163	$	-
Net income	$	68,449	$	-

	For the year ended December 31
	2019			2018
Net cash provided by operating activities	$	201,885		$	-
Net cash used in financing activities		(207,159	)		-
Net decrease in cash and cash equivalents	$	(5,274	)	$	-

Noncontrolling Interests

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

As of

December 31, 2019

and

2018,

noncontrolling interest consisted of the following:

Name of Entity	Percentage of Ownership of noncontrolling interest			December 31, 2019		December 31, 2018
Kirnland		33.30	%		1,292,623		1,104,678
OW		32.50	%		1,600,058		-
MS		35.00	%		459,126		-
MIN		39.70	%		896,980		-
Total					4,248,787		1,104,678

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 consolidated financial statements include, but are

not

limited to, allowance for doubtful accounts, useful lives of property and equipment, lease assumptions, impairment of long-lived assets, long-term investments, goodwill, the purchase price allocation and fair value of noncontrolling interests with respect to business combinations, realization of deferred tax assets, and uncertain income tax positions.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of

three

or fewer months to be cash equivalents. As of

December 31, 2019

and

2018,

the Company had

cash equivalents.

Accounts Receivable

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 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

December 31, 2019

and

2018,

the allowances for doubtful accounts were

$623,970

and

$658,104,

respectively.

Inventories

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

December 31, 2019

and

2018,

the valuation allowance was

$16,928

and

nil,

respectively.

Property and Equipment

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)
Buildings and improvements	7	-	39
Machinery and equipment	3	-	15
Motor vehicles	5	-	7

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

Business Combinations

The Company accounts for its business combinations using the purchase method of accounting in accordance with ASC

805

(“ASC

805”

), “

Business Combinations

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

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 income.

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

Goodwill

The Company early adopted ASU

No.

2017

04,

Intangibles - Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment. The standard simplifies the subsequent measurement of goodwill by removing Step

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,

Intangibles — Goodwill and Other

. This guidance provides the option to

first

assess qualitative factors to determine whether it is more likely than

not

that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than

not

that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, the Company measures any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value,

not

to exceed the total amount of goodwill allocated to that reporting unit.

Intangible Assets

Intangible assets are carried at cost and amortized on a straight-line basis over their estimated useful lives. The Company determines the appropriate useful life of its intangible assets by measuring the expected cash flows of acquired assets. The estimated useful lives of intangible assets are as follows:

		Estimated useful lives (years)
Tradenames		10
Customer relationships		20

Long term investments

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

The Company follows ASC

321,

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,

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

323

(“ASC

323”

), “Investments-Equity Method and Joint Ventures”. Under the equity method, the Company initially records its investment at cost and the difference between the cost and the fair value of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill, which is included in the equity method investment on the consolidated balance sheets. The equity method goodwill is

not

subsequently amortized and is

not

tested for impairment under ASC

350.

The Company subsequently adjusts the carrying amount of the investment to recognize the Company’s proportionate share of each equity investee’s net income or loss into earnings after the date of investment. The Company evaluates the equity method investments for impairment under ASC

323.

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

The Company did

not

record any impairment loss on its long term investments as of

December 31, 2019

and

2018.

Impairment of Long-lived Assets other than goodwill

The Company assesses its long-lived assets such as property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset

may

not

be recoverable. Factors which

may

indicate potential impairment include a significant underperformance related to the historical or projected future operating results or a significant negative industry or economic trend. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment, and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair value. The Company did

not

record any impairment loss on its long-lived assets as of

December 31, 2019

and

2018.

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.

January 1, 2018

the Company adopted Accounting Standards Update (“ASU”)

2014

Revenue from Contracts with Customers (FASB ASC Topic

606

) using the modified retrospective method for contracts that were

not

completed as of

January 1, 2018.

The results of applying Topic

606

using the modified retrospective approach were insignificant and did

not

have a material impact on the Company’s consolidated financial condition, results of operations, cash flows, business process, controls or systems.

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent 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 will require 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 transfers to a customer. The majority of the Company’s contracts have

one

single performance obligation as the promise to transfer the individual goods is

not

separately identifiable from other promises in the contracts and is, therefore,

not

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

The contract assets and contract liabilities are recorded on the consolidated balance sheets as accounts receivable and advance payments from customers as of

December 31, 2019

and

2018.

For the years ended

December 31, 2019

and

2018,

revenue recognized from performance obligations related to prior periods was insignificant.

Revenue expected to be recognized in any future periods related to remaining performance obligations is insignificant. The following table summarizes disaggregated revenue from contracts with customers by geographic locations:

	For the Years Ended
	December 31, 2019		December 31, 2018
North Carolina	$	145,756,172	$	138,790,263
Florida		91,173,814		88,670,044
Georgia		65,173,052		63,546,391
Arizona		7,196,217		-
California		54,877,209		-
Colorado		6,658,931		-
Utah		8,249,684		-
Washington		9,077,202		-
Total	$	388,162,281	$	291,006,698

Shipping and Handling Costs

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

$4,443,967

and

$5,205,673

for the years ended

December 31, 2019

and

2018,

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

on the basis of a

two

-step process in which (

) 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 (

) 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

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

December 31, 2019

and

2018.

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. Based on this guidance the Company will

not

reassess the following: (

) whether any expired or existing contracts are or contain leases; (

) the lease classification for any expired or existing leases; and (

) initial direct costs for any existing leases. The new standard was adopted in the current quarter and did

not

have a material impact on the Company’s consolidated balance sheets or on its consolidated income statements.

The adoption of Topic

842

resulted in the presentation of

$21.2

million of operating lease assets and operating lease liabilities on the consolidated balance sheet as of

January 1, 2019.

See Note

for additional information.

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

260,

“Earnings per Share” (“ASC

260”

). 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

anti-dilutive effect for the years ended

December 31, 2019

and

2018.

Fair Value of Financial Instruments

The Company follows the provisions of FASB ASC

820,

Fair Value Measurements and Disclosures. ASC

820

clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level

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

Level

- 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

- 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.

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

Concentrations and Credit Risk

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

receivables from any

one

customer representing more than

10%

of the Company’s consolidated gross accounts receivable at

December 31, 2019

and

2018.

For the years ended

December 31, 2019

and

2018,

supplier accounted for more than

10%

of the total cost of revenue. As of

December 31, 2019,

two

suppliers accounted for

34%

and

15%

of total advance payments outstanding and these

two

suppliers accounted for

70%

and

30%

of advance payments to related parties, respectively. As of

December 31, 2018,

three

suppliers accounted for

55%,

18%

and

12%

of total advance payments outstanding and these

three

suppliers accounted for

65%,

22%

and

14%

of advance payments to related parties, respectively.

Recent Accounting Pronouncements

June 2016,

the FASB issued ASU

2016

13,

“Measurement of Credit Losses on Financial Instruments (Topic

326

): Measurement of Credit Losses on Financial Instruments” (“ASU

2016

13”

). ASU

2016

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

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. The Company is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does

not

expect the adoption of this guidance to have a material impact on its consolidated financial statements.

August 2018,

the FASB issued ASU

2018

13,

“Fair Value Measurement (Topic

820

): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU

2018

13”

). ASU

2018

removes, modifies and adds certain disclosure requirements in Topic

820

“Fair Value Measurement”. ASU

2018

eliminates certain disclosures related to transfers and the valuations process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level

fair value measurements. ASU

2018

is effective for the Company for annual and interim reporting periods beginning

January 1, 2020.

The Company is currently evaluating the impact ASU

2018

will have on its consolidated financial statements.

December 2019,

the FASB issued ASU

No.

2019

12,

“Income Taxes (Topic

740

): Simplifying the Accounting for Income Taxes” (“ASU

2019

12”

), which is intended to simplify various aspects related to accounting for income taxes. ASU

2019

removes certain exceptions to the general principles in Topic

740

and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2020,

with early adoption permitted. The Company is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does

not

expect the adoption of this guidance to have a material impact on its consolidated financial statements.