LEASES

9 Months Ended

Sep. 30, 2018

Leases [Abstract]

LEASES

NOTE 8 - LEASES  

Capital Lease Obligations 

The Company leases vehicles or delivery trucks under capital leases with various expiration dates through 2021. At September 30, 2018 and December 31, 2017, the cost of assets acquired under capital leases is $1,297,900, the related accumulated depreciation is $730,275 and $535,590, respectively, and the net book value is $567,625 and $762,310, respectively. Depreciation expense related to these assets for the nine months ended September 30, 2018 and 2017 were $194,685 and $129,790, respectively.

Capital lease obligations consisted of the following:

	As of September 30, 2018			As of December 31, 2017
Vehicles due in monthly installments of $40,470 inclusive of interest at 14.38%, due in March 2019	$	232,901		$	552,538
Less: current portion		(232,901	)		(434,003	)
Obligations under capitalized leases payable after one year	$	—		$	118,535

Operating lease commitments

The Company’s operating leases mainly include forklifts, housing units and two buildings located in New York city, as described below. These leases had an average remaining lease term of approximately 5 years as of September 30, 2018 for forklift and 27.5 years for real estate lease. Rental expense charged to expenses under operating leases for the nine months ended September 30, 2018 and 2017 amounted to $301,069 and $492,568, and $104,700 and $222,973 for the three months ended September 30, 2018 and 2017, respectively.

On 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 30 years and 15 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 construction costs associated with rehabilitation of the two buildings. 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. Under the leases, AnHeart delivered two letters of credit in favor of the Landlord as security for the obligations under the leases. With respect t to 273 Fifth Avenue, the letter of credit is in the amount of $213,000. With respect t to 275 Fifth Avenue, the letter of credit is in the amount of $115,500. The Company entered into the leases for the purpose of expanding its product lines to include Chinese herb supplements, and management determined at the time of the execution of the leases to use the sites to develop into a hub for such products. However, management has since determined to cease the said business expansion. As of November 1, 2018, the Company has agreements in principle to sell AnHeart and obtained a sub guarantor. Under the proposed sales agreement, AnHeart would be sold to a third party for a sum of $20,000. The landlords on the leases have tentatively agreed to the transfer of the ownership of AnHeart. Definitive documents are expected to be executed before the year end.

Future minimum lease obligations for operating leases with initial terms in excess of one year at September 30, 2018 are as follows:

Twelve months ended September 30,
2019	$	907,716
2020		869,925
2021		872,716
2022		928,128
2023		999,710
Thereafter		24,052,253
Total	$	28,630,448

A subsidiary of the Company, RN Holding, leases a facility to a related party under an operating lease agreement expiring in 2019. The cost of the leased building is $400,000 at September 30, 2018 and December 31, 2017, and the accumulated depreciation of the leased building is $97,437 and $89,743 at September 30, 2018 and December 31, 2017, respectively. Rental income for the nine months ended September 30, 2018 and 2017 amounted to $34,200 and $34,200, and $11,400 and $11,400 for the three months ended September 30, 2018 and 2017, respectively.

In 2017, a subsidiary of the Company, HG Realty, leased a warehouse to a related party under an operating lease agreement expiring on September 21, 2027. The cost of the leased building is $3,223,745 as at September 30, 2018 and December 31, 2017, and the accumulated depreciation of the leased building is $413,301 and $351,306 as at September 30, 2018 and December 31, 2017, respectively. Rental income for the nine months ended September 30, 2018 was $360,000. Rental income for the nine months ended September 30, 2017 was $240,000. The rental income recorded for the three months ended September 30, 2017 was $120,000.