0001680873-21-000015.txt : 20210510 0001680873-21-000015.hdr.sgml : 20210510 20210510160254 ACCESSION NUMBER: 0001680873-21-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 98 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210510 DATE AS OF CHANGE: 20210510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HF Foods Group Inc. CENTRAL INDEX KEY: 0001680873 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 812717873 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38180 FILM NUMBER: 21907009 BUSINESS ADDRESS: STREET 1: 19319 ARENTH AVENUE CITY: CITY OF INDUSTRY STATE: CA ZIP: 91748 BUSINESS PHONE: 626-338-1090 MAIL ADDRESS: STREET 1: 19319 ARENTH AVENUE CITY: CITY OF INDUSTRY STATE: CA ZIP: 91748 FORMER COMPANY: FORMER CONFORMED NAME: Atlantic Acquisition Corp. DATE OF NAME CHANGE: 20170609 FORMER COMPANY: FORMER CONFORMED NAME: Stars Acquisition Corp. DATE OF NAME CHANGE: 20160727 10-Q 1 hffg-20210331.htm 10-Q hffg-20210331
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________________________
FORM 10-Q
(Mark one)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 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 classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par valueHFFGNasdaq 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 May 7, 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 MARCH 31, 2021
TABLE OF CONTENTS
DescriptionPage
i

Table of Contents
PART I.     FINANCIAL INFORMATION
Item 1. Financial Statements.
HF FOODS GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As of
March 31,
2021
December 31,
2020
ASSETS
CURRENT ASSETS:
Cash$11,253,521 $9,580,853 
Accounts receivable, net30,267,205 24,852,212 
Accounts receivable - related parties, net1,162,466 1,266,573 
Inventories, net55,870,112 58,535,040 
Advances to suppliers - related parties, net 196,803 
Other current assets5,387,470 4,614,164 
TOTAL CURRENT ASSETS103,940,774 99,045,645 
Property and equipment, net136,043,983 136,869,085 
Operating lease right-of-use assets15,993,197 931,630 
Long-term investments2,407,364 2,377,164 
Intangible assets, net173,075,075 175,797,650 
Goodwill68,511,941 68,511,941 
Deferred tax assets45,837 57,478 
Other long-term assets782,412 694,490 
TOTAL ASSETS$500,800,583 $484,285,083 
CURRENT LIABILITIES:
Bank overdraft$10,439,475 $14,839,747 
Line of credit16,380,876 18,279,062 
Accounts payable36,504,111 28,391,136 
Accounts payable - related parties1,472,541 1,783,861 
Current portion of long-term debt, net5,898,994 5,641,259 
Current portion of obligations under finance leases277,336 286,903 
Current portion of obligations under operating leases637,047 308,148 
Accrued expenses and other liabilities7,363,464 6,178,144 
Obligations under interest rate swap contracts281,223 993,516 
TOTAL CURRENT LIABILITIES79,255,067 76,701,776 
Long-term debt, net86,538,440 88,008,803 
Promissory note payable - related party6,500,000 7,000,000 
Obligations under finance leases, non-current703,648 766,885 
Obligations under operating leases, non-current15,459,667 623,482 
Deferred tax liabilities45,792,129 46,382,704 
TOTAL LIABILITIES234,248,951 219,483,650 
SHAREHOLDERS’ EQUITY:
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
  
Common Stock, $0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued, and 51,913,411 shares outstanding as of March 31, 2021 and December 31, 2020, respectively
5,191 5,191 
Additional paid-in capital587,579,093 587,579,093 
Accumulated deficit(325,627,466)(327,150,398)
TOTAL SHAREHOLDER'S EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.261,956,818 260,433,886 
Noncontrolling interests4,594,814 4,367,547 
TOTAL SHAREHOLDERS’ EQUITY266,551,632 264,801,433 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$500,800,583 $484,285,083 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HF FOODS GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended March 31
20212020
Net revenue - third parties$156,991,367 $170,640,014 
Net revenue - related parties2,390,461 5,163,322 
TOTAL NET REVENUE159,381,828 175,803,336 
Cost of revenue - third parties127,639,358 141,904,237 
Cost of revenue - related parties2,312,879 4,924,054 
TOTAL COST OF REVENUE129,952,237 146,828,291 
GROSS PROFIT29,429,591 28,975,045 
DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES28,127,495 29,406,593 
INCOME (LOSS) FROM OPERATIONS1,302,096 (431,548)
Other Income (Expenses)
Interest income 131 
Interest expense(742,141)(1,951,569)
Goodwill impairment loss (338,191,407)
Other income439,559 405,650 
Change in fair value of interest rate swap contracts1,430,892  
Total Other Income (Expenses), net1,128,310 (339,737,195)
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT)2,430,406 (340,168,743)
PROVISION (BENEFIT) FOR INCOME TAXES607,207 (482,211)
NET INCOME (LOSS)1,823,199 (339,686,532)
Less: net income attributable to noncontrolling interests300,267 197,410 
NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.$1,522,932 $(339,883,942)
Earnings (loss) per common share - basic and diluted$0.03 $(6.52)
Weighted average shares - basic and diluted51,913,41152,145,096
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HF FOODS GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
Common StockTreasury StockAdditional
Paid-in
Capital
Retained
Earnings
(Accumulated
Deficit)
Total Shareholders’
Equity
Attributable
to HF Foods
Group Inc.
Noncontrolling
Interests
Total
Shareholders’
Equity
Number of
Shares
AmountNumber of
Shares
Amount
Balance at December 31, 202051,913,411 $5,191  $ $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, 202151,913,411 5,191   587,579,093 (325,627,466)261,956,818 4,594,814 266,551,632 
Balance at December 31, 201953,050,211 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, 202053,050,211 $5,305 (905,115)$(12,038,030)$599,617,009 $(324,060,281)$263,524,003 $4,321,197 $267,845,200 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HF FOODS GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended March 31
20212020
Cash flows from operating activities:
Net Income (Loss)$1,823,199 $(339,686,532)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense4,554,783 4,526,277 
Goodwill impairment loss 338,191,407 
Gain from disposal of equipment(3,966)(20,349)
Allowance for doubtful accounts(82,551)154,365 
Allowance for inventories56,578 46,687 
Deferred tax benefit (expense)(578,934)(931,471)
Income from equity method investment(30,200)(35,061)
Unrealized change in fair value of interest rate swap contracts(712,293) 
Changes in operating assets and liabilities:
Accounts receivable, net(5,332,442)23,477,270 
Accounts receivable - related parties, net104,107 (1,784,762)
Inventories, net2,608,350 1,780,693 
Advances to suppliers - related parties196,803 (119,681)
Other current assets(773,306)540,443 
Security deposit - related parties 58,880 
Other long-term assets(96,672)(15,900)
Accounts payable8,112,975 (7,319,101)
Accounts payable - related parties(311,320)(783,154)
Advance from customers - related parties 213,354 
Operating lease liability(153,147)(102,088)
Accrued expenses and other liabilities1,185,320 436,529 
Net cash provided by operating activities10,567,284 18,627,806 
Cash flows from investing activities:
Purchase of property and equipment(448,173)(160,252)
Proceeds from disposal of equipment8,000 90,879 
Payment made for acquisition of B&R Realty (94,004,068)
Net cash used in investing activities(440,173)(94,073,441)
Cash flows from financing activities:
Repayment of bank overdraft(4,400,272)(1,477,738)
Proceeds from line of credit155,897,706 174,101,782 
Repayment of line of credit(157,828,692)(172,301,798)
Proceeds from long-term debt 75,600,000 
Repayment of long-term debt(1,477,381)(1,346,136)
Repayment of long-term debt - related parties (730,998)
Repayment of promissory note payable - related party(500,000) 
Repayment of obligations under finance leases(72,804)(122,498)
Cash distribution to shareholders(73,000)(125,000)
Net cash provided by (used in) financing activities(8,454,443)73,597,614 
Net increase (decrease) in cash1,672,668 (1,848,021)
Cash at beginning of the period9,580,853 14,538,286 
Cash at end of the period$11,253,521 $12,690,265 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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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”) 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 was originally incorporated in Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp. (“Atlantic”), in order to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with, one or more businesses or entities.
Reorganization of HF Holding
HF Group Holding Corporation (“HF Holding”) was incorporated in the State of North Carolina on October 11, 2017 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 “Exchange Agreement”) with the controlling shareholders of the 11 entities 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. Furthermore, ASC 805-50-45-5 indicates that the financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.
In accordance with ASC 805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests should initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of the transfer. If the carrying amounts of the assets and liabilities transferred differ from the historical cost of the parent of the entities under common control, then the financial statements of the receiving entity should reflect the transferred assets and liabilities at the historical cost of the parent of the entities under common control. Accordingly, the Company has recorded the assets and liabilities transferred from the above entities at their carrying amount.
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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:
NameDate of formation /
incorporation
Place of formation /
incorporation
Percentage
of legal
ownership
by HF Group
Principal activities
Parent:
HF HoldingOctober 11, 2017North Carolina, USA100%Holding Company
Subsidiaries:
Han FengJanuary 14, 1997North Carolina, USA100%Foodservice distributor
KirnlandApril 11, 2006Georgia, USA66.7%Foodservice distributor
NSFDecember 17, 2008Florida, USA100%Foodservice distributor
HF Foods Industrial, L.L.C. ("HF Foods Industrial")December 10, 2019North Carolina, USA60%Food processing company
ChinesetgJuly 12, 2011New York, USA100%Design and printing services provider
KirnswayMay 24, 2006North Carolina, USA100%Design and printing services provider
BBSeptember 12, 2001Florida, USA100%Logistic service provider
MFDApril 15, 1999North Carolina, USA100%Logistic service provider
TTAugust 6, 2002North Carolina, USA100%Logistic service provider
HG RealtyMay 11, 2012Georgia, USA100%Real estate holding company
R&N Charlotte, LLC
("R&N Charlotte")
July 10, 2019North Carolina, USA100%Real estate holding company
R&N HoldingsNovember 21, 2002North Carolina, USA100%Real estate holding company
R&N LexingtonMay 27, 2010North Carolina, USA100%Real estate holding company
273 Fifth Avenue, L.L.C. ("273 Co")October 10, 2020Delaware, USA100%Real estate lease holding company
Reverse Acquisition of HF Holding
On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in HF Holding became the surviving entity (the “Atlantic Merger”) and a wholly owned subsidiary of Atlantic (the “Atlantic Acquisition”). The stockholders of HF Holding bec the majority shareholders of Atlantic, and the Company changed its name to HF Foods Group, Inc. (Collectively, these transactions are referred to as the “Atlantic Transactions”).
At closing, 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 stockholders of Atlantic owned the remaining 11.5% of the issued and outstanding shares of common stock of the combined entity.
Following the consummation of the Atlantic Transactions on August 22, 2018, there were 22,167,486 shares of common stock issued and outstanding, consisting of (i) 19,969,831 shares issued to HF Holding’s stockholders pursuant to the Atlantic Merger Agreement, (ii) 400,000 shares redeemed by one of Atlantic’s shareholders in conjunction with the Atlantic Transactions, (iii) 10,000 restricted shares issued to one of Atlantic’s shareholders in conjunction with the Atlantic Transactions, and (iv) 2,587,655 shares originally issued to the pre-Transactions stockholders of Atlantic.
The Atlantic Acquisition was treated as a reverse acquisition under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For accounting purposes, HF Holding was considered to be acquiring Atlantic in this transaction. Therefore, the aggregate consideration paid in connection with the business combination was allocated to Atlantic’s tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of Atlantic were consolidated into the results of operations of HF Holding as of the completion of the business combination.
HF Holding Entities Organized Post-Atlantic Merger
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On July 10, 2019, the Company, through its subsidiary Han Feng, formed a new real estate holding company, R&N Charlotte. R&N Charlotte owns a 4.66 acre tract of land with appurtenant 115,570 square foot office/warehouse/industrial facility located in Charlotte, North Carolina.
On December 10, 2019, the Company, through its subsidiary Han Feng, formed a new food processing company, HF Foods Industrial, as owner of 60% of member interests.
On October 1, 2020, the Company, through its subsidiary HF Group Holding, formed a wholly-owned new real estate lease holding company, 273 Co.
Business Combination with B&R Global Holdings Inc. ("B&R Global")
On November 4, 2019, HF Group consummated a merger transaction resulting in B&R Global becoming a wholly owned subsidiary of the Company. At closing, the Company acquired 100% of the controlling interest of B&R Global, in exchange for the issuance of 30,700,000 shares of Common Stock of the Company to the shareholders of B&R Global. Pursuant to the B&R Merger Agreement, the aggregate fair value of the consideration paid by HF Group in the Business Combination was $576,699,494, based on the closing share price of the Company’s common stock at the date of Closing.
B&R Global was formed in 2014 as a holding company to acquire and consolidate the various operating entities (listed below) under one roof. Through its subsidiaries, B&R Global supplies foodservice items to approximately 5,000 restaurants across 11 Western states. The merger with HF Group, created what the Company believes is the largest food distributor to Asian restaurants in the United States. The combined entity now 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 two call centers in China which provide round-the-clock sales and service supports to its customers, who mainly converse in Mandarin or Chinese dialects.
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The following table summarizes the entities under B&R Global in the Business Combination:
NameDate of formation /
incorporation
Place of formation /
incorporation
Percentage
of legal
ownership
by B&R
Global
Principal activities
Parent:
B&R GlobalJanuary 3, 2014Delaware, USAHolding Company
Subsidiaries:
B&L Trading, LLC (“BNL”)July 18, 2013Washington, USA100%Foodservice distributor
Capital Trading, LLC (“UT”)March 10, 2003Utah, USA100%Foodservice distributor
Great Wall Seafood LA, LLC (“GW”)March 7, 2014California, USA100%Foodservice distributor
Min Food, Inc. (“MIN”)May 29, 2014California, USA60.25%Foodservice distributor
Monterey Food Service, LLC (“MS”)September 14, 2017California, USA65%Foodservice distributor
Mountain Food, LLC (“MF”)May 2, 2006Colorado, USA100%Foodservice distributor
Ocean West Food Services, LLC (“OW”)December 22, 2011California, USA67.5%Foodservice distributor
R & C Trading L.L.C. (“RNC”)November 26, 2007Arizona, USA100%Foodservice distributor
Rongcheng Trading, LLC (“RC”)January 31, 2006California, USA100%Foodservice distributor
Win Woo Trading, LLC (‘WW”)January 23, 2004California, USA100%Foodservice distributor
Irwindale Poultry, LLC (“IP”)December 27, 2017California, USA100%Poultry processing company
Lin’s Farms, LLC (“LNF”)July 2, 2014Utah, USA100%Poultry processing company
Kami Trading, Inc. (“KAMI”)November 20, 2013California, USA100%Import service provider
American Fortune Foods, Inc. (“AF”)February 19, 2014California, USA100%Logistic and import service provider
B&R Group Logistics Holding, LLC (“BRGL”)July 17, 2014Delaware, USA100%Logistic service provider
Best Choice Trucking, LLC (“BCT”)January 1, 2011California, USA100%Logistic service provider
Fuso Trucking Corp. (“FUSO”)January 20, 2015California, USAVIE*Logistic service provider
GM Food Supplies, Inc. (“GM”)March 22, 2016California, USA100%Logistic service provider
Golden Well, Inc. (“GWT”)November 8, 2011California, USA100%Logistic service provider
Happy FM Group, Inc. (“HFM”)April 9, 2014California, USA100%Logistic service provider
Hayward Trucking, Inc. (“HRT”)September 5, 2012California, USA100%Logistic service provider
KYL Group, Inc. (“KYL”)April 18, 2014Nevada, USA100%Logistic service provider
Lin’s Distribution Inc., Inc. (“LIN”)February 2, 2010Utah, USA100%Logistic service provider
MF Food Services, Inc. (“MFS”)December 21, 2017California, USA100%Logistic service provider
New Berry Trading, LLC (“NBT”)September 5, 2012California, USA100%Logistic service provider
Royal Service, Inc. (“RS”)December 29, 2014Oregon, USA100%Logistic service provider
Royal Trucking Services, Inc. (“RTS”)May 19, 2015Washington, USA100%Logistic service provider
Yi Z Service, LLC (“YZ”)October 2, 2017California, USA100%Logistic service provider
*At the acquisition date and as of March 31, 2021, B&R Global consolidates FUSO, which is considered as a variable interest entity (“VIE”) under U.S. GAAP, due to its pecuniary and contractual interest in this entity as a result of the funding arrangements outlined in the entity.
Acquisition of Real Estate Companies
On January 17, 2020, the Company completed the transactions contemplated by that certain membership interest purchase agreement dated the same date (the “Purchase Agreement”) by and among its subsidiary B&R Global, B&R Group Realty Holding, LLC ("BRGR"), and nine 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, Arizona, Utah, Colorado, Washington, and Montana for purchase consideration of $101,269,706. Consideration for Realty
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Acquisition was funded by (i) $75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 11 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:
NameDate of formation /
incorporation
Place of formation /
incorporation
Percentage of legal
ownership by B&R Global
Principal activities
A & Kie, LLC ("AK")March 26, 2010Arizona, USA100%Real estate holding company
B & R Realty, LLC ("BRR")August 28, 2013California, USA100%Real estate holding company
Big Sea Realty, LLC ("BSR")April 3, 2013Washington, USA100%Real estate holding company
Fortune Liberty, LLC ("FL")November 22, 2006Utah, USA100%Real estate holding company
Genstar Realty, LLC ("GSR")February 27, 2012California, USA100%Real estate holding company
Hardin St Properties, LLC ("HP")December 5, 2012Montana, USA100%Real estate holding company
Lenfa Food, LLC ("LF")February 14, 2002Colorado, USA100%Real estate holding company
Lucky Realty, LLC ("LR")September 3, 2003California, USA100%Real estate holding company
Murray Properties, LLC ("MP")February 27, 2013Utah, USA100%Real estate holding company

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, 2020 and 2019. Operating results for the three month periods ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
The unaudited condensed consolidated financial statements include the financial statements of HF Group, its subsidiaries and the VIE. The VIE has been accounted for at historical cost and prepared on the basis as if common control had been established as of the beginning of the first period presented in the accompanying unaudited condensed consolidated financial statements. All inter-company balances and transactions have been eliminated upon consolidation.
U.S. GAAP provides guidance on the identification of VIE and financial reporting for entities over which control is achieved through means other than voting interests. The Company evaluates each of its interests in an entity to determine whether or not the investee is a VIE and, if so, whether the Company is the primary beneficiary of such VIE. In determining whether the Company is the primary beneficiary, the Company considers if the Company (1) has power to direct the activities that most significantly affect the economic performance of the VIE, and (2) receives the economic benefits of the VIE that could be significant to the VIE. If deemed the primary beneficiary, the Company consolidates the VIE.
As of March 31, 2021 and December 31, 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:
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March 31,
2021
December 31,
2020
Current assets$242,014 $47,822 
Non-current assets109,390 115,934 
Total assets$351,404 $163,756 
Current liabilities$664,128 $496,234 
Non-current liabilities33,134 39,475 
Total liabilities$697,262 $535,709 

For the three months ended March 31
20212020
Net revenue$453,174 $666,428 
Net income$26,095 $64,778 

For the three months ended March 31
20212020
Net cash provided by operating activities$86,743 $314,224 
Net cash provided by (used in) financing activities16,441 (222,137)
Net increase in cash and cash equivalents$103,184 $92,087 
Noncontrolling Interests
U.S. GAAP requires that noncontrolling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the amounts attributable to the net income (loss) of those subsidiaries are reported separately in the consolidated statements of operations.
As of March 31, 2021 and December 31, 2020, noncontrolling interests consisted of the following:
Name of EntityPercentage of
noncontrolling
interest ownership
March 31,
2021
December 31,
2020
Kirnland33.33%$1,516,750 $1,384,780 
MIN39.75%974,044 889,596 
MS35.00%457,107 459,816 
OW32.50%1,646,913 1,633,355 
Total$4,594,814 $4,367,547 
Uses of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during each reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include, but are not limited to, allowance for doubtful accounts, useful lives of property and equipment, lease assumptions, impairment of long-lived assets, long-term investments, goodwill, the purchase price allocation and fair value of noncontrolling interests with respect to business combinations, realization of deferred tax assets, and uncertain income tax positions.
Cash
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The Company considers all highly liquid investments purchased with a maturity of three or fewer months to be cash equivalents. As of March 31, 2021 and December 31, 2020, the Company had no cash equivalents.
Accounts Receivable, net
Accounts receivable represent amounts due from customers in the ordinary course of business and are recorded at the invoiced amount and do not bear interest. Receivables are presented net of the allowance for doubtful accounts in the accompanying consolidated balance sheets. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. When the Company is aware of a customer’s inability to meet its financial obligation, a specific allowance for doubtful accounts is recorded, reducing the receivable to the net amount the Company reasonably expects to collect. In addition, allowances are recorded for all other receivables based on historic collection trends, write-offs and the aging of receivables. The Company uses specific criteria to determine uncollectible receivables to be written off, including, e.g., bankruptcy filings, the referral of customer accounts to outside parties for collection, and the length that accounts remain past due. As of March 31, 2021 and December 31, 2020, allowances for doubtful accounts were $830,306 and $909,182, respectively.
Inventories, net
The Company’s inventories, consisting mainly of food and other food service-related products, are primarily considered as finished goods. Inventory costs, including the purchase price of the product and freight charges to deliver it to the Company’s warehouses, are net of certain cash or non-cash consideration received from vendors. The Company assesses the need for valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory age, specifically identified items, and overall economic conditions. Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. As of March 31, 2021 and December 31, 2020, the valuation allowance was $202,655 and $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)
Automobiles37
Buildings and improvements739
Furniture and fixtures 410
Machinery and equipment310
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 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 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.
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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
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. The Company tests goodwill for impairment at least annually, in the fourth quarter, or whenever events or changes in circumstances indicate that goodwill might be impaired.
The Company reviews the carrying values of goodwill and identifiable intangibles whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually for goodwill and indefinite lived intangible assets as required by ASC Topic 350 (“ASC 350”), Intangibles — Goodwill and Other. This guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, the Company measures any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
The Company opted for the early adoption of Accounting Standards Update (“ASU”) 2017-4, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies the subsequent measurement of goodwill by removing Step 2 of the current goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new standard, an impairment loss will be recognized in the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Intangible Assets
Intangible assets are carried at cost and amortized on a straight-line basis over their estimated useful lives. The Company determines the appropriate useful life of its intangible assets by measuring the expected cash flows of acquired assets. The estimated useful lives of intangible assets are as follows:
Estimated useful lives
(years)
Tradenames10
Customer relationships20
Long-term Investments
The Company’s investments in unconsolidated entities consist of equity investment and investment without readily determinable fair value.
The Company follows ASC Topic 321 (“ASC 321”), Investments – Equity Securities, using the measurement alternative to measure investments in investees that do not have readily determinable fair value and over which the Company does not have significant influence at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company makes a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, the Company has to estimate the investment’s fair value in accordance with the principles of ASC Topic 820 (“ASC 820”), Fair
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Value Measurements and Disclosures. If the fair value is less than the investment’s carrying value, the entity has to recognize an impairment loss in earnings equal to the difference between the carrying value and fair value.
Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC Topic 323 (“ASC 323”), Investments-Equity Method and Joint Ventures. Under the equity method, the Company initially records its investment at cost and the difference between the cost and the fair value of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill, which is included in the equity method investment on the consolidated balance sheets. The equity method goodwill is not subsequently amortized and is not tested for impairment under ASC 350. The Company subsequently adjusts the carrying amount of the investment to recognize the Company’s proportionate share of each equity investee’s net income or loss into earnings after the date of investment. The Company evaluates the equity method investments for impairment under ASC 323. An impairment loss on the equity method investments is recognized in earnings when the decline in value is determined to be other-than-temporary.
The Company did not record any impairment loss on its long-term investments as of March 31, 2021 and December 31, 2020.
Impairment of Long-lived Assets Other Than Goodwill
The Company assesses its long-lived assets such as property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Factors which may indicate potential impairment include a significant underperformance related to the historical or projected future operating results or a significant negative industry or economic trend. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment, and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair value. The Company did not record any impairment loss on its long-lived assets as of March 31, 2021 and December 31, 2020.
Revenue Recognition
The Company recognizes revenue from the sale of products when title and risk of loss passes and the customer accepts the goods, which occurs at delivery. Sales taxes invoiced to customers and remitted to government authorities are excluded from net sales.
The Company follows ASU 2014-09, Revenue from Contracts with Customers (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 month periods ended March 31, 2021 and 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 customers by geographic locations:
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For the Three Months Ended
March 31,
2021
March 31,
2020
Arizona$11,139,602 $10,011,749 
California53,071,420 67,664,956 
Colorado9,475,566 8,908,993 
Florida19,385,243 19,085,809 
Georgia14,609,025 14,102,255 
North Carolina30,027,159 29,717,516 
Utah13,335,605 14,998,375 
Washington8,338,208 11,313,683 
Total$159,381,828 $175,803,336 
Shipping and Handling Costs
Shipping and handling costs, which include costs related to the selection of products and their delivery to customers, are included in distribution, selling and administrative expenses. Shipping and handling costs were $1,925,773 and $2,558,233 for the three months ended March 31, 2021 and 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 March 31, 2021 and December 31, 2020.
The Company adopted ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, on January 1, 2021. ASU 2019-12 is intended to simplify various aspects related to managerial accounting for income taxes. The adoption had no material impact on the Company's consolidated financial statements.
Leases
The Company accounts for leases following ASU 2016-02, Leases (Topic 842) ("Topic 842").
As a result of the Realty Acquisition (see Note 7 for additional information), nine leases previously included in the operating lease asset and liabilities balance were eliminated during consolidation. As of March 31, 2021, the balances for operating lease assets were $15,993,197 and liabilities were $16,096,714. As of December 31, 2020, the balances for operating lease assets were $931,630 and liabilities were $931,630. See Note 12 for additional information. 
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on
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the Company’s consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of finance lease liabilities, and finance lease liabilities, non-current on the consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
Earnings Per Share
The Company computes earnings per share (“EPS”) in accordance with ASC Topic 260 (“ASC 260”), Earnings per Share. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There is no anti-dilutive effect for the three month periods ended March 31, 2021 and 2020.
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 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 approximate their fair value based on the short-term maturity of these instruments.
Derivative Financial Instrument
In accordance with the guidance in ASC Topic 815 ("ASC 815"), Derivatives and Hedging, derivative financial instruments are recognized as assets or liabilities on the unaudited condensed consolidated balance sheets at fair value. The Company has not designated its interest rate swap ("IRS") contracts as hedges for accounting treatment. Pursuant to U.S. GAAP, income or loss from fair value changes for derivatives that are not designated as hedges by management are reflected as income or loss on the statement of operations. Net amounts received or paid under the interest rate swap contracts are recognized as an increase or decrease to interest expense when such amounts are incurred. The Company is exposed to credit loss in the event of nonperformance by the counterparty.
Concentrations and Credit Risk
Credit risk
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Accounts receivable are typically unsecured and derived from revenue earned from customers, and thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Concentration risk
There were no receivables from any one customer representing more than 10% of the Company’s consolidated gross accounts receivable at March 31, 2021 and December 31, 2020.
For the three months ended March 31, 2021 and 2020, no supplier accounted for more than 10% of the total cost of revenue. As of March 31, 2021, there were two suppliers that accounted for 24% and 11% of total outstanding advance payments, and no supplier that accounted for advance payments to related parties. As of December 31, 2020, two suppliers accounted for 22% and 18% of total outstanding advance payments, and one supplier accounted for 96% of advance payments to related parties, respectively.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 (“ASU 2016-13”), Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 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.
NOTE 3 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
As of March 31,
2021
As of December 31,
2020
Accounts receivable$31,097,511 $25,761,394 
Less: allowance for doubtful accounts(830,306)(909,182)
Accounts receivable, net$30,267,205 $24,852,212 
Movement of allowance for doubtful accounts is as follows:
For the Three Months Ended
March 31,
2021
March 31,
2020
Beginning balance$909,182 $623,970 
Increase (decrease) in provision for doubtful accounts(82,551)231,274 
Less: write off/ (recovery)3,675 (35,437)
Ending balance$830,306 $819,807 

NOTE 4 - LONG-TERM INVESTMENTS
Long-term investments consisted of the following:
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Ownership as of March 31,
2021
As of March 31, 2021As of December 31, 2020
Asahi Food, Inc.49%$607,364 $577,164 
Pt. Tamron Akuatik Produk Industri12%1,800,000 1,800,000 
Total$2,407,364 $2,377,164 
The investment in Pt. Tamron Akuatik Produk Industri is accounted for using the measurement alternative under ASC 321, which is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments, if any. The investment in Asahi Food, Inc. is accounted for under the equity method due to the fact that the Company has significant influence but does not exercise full control over this investee. The Company believes there was no impairment as of March 31, 2021 and December 31, 2020 for these investments.

NOTE 5 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
As of March 31,
2021
As of December 31,
2020
Automobiles $24,549,095 $24,544,094 
Building 71,285,127 71,285,127 
Building improvements 9,923,124 9,807,234 
Furniture and fixtures 223,995 223,996 
Land 52,125,900 52,125,900 
Machinery and equipment 14,056,946 13,498,211 
Subtotal172,164,187 171,484,562 
Less: accumulated depreciation(36,120,204)(34,615,477)
Property and equipment, net$136,043,983 $136,869,085 
The Company acquired $102,331,567 of property and equipment resulting from an acquisition of assets from B&R Realty Group on January 17, 2020. See Note 7 for additional information.
Depreciation expense was $1,526,691 and $1,651,505 for the three month periods ended March 31, 2021 and 2020, respectively.
NOTE 6 - BUSINESS COMBINATION WITH B&R GLOBAL
Effective November 4, 2019, HF Group acquired 100% of the controlling interest of B&R Global, in exchange for 30,700,000 shares of HF Group Common Stock. HF Group is considered as both the legal and accounting acquirer based on the fact that there was no change of control in connection with this Business Combination. The aggregate fair value of the consideration paid by HF Group in the Business Combination is $576,699,494 and is based on the closing share price of the Company’s common stock at the date of Closing.
The 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.

NOTE 7 - ACQUISITION OF B&R REALTY SUBSIDIARIES
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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. 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 11 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 obligations to the lenders under the First Amended Credit Agreement (See Note 11 for additional information) and predecessor financing arrangements.
The following table presents the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:
Cash$265,639 
Automobile33,690 
Prepaids39,193 
Land48,734,042 
Buildings53,563,835 
Total assets acquired102,636,399 
Accounts payable and accrued expenses1,366,693 
Total liabilities assumed1,366,693 
Net assets acquired$101,269,706 

NOTE 8 - GOODWILL AND ACQUIRED INTANGIBLE ASSETS
Goodwill
The changes in HF Group’s carrying amount of goodwill by reporting unit are presented below:
HFB&R GlobalTotal
Balance at December 31, 2020$ $68,511,941 $68,511,941 
Impairment loss   
Balance at March 31, 2021$ $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 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 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
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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 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 volatility observed in the market. Volatility had primarily been due to concerns about demand for food distribution services, as restaurant activity in much of the country 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.
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.
Using historic monthly sales run rate and forecasted sales run rates for the next year, the Company performed goodwill impairment assessment and concluded no further impairment is required as of March 31, 2021.
Acquired Intangible Assets
In connection with the Business Acquisition of B&R Global, HF Group acquired $188,503,000 of intangible assets, primarily representing tradenames and customer relationships, which have an estimated amortization period of approximately 10 years and 20 years, respectively. The components of the intangible assets are as follows:
As of March 31, 2021As of December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Tradenames$29,303,000 $(4,151,258)$25,151,742 $29,303,000 $(3,418,683)$25,884,317 
Customer relationships159,200,000 (11,276,667)147,923,333 159,200,000 (9,286,667)149,913,333 
Total$188,503,000 $(15,427,925)$173,075,075 $188,503,000 $(12,705,350)$175,797,650 
COVID-19 has had an adverse impact on the Company’s customers, which was a triggering event, the Company performed interim long-lived asset quantitative impairment tests as of March 31, 2021. All intangible assets were tested for recoverability at the asset group level. ASC Topic 360, Property, Plant and Equipment ("ASC 360") defines the recoverability of these assets as measured by comparison of their (or asset group) carrying amounts to future undiscounted cash flows the assets (or asset group) are expected to generate. Based on the test for recoverability using undiscounted cash flows attributable to the asset (or asset group), the sum of the undiscounted cash flows exceeded the carrying value of the measured asset (or asset group). As such, no impairment was recorded for the finite lived assets as of March 31, 2021. 
HF Group’s amortization expense for intangible assets was $2,722,575 and $2,722,575 for the three month periods ended March 31, 2021 and March 31, 2020, respectively. Estimated future amortization expense for intangible assets is presented below:
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