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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 September 30, 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 November 12, 2021, the registrant had 51,913,411 shares of common stock outstanding.


Table of Contents
HF FOODS GROUP INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 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
September 30,
2021
December 31,
2020
ASSETS
CURRENT ASSETS
Cash$15,543,177 $9,580,853 
Accounts receivable, net34,103,832 24,857,322 
Accounts receivable - related parties954,230 1,261,463 
Inventories77,239,478 58,535,040 
Advances to suppliers - related parties 196,803 
Other current assets2,640,233 4,614,164 
TOTAL CURRENT ASSETS130,480,950 99,045,645 
Property and equipment, net141,740,117 136,869,085 
Operating lease right-of-use assets2,551,286 931,630 
Long-term investments2,443,885 2,377,164 
Intangible assets, net167,629,925 175,797,650 
Goodwill68,511,941 68,511,941 
Other long-term assets1,145,167 694,490 
TOTAL ASSETS$514,503,271 $484,227,605 
CURRENT LIABILITIES
Bank overdraft$19,422,811 $14,839,747 
Line of credit23,020,114 18,279,062 
Accounts payable42,044,350 28,602,570 
Accounts payable - related parties2,499,872 1,572,427 
Current portion of long-term debt, net5,677,453 5,641,259 
Current portion of obligations under finance leases270,160 286,903 
Current portion of obligations under operating leases687,040 308,148 
Accrued expenses and other liabilities3,841,327 6,178,144 
Obligations under interest rate swap contracts341,165 993,516 
TOTAL CURRENT LIABILITIES97,804,292 76,701,776 
Long-term debt, net of current portion83,708,244 88,008,803 
Promissory note payable - related party5,000,000 7,000,000 
Obligations under finance leases, non-current8,448,619 766,885 
Obligations under operating leases, non-current2,010,664 623,482 
Deferred tax liabilities44,199,536 46,325,226 
TOTAL LIABILITIES241,171,355 219,426,172 
SHAREHOLDERS’ EQUITY
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
  
Common Stock, $0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
5,191 5,191 
Additional paid-in capital583,928,639 587,579,093 
Accumulated deficit(314,179,103)(327,150,398)
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.269,754,727 260,433,886 
Non-controlling interests3,577,189 4,367,547 
TOTAL SHAREHOLDERS’ EQUITY273,331,916 264,801,433 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$514,503,271 $484,227,605 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1

Table of Contents
HF FOODS GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2021202020212020
Net revenue - third parties$213,178,708 $137,631,565 $560,630,604 $409,446,496 
Net revenue - related parties2,363,341 2,287,377 7,839,509 10,835,878 
TOTAL NET REVENUE215,542,049 139,918,942 568,470,113 420,282,374 
Cost of revenue - third parties171,431,310 112,535,923 453,990,363 335,202,455 
Cost of revenue - related parties2,198,771 2,220,161 8,003,887 10,329,232 
TOTAL COST OF REVENUE173,630,081 114,756,084 461,994,250 345,531,687 
GROSS PROFIT41,911,968 25,162,858 106,475,863 74,750,687 
Distribution, selling and administrative expenses30,972,019 25,050,419 89,003,273 79,549,580 
Goodwill impairment loss   338,191,407 
TOTAL OPERATING EXPENSES30,972,019 25,050,419 89,003,273 417,740,987 
INCOME (LOSS) FROM OPERATIONS10,939,949 112,439 17,472,590 (342,990,300)
Other Income (Expenses)
Interest income 133  396 
Interest expense(703,845)(840,851)(2,155,328)(3,116,739)
Other income558,138 270,452 1,470,887 940,832 
Change in fair value of interest rate swap contracts52,314 (20,022)1,370,950 (1,284,276)
Total Other Income (Expenses), net(93,393)(590,288)686,509 (3,459,787)
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT)10,846,556 (477,849)18,159,099 (346,450,087)
PROVISION (BENEFIT) FOR INCOME TAXES2,637,444 (80,910)4,621,749 (2,052,426)
NET INCOME (LOSS)8,209,112 (396,939)13,537,350 (344,397,661)
Less: net income attributable to non-controlling interests357,345 226,865 566,055 168,988 
NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.$7,851,767 $(623,804)$12,971,295 $(344,566,649)
Earnings (loss) per common share - basic and diluted$0.15 $(0.01)$0.25 $(6.61)
Weighted average shares - basic51,913,41152,145,09651,913,41152,145,096
Weighted average shares - diluted51,932,71252,145,09651,919,93252,145,096
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.
Non-controlling
Interests
Total
Shareholders’
Equity
Number of
Shares
AmountNumber of
Shares
Amount
Balance at January 1, 202151,913,411 $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 
Net income (loss)—  —   3,596,596 3,596,596 (91,557)3,505,039 
Acquisition of non-controlling interest— — — — (3,855,887)— (3,855,887)(1,144,113)(5,000,000)
Distribution to shareholders— — — — — — — (77,550)(77,550)
Balance at June 30, 202151,913,411 5,191   583,723,206 (322,030,870)261,697,527 3,281,594 264,979,121 
Net income— — — — — 7,851,767 7,851,767 357,345 8,209,112 
Distribution to shareholders— — — — — — — (61,750)(61,750)
Stock-based compensation— — — — 205,433 — 205,433 — 205,433 
Balance at September 30, 202151,913,411$5,191 $ $583,928,639 $(314,179,103)$269,754,727 $3,577,189 $273,331,916 
Balance at January 1, 202053,050,211 $5,305 (905,115)$(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 
Net loss— — — — — (4,058,903)(4,058,903)(255,287)(4,314,190)
Balance at June 30, 202053,050,211 5,305 (905,115)(12,038,030)599,617,009 (328,119,184)259,465,100 4,065,910 263,531,010 
Net income (loss)— — — — — (623,804)(623,804)226,865 (396,939)
Balance at September 30, 202053,050,211 $5,305 (905,115)$(12,038,030)$599,617,009 $(328,742,988)$258,841,296 $4,292,775 $263,134,071 


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 Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net Income (Loss)$13,537,350 $(344,397,661)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense13,624,838 13,479,736 
Goodwill impairment loss 338,191,407 
Gain from disposal of equipment(33,049)(24,681)
Allowance for doubtful accounts(374,431)2,024,471 
Deferred tax benefit(2,125,690)(3,172,293)
Income from equity method investment(66,721)(65,612)
Unrealized change in fair value of interest rate swap contracts(652,351)1,284,276 
Stock-based compensation205,433  
Changes in operating assets and liabilities:
Accounts receivable(8,872,079)23,306,471 
Accounts receivable - related parties307,233 3,319,539 
Inventories(18,704,438)15,840,459 
Advances to suppliers - related parties196,803 447,287 
Other current assets1,973,931 (294,372)
Security deposit 58,880 
Other long-term assets(475,487)(3,512)
Accounts payable13,441,780 (6,097,690)
Accounts payable - related parties927,445 (1,858,101)
Operating lease liability(415,278)(291,659)
Accrued expenses and other liabilities(2,336,817)2,564,201 
Net cash provided by operating activities10,158,472 44,311,146 
Cash flows from investing activities:
Purchase of property and equipment(1,520,887)(410,288)
Proceeds from disposal of equipment76,948 160,659 
Payment made for acquisition of B&R Realty (94,004,068)
Payment made for acquisition of non-controlling interest(5,000,000) 
Net cash used in investing activities(6,443,939)(94,253,697)
Cash flows from financing activities:
Proceeds from bank overdraft4,583,064  
Repayment of bank overdraft (9,403,540)
Net proceed (repayment) from (of) line of credit4,642,652 (16,158,014)
Proceeds from long-term debt 75,600,006 
Repayment of long-term debt(4,543,724)(5,121,353)
Repayment of promissory note payable - related party(2,000,000) 
Repayment of obligations under finance leases(221,901)(207,520)
Cash distribution to shareholders(212,300)(125,000)
Net cash provided by financing activities2,247,791 44,584,579 
Net increase (decrease) in cash5,962,324 (5,357,972)
Cash at beginning of the period9,580,853 14,538,286 
Cash at end of the period$15,543,177 $9,180,314 
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”) is a leading Asian food service distributor that markets and distributes fresh produce, frozen and dry food, and non-food products to primarily Asian restaurants and other food service customers throughout the Southeast, Pacific and Mountain West regions in the United States. The Company is the result of a successful merger between two complementary market leaders, HF Group Holding Corporation ("HF Holding") and B&R Global Holdings, Inc. ("B&R Global") on November 4, 2019.
The Company was originally incorporated in Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp. (“Atlantic”), in order to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with, one or more businesses or entities.
On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in the stockholders of HF Holding becoming the majority shareholders of Atlantic, and changed its name to HF Foods Group Inc. On November 4, 2019, the Company consummated a merger transaction, resulting in B&R Global becoming a wholly owned subsidiary of HF Group. On January 17, 2020, B&R Global acquired all the equity membership interests of the subsidiaries under B&R Group Realty Holding, LLC ("BRGR"), which owned warehouse facilities that were being leased to B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana. See further transaction details below.
Formation of HF Holding
HF Holding was incorporated in the State of North Carolina on October 11, 2017 as a holding company to acquire and consolidate the various pre-merger 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, L.L.C. (“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 was accounted for as a transaction among entities under common control since the same shareholders controlled all 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 recorded the assets and liabilities transferred from the above entities at their carrying amount.
Reverse Acquisition of HF Holding
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On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in HF Holding becoming the surviving entity (the “Atlantic Merger”) and a wholly owned subsidiary of Atlantic (the “Atlantic Acquisition”). The stockholders of HF Holding became 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) 10,000 restricted shares issued to one of Atlantic’s shareholders in conjunction with the Atlantic Transactions, and (iii) 2,587,655 shares originally issued to the pre-Transactions stockholders of Atlantic, less 400,000 shares sold back to Atlantic by one of Atlantic’s pre-Transactions shareholders in conjunction with the Atlantic Transactions.
The Atlantic Acquisition was treated as a reverse acquisition under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For accounting purposes, HF Holding was considered to be acquiring Atlantic in this transaction. Therefore, the aggregate consideration paid in connection with the business combination was allocated to Atlantic’s tangible and intangible assets and liabilities based on their fair market values. The assets and liabilities and results of operations of Atlantic were consolidated into the results of operations of HF Holding as of the completion of the Atlantic Transactions.
HF Holding Entities Organized or Acquired Post-Atlantic Merger
On July 10, 2019, the Company, through its subsidiary Han Feng, formed a new real estate holding company, R&N Charlotte, L.L.C. ("R&N Charlotte"). R&N Charlotte owns a 4.66 acre tract of land with appurtenant 115,570 square foot office/warehouse/industrial facility located in Charlotte, North Carolina.
On December 10, 2019, the Company, through its subsidiary Han Feng, established a new entity, HF Foods Industrial, L.L.C. ("HFFI"), as owner of 60% of member interests, to operate as a food processing company.
On October 10, 2020, the Company, through its subsidiary HF Group Holding, formed a wholly-owned new real estate lease holding company, 273 Fifth Avenue, L.L.C. ("273 Co").
On May 28, 2021, the Company, through its subsidiary HF Group Holding, purchased the 33.33% non-controlling interest of the stock in Kirnland from the previous minority shareholder.
The following table summarizes all the existing entities under HF Holding after the above-mentioned reorganization, together with the new entities formed or acquired after the Atlantic Transactions:

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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, USA100%Foodservice distributor
NSFDecember 17, 2008Florida, USA100%Foodservice distributor
HFFIDecember 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 CharlotteJuly 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 CoOctober 10, 2020Delaware, USA100%Real estate lease holding company
Merger with 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 (the "Business Combination"). 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 the Company 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 related 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.
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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
*On November 4, 2019 and as of September 30, 2021, B&R Global consolidated FUSO, which is considered as a variable interest entity (“VIE”) under U.S. GAAP, due to its pecuniary and contractual interest in this entity.
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, 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, in exchange for purchase consideration of $101,269,706. Before the acquisition of the BRGR Subsidiaries, the CEO of the Company, Xiao Mou Zhang, managed and owned 8.91% interest in BRGR. Consideration for the
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Realty Acquisition was funded by (i) $75.6 million in mortgage-backed term loans financed under the Second Amended Credit Agreement (see Note 10 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
The combined entity, resulting from the merger of B&R Global and HF Group, has 13 distribution centers strategically located in 8 states across the Southeast, Pacific and Mountain West regions of the United States and serves over 10,000 restaurants across 22 states with a fleet of over 300 refrigerated vehicles, and 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 support to its customers, who mainly converse in Mandarin or Chinese dialects.
Independent Investigation Update
In March 2020, an analyst report suggested certain improprieties in the Company’s operations. These allegations became the subject of two putative stockholder class actions filed on or after March 29, 2020 in the United States District Court for the Central District of California generally alleging the Company, and certain of its current and former directors and officers violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements (the “Class Actions”). After the second putative stockholder class action was filed, the Class Actions were consolidated.
In response to the allegations in the analyst report, the Company's Board of Directors appointed a Special Committee of Independent Directors to conduct an independent investigation with the assistance of counsel (the “Special Committee”).
In addition, the SEC initiated a formal, non-public investigation of the Company, and the SEC informally requested, and later issued a subpoena for, documents and other information. The subpoena relates to but is not necessarily limited to the matters identified in the Class Actions. The Special Committee and the Company are cooperating with the SEC. The SEC and the Special Committee investigations are ongoing.
To date, the Special Committee has reached no final conclusions in conjunction with its investigation. The investigation is focused primarily on related party transactions that occurred in periods prior to December 31, 2020 with entities that are/were owned by certain former executives and officers (including family members), of the Company, as well as other matters.
It is possible that future findings of the independent investigation could result in a determination that acts occurred, which might impact the Company’s historical consolidated financial statements and/or associated disclosures. Such impacts could potentially include, but are not limited to, historical misstatement of assets, liabilities, equity and earnings, the evaluation and potential consolidation of variable interest entities into the Company’s consolidated financial statements, the recording of additional compensation expense and related payroll taxes associated with certain of the Company’s former executive officers. Even if these impacts occur, they may or may not have been material. As with any SEC investigation, there is also the possibility of potential fines and penalties. At this time, however, the Special Committee has not made any conclusions about what, if any, conduct occurred and the impact, if any, of that conduct on historical consolidated financial statements.
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Please refer to Note 17 – Commitments and Contingencies – for additional information.
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 and nine month periods ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
All inter-company balances and transactions have been eliminated upon consolidation.
U.S. GAAP provides guidance on the identification of VIE and financial reporting for entities over which control is achieved through means other than voting interests. The Company evaluates each of its interests in an entity to determine whether or not the investee is a VIE and, if so, whether the Company is the primary beneficiary of such VIE. In determining whether the Company is the primary beneficiary, the Company considers if the Company (1) has power to direct the activities that most significantly affect the economic performance of the VIE, and (2) receives the economic benefits of the VIE that could be significant to the VIE. If deemed the primary beneficiary, the Company consolidates the VIE.
As of September 30, 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:
September 30,
2021
December 31,
2020
Current assets$84,742 $47,822 
Non-current assets10,885 115,934 
Total assets$95,627 $163,756 
Current liabilities$369,356 $496,234 
Non-current liabilities 39,475 
Total liabilities$369,356 $535,709 

For the Three Months Ended September 30,For the Nine Months Ended September 30,
2021202020212020
Net revenue$681,539 $531,194 $1,882,544 $1,612,999 
Net income (loss)$(78,454)$16,157 $98,224 $115,602 

For the Three Months Ended September 30,For the Nine Months Ended September 30,
2021202020212020
Net cash provided by (used in) operating activities$12,646 $32,697 $65,158 $366,899 
Net cash provided by (used in) financing activities(26,547)(15,359)(16,692)(260,971)
Net increase (decrease) in cash and cash equivalents$(13,901)$17,338 $48,466 $105,928 
Non-controlling Interests
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U.S. GAAP requires that non-controlling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the amounts attributable to the net income (loss) of those subsidiaries are reported separately in the consolidated statements of operations.
On May 28, 2021, the Company, through its subsidiary HF Group Holding, purchased the 33.33% noncontrolling interest of the stock in Kirnland for $5,000,000, making Kirnland a wholly owned subsidiary. In accordance with ASC 810-10-45-23, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions. Therefore, no gain or loss shall be recognized. As a result of this transaction, noncontrolling interests were reduced by $1,144,113 and the remaining difference of $3,855,887 was charged to additional paid-in capital.
As of September 30, 2021 and December 31, 2020, non-controlling interests consisted of the following:
Name of EntityPercentage of
Non-controlling
Interest Ownership
September 30,
2021
December 31,
2020
Kirnland%$ $1,384,780 
HFFI40.00%(977) 
MIN39.75%1,268,809 889,596 
MS35.00%452,677 459,816 
OW32.50%1,856,680 1,633,355 
Total$3,577,189 $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, inventory reserves, useful lives of property and equipment, lease assumptions, impairment of long-lived assets, long-term investments, impairment of goodwill, the purchase price allocation and fair value of non-controlling interests with respect to business combinations, realization of deferred tax assets, stock-based compensation, and uncertain income tax positions.
Cash
The Company considers all highly liquid investments purchased with an original maturity of three months or shorter to be cash equivalents. As of September 30, 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 September 30, 2021 and December 31, 2020, allowances for doubtful accounts were $349,311 and $