ALIMENTS: RAPPORT DE GESTION ET ANALYSE DE LA SITUATION FINANCIÈRE ET DES RÉSULTATS DES OPÉRATIONS. (formulaire 10-K)


Vous devriez lire la description suivante de nos résultats d'exploitation et
situation financière conjointement avec nos états financiers consolidés vérifiés
relevés pour les exercices terminés 31 décembre 2019 et 2018.



Overview



HF Foods Group Inc. ("HF Group", or the "Company") markets and distributes fresh
produces, frozen and dry food, and non- food products to primarily Asian
restaurants and other foodservice customers throughout the Southeast, Pacific
and Mountain West regions region of the United States.



La société a été initialement constituée en Delaware sur 19 mai 2016 comme spécial
société d'acquisition à but lucratif sous le nom Atlantic Acquisition Corp.
(«Atlantique»), afin d'acquérir, par le biais d'une fusion, un échange d'actions, des actifs
acquisition, achat d'actions, recapitalisation, réorganisation ou similaire
regroupement d'entreprises, une ou plusieurs entreprises ou entités.

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Effective August 22, 2018, Atlantic consummated the transactions contemplated by
a merger agreement (the "Atlantic Merger Agreement"), dated as of March 28,
2018, by and among Atlantic, HF Group Merger Sub Inc., a Delaware subsidiary
formed by Atlantic, HF Group Holding Corporation, a North Carolina corporation
("HF Holding"), the stockholders of HF Holding, and Zhou Min Ni, as
representative of the stockholders of HF Holding. Pursuant to the Atlantic
Merger Agreement, HF Holding merged with HF Merger Sub and HF Holding became the
surviving entity (the "Atlantic Merger") and a wholly-owned subsidiary of
Atlantic (the "Atlantic Acquisition"). Additionally, upon the closing of the
transactions contemplated by the Atlantic Merger Agreement (the "Atlantic
Closing"), (i) the stockholders of HF Holding became the holders of a majority
of the shares of common stock of Atlantic, and (ii) Atlantic changed its name to
HF Foods Group Inc. (Collectively, these transactions are referred to as the
"Atlantic Transactions").



At closing on August 22, 2018, 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-Transaction stockholders of Atlantic.



Effective November 4, 2019, HF Group consummated the transactions contemplated
by a merger agreement (the "B&R Global Merger Agreement"), dated as of June 21,
2019, by and among the Company, B&R Global Merger Sub Inc., a Delaware
corporation ("Merger Sub"), B&R Global, the stockholders of B&R Global (the "B&R
Global Stockholders"), and Xiao Mou Zhang, as representative of the stockholders
(the "Business Combination"). Upon the closing of the transactions contemplated
by the B&R Global Merger Agreement (the "Closing"), Merger Sub merged with and
into B&R Global, resulting in B&R Global becoming a wholly owned subsidiary of
HF Group. HF Group acquired 100% of the controlling interest of B&R Global, in
exchange for 30,700,000 shares of HF Group Common Stock. The aggregate fair
value of the consideration paid by HF Group in the business combination is
approximately $576,699,494 and is based on the closing share price at the date
of Closing.



Due to the acquisition of B&R Global, the financial information of the Company
for the year ended December 31, 2019 is not comparable to the full year ended
December 31, 2018. As such, the Company has presented our results of operations
for the years ended December 31, 2019 and 2018 as well as the unaudited pro
forma combined results of operations for years ended December 31, 2019 and 2018.
For more information, see section titled "Supplemental Unaudited Pro Forma
Combined Financial Information".



Outlook



The Company plans to continue to expand our business through acquisition of
other distributors and wholesalers, which depends on access to sufficient
capital. If the Company is unable to obtain equity or debt financing, or
borrowings from bank loans, the Company may not be able to execute our plan to
acquire other distributors and wholesalers. Even if the Company is able to make
such acquisitions, the Company may not be able to successfully integrate any
acquired businesses or improve their profitability, which could have a material
adverse effect on our financial condition and future operating performance.



Our net revenue for the year ended December 31, 2019 was $388.2 million, an
increase of $97.2 million, or 33.4%, from $291.0 million for the year ended
December 31, 2018. Net income attributable to HF Group's stockholders for the
year ended December 31, 2019 was $5.39 million, a decrease of $0.9 million, or
14.3%, from $6.3 million for the year ended December 31, 2018. Adjusted EBITDA
for the year ended December 31, 2019 was $16.9 million, an increase of $2.7
million, or 19.0%, from $14.2 million for the year ended December 31, 2018. For
additional information on Adjusted EBITDA, see the section entitled
"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-  Adjusted EBITDA"
below.



On a pro-forma basis, assuming that the Business Combination took place on
January 1, 2018, our net revenue for the year ended December 31, 2019 would have
been $828.0 million, an increase of $10.0 million, or 1.2% from $818.0 million
for the year ended December 31, 2018. Net income attributable to HF Group's
stockholders for the year ended December 31, 2019 would have been $5.7 million,
a decrease of $10.1 million, or 64.1%, from net income attributable to HF
Group's stockholder of $15.8 million for the year ended December 31, 2018.
Adjusted EBITDA for the year ended December 31, 2019 would have been $32.9
million, a decrease of $5.8 million, or 15.1%, from $38.7 million for the year
ended December 31, 2018. For additional information on our pro-forma results,
see the section entitled "SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION" below.



The COVID-19 epidemic may pose significant risks to our business. It is too
early to quantify the impact this situation will have on company revenue and
profits at this time, but the public health actions being undertaken to reduce
spread of the virus are capable of creating uncertainties regarding consumer
demand for meals away from home and regarding reliability of our supply chain.
Accordingly, management is evaluating the Company's liquidity position,
communicating with and monitoring customers and suppliers, and reviewing our
analysis of our financial performance as we seek to position the Company to
withstand the uncertainty related to the coronavirus.



Comment Évaluer le groupe HF Performance




In assessing our performance, the Company considers a variety of performance and
financial measures, including principal growth in net revenue, gross profit,
distribution, general and administrative expenses, and adjusted EBITDA. The key
measures that the Company uses to evaluate the performance of our business are
set forth below:



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Net Revenue



Net revenue is equal to gross sales minus sales returns, sales incentives that
the Company offers to our customers, such as rebates and discounts that are
offsets to gross sales; and certain other adjustments. Our net sales are driven
by changes in number of customers and average customer order amount, product
inflation that is reflected in the pricing of its products and mix of products
sold.



Gross Profit



Gross profit is equal to net sales minus cost of revenue. Cost of revenue
primarily includes inventory costs (net of supplier consideration), inbound
freight, custom clearance fees and other miscellaneous expenses. Cost of revenue
generally changes as the Company incurs higher or lower costs from suppliers and
as the customer and product mix changes.



Frais de distribution, de vente et d'administration




Distribution, selling and administrative expenses primarily consist of salaries
and benefits for employees and contract laborers, trucking and fuel expenses,
utilities, maintenance and repair expenses, insurance expenses, depreciation and
amortization expenses, selling and marketing expenses, professional fees and
other operating expenses.



Adjusted EBITDA



The Company believes that Adjusted EBITDA is a useful performance measure and
can be used to facilitate a comparison of the Company's operating performance on
a consistent basis from period to period and to provide for a more complete
understanding of factors and trends affecting our business than GAAP measures
alone can provide. Our management believes that Adjusted EBITDA is less
susceptible to variances in actual performance resulting from depreciation,
amortization and other non-cash charges and more reflective of other factors
that affect our operating performance. Our management believes that the use of
these non-GAAP financial measures provides an additional tool for investors to
use in evaluating ongoing operating results and trends and in comparing our
financial performance with other companies in the same industry, many of which
present similar non-GAAP financial measures to investors. The Company presents
Adjusted EBITDA in order to provide supplemental information that the Company
considers relevant for the readers of our consolidated financial statements
included elsewhere in this report, and such information is not meant to replace
or supersede U.S. GAAP measures.



The Company defines Adjusted EBITDA as net income (loss) before interest
expense, income taxes, and depreciation and amortization, further adjusted to
exclude certain unusual, non-cash, non-recurring, cost reduction, and other
adjustment items. The definition of Adjusted EBITDA may not be the same as
similarly titled measures used by other companies in the industry. Adjusted
EBITDA is not defined under U.S. GAAP and is subject to important limitations as
analytical tools and you should not consider them in isolation or as substitutes
for analysis of HF Group's results as reported under U.S. GAAP. For example,
Adjusted EBITDA:


? exclut certains paiements d'impôts qui peuvent représenter une réduction des liquidités disponibles

à la Société;

? ne reflète aucune exigence de dépenses en capital pour les actifs

étant déprécié et amorti qui pourrait devoir être remplacé à l'avenir;

? ne reflète pas les changements ni les besoins de trésorerie de notre fonds de roulement

Besoins; et

? ne reflète pas les intérêts débiteurs importants ou les besoins de trésorerie,

    necessary to service our debt.



Pour plus d'informations sur le BAIIA ajusté, voir la section intitulée
"RAPPORT DE GESTION ET ANALYSE DE LA SITUATION FINANCIÈRE ET DES RÉSULTATS DE
OPÉRATIONS – EBITDA ajusté "ci-dessous.

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Résultats d'exploitation pour les exercices terminés 31 décembre 2019 et 2018

Le tableau suivant présente un résumé de nos résultats consolidés de
opérations pour les exercices terminés 31 décembre 2019 et 2018. L'historique
les résultats présentés ci-dessous ne sont pas nécessairement représentatifs des résultats
être attendue pour toute période future.



                                                 For the years ended
                                                     December 31                        Changes
                                               2019              2018             Amount            %
Net revenue                                $ 388,162,281$ 291,006,698$ 97,155,583          33.4 %
Cost of revenue                              324,953,758       241,441,149       83,512,609          34.6 %
Gross profit                                  63,208,523        49,565,549       13,642,974          27.5 %
Distribution, selling and administrative
expenses                                      54,931,157        41,039,438       13,891,719          33.8 %
Income from operations                         8,277,366         8,526,111         (248,745 )        (2.9 )%
Interest income                                  418,530           493,358          (74,828 )       (15.2 )%
Interest expenses and bank charges            (1,661,454 )      (1,372,508 )       (288,946 )        21.1 %
Other income                                   1,057,936         1,196,989         (139,053 )       (11.6 )%
Income before income tax provision             8,092,378         8,843,950         (751,572 )        (8.5 )%
Provision for income taxes                     2,197,092         2,490,255          293,163         (11.8 )%
Net income                                     5,895,286         6,353,695         (458,409 )        (7.2 )%
Less: net income attributable to
noncontrolling interest                          505,609            67,240          438,369         651.9 %
Net income attributable to HF Foods
Group Inc.                                 $   5,389,677$   6,286,455$   (896,778 )       (14.3 )%




Net Revenue



Our net revenue was $388.2 million for the year ended December 31, 2019, which
consisted of $366.4 million, or 94.4% of net revenue, of sales to independent
restaurants and $21.7 million, or 5.6% of net revenue, of sales to wholesale
distributors. Net revenue was $291.0 million for the year ended December 31,
2018, which consisted of $272.2 million, or 93.5% of net revenue, of sales to
independent restaurants and $18.8 million, or 6.5% of net revenue, of sales to
wholesale distributors.


Le tableau suivant présente la répartition des revenus nets:



                                     For the years ended December 31,
                                   2019                            2018                          Changes
                           Amount             %            Amount             %            Amount            %
Net revenue
Sales to independent
restaurants             $ 366,432,448          94.4 %   $ 272,172,106          93.5 %   $ 94,260,342          34.6 %
Wholesale                  21,729,833           5.6 %      18,834,592           6.5 %      2,895,241          15.4 %
Total                   $ 388,162,281         100.0 %   $ 291,006,698         100.0 %   $ 97,155,583          33.4 %




Compared with the year ended December 31, 2018, net revenue increased by $97.2
million, or 33.4%, for the year ended December 31, 2019, primarily attributable
to the acquisition of B&R Global, which contributed $1.8 million in sales to
wholesale customers and $84.3 million in sales to independent restaurants. The
increase in revenue is also due to a $10.0 million increase in sales to
independent restaurants of HF, resulting primarily from slightly increased
commodity prices in 2019 and increases in the average order size of existing
customers by introducing new products during the year. Additionally, HF sales to
wholesale customers increased $1.1 million primarily due to the increase in
sales to three wholesale customers and sales to two new customers.



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Coût du revenu et du bénéfice brut

Le tableau suivant présente le calcul de la marge brute et de la marge brute
pour les ventes aux restaurants indépendants, aux grossistes et le revenu net total:



                                              For the years ended
                                                 December 31,                         Changes
                                            2019              2018             Amount             %

Sales to independent restaurants
Net revenue                             $ 366,432,448$ 272,172,106$ 94,260,342            34.6 %
Cost of revenue                           304,139,896       223,535,244       80,604,652            36.1 %
Gross profit                            $  62,292,552$  48,636,862$ 13,655,690            28.1 %
Gross Margin                                     17.0 %            17.9 %           (0.9 )%

Wholesale
Net revenue                             $  21,729,833$  18,834,592$  2,895,241            15.4 %
Cost of revenue                            20,813,862        17,905,905        2,907,957            16.2 %
Gross profit                            $     915,971$     928,687$    (12,716 )          (1.4 )%
Gross Margin                                      4.2 %             4.9 %           (0.7 )%

Total sales
Net revenue                             $ 388,162,281$ 291,006,698$ 97,155,583            33.4 %
Cost of revenue                           324,953,758       241,441,149       83,512,609            34.6 %
Gross profit                            $  63,208,523$  49,565,549$ 13,642,974            27.5 %
Gross Margin                                     16.3 %            17.0 %           (0.7 )%




Cost of revenue was $325.0 million for the year ended December 31, 2019, an
increase of $83.5 million, or 34.6%, from $241.4 million for the year ended
December 31, 2018, attributable primarily to the acquisition of B&R Global, with
$71.2 million and $1.7 million in cost of revenue for sales to independent
restaurants and wholesale customers, respectively. The remaining increase is
attributable to the $9.4 million increase in cost of revenue for the sales to
independent restaurants of HG driven by the increase in sales.



Gross profit was $63.2 million for the year ended December 31, 2019, an increase
of $13.6 million, or 27.5%, from $49.6 million for the year ended December 31,
2018, attributable primarily to B&R Global, with $13.1 million and $0.1 million
in gross profit derived from sales to independent restaurants and wholesale
customers, respectively.



Gross margin decreased from 17.0% for the year ended December 31, 2018 to 16.3%
for the year ended December 31, 2019, primarily attributable to the lower gross
margin of B&R Global. B&R Global's gross margin for 2019 was 15.3%.



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Frais de distribution, de vente et d'administration




Distribution, selling and administrative expenses were $54.9 million for the
year ended December 31, 2019, an increase of $13.9 million, or 33.8%, from $41.0
million for the year ended December 31, 2018. The increase was mainly
attributable to the Business Combination with B&R Global of $10.1 million, the
amortization expense of $1.8 million relating to the intangible assets acquired
from the Business Combination, and $0.8 million of professional fees associated
with the Business Combination.



Charges d'intérêts et frais bancaires




Interest expenses and bank charges are generated primarily from lines of credit,
long-term debt, and finance leases. Interest expenses and bank charges were $1.7
million and $1.4 million for the years ended December 31, 2019 and 2018,
respectively. The increase was mainly attributable to B&R Global, with interest
expenses of $0.2 million for the two months ended December 31, 2019.



Other Income



Other income consists primarily of non-operating income and rental income. Other
income was $1.1 million for the year ended December 31, 2019 as compared to $1.2
million for the year ended December 31, 2018, representing a decrease of $0.1
million, or 11.6%.



Income taxes Provision



Provision for income taxes decreased by $0.3 million, or 11.8%, from $2.5
million for the year ended December 31, 2018 to $2.2 million for the year ended
December 31, 2019. The decrease is mainly attributable to lower income before
tax provision for HF Group from $8.8 million for the year ended December 31,
2018 to $8.0 million for the year ended December 31, 2019.



Bénéfice net attribuable aux intérêts non contrôlés




Net income attributable to noncontrolling interest was derived from four
minority owned subsidiaries and increased by $438,370, or 652.0%, from $67,240
for the year ended December 31, 2018 to $505,608 for the year ended December 31,
2019, as a result of the increase of net income of the subsidiaries which are
partially owned by noncontrolling interest shareholders.



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Résultat net attribuable à HF Foods Group Inc.




As a result of above, net income attributable to our stockholders decreased by
$0.9 million, or 14.3%, from $6.3 million for the year ended December 31, 2018
to $5.4 million for the year ended December 31, 2019.



Adjusted EBITDA


Le tableau suivant présente le calcul de notre BAIIA ajusté et
rapprochement avec le bénéfice net, la mesure la plus proche des PCGR des États-Unis:



                                             For the years ended December 31,                  Changes
                                                 2019                  2018             Amount             %

Net income                                 $       5,895,286$   6,353,695$   (458,409 )         (7.2 )%
Interest expense                                   1,661,454           1,372,508          288,946           21.1 %
Income tax provision                               2,197,092           2,490,255         (293,163 )        (11.8 %)
Depreciation & Amortization                        6,754,508           2,134,832        4,619,676          216.4 %
Non-recurring expenses*                              375,000           1,831,167       (1,456,167 )        (79.5 %)
Adjusted EBITDA                            $      16,883,340$  14,182,457$  2,700,883           19.0 %
Percentage of revenue                                    4.3 %               4.9 %           (0.6 )%




* For the year ended December 31, 2018, represents labor dispute expenses
accrued in connection with United States Department of Labor investigation of
our subsidiary Kirnland Food Distribution, Inc. For the year ended December 31,
2019, represents a non-recurring expense for a loss related to negligence
claim(s) for damages arising in the ordinary course of business.



Adjusted EBITDA was $16.9 million for the year ended December 31, 2019, an
increase of $2.7 million, or 19.0%, compared to $14.2 million for the year ended
December 31, 2018, resulting mainly from the acquisition of B&R Global, totaled
$2.5 million. Excluding the B&R Global impact, the increase is offset by $1.4
million decrease in non-recurring expenses, $0.5 million decrease in net income,
$0.3 million decrease in income tax provision and $0.8 million increase in
depreciation and amortization.



Informations financières combinées pro forma supplémentaires non auditées




As described above, the Company completed the Business Combination with B&R
Global on November 4, 2019. For comparative purposes, the Company is presenting
supplemental unaudited pro forma combined statements of operations for the years
ended December 31, 2019 and 2018, and the Company discusses such unaudited pro
forma combined results as well as our actual results of operations for the years
ended December 31, 2019 and 2018. The unaudited pro forma combined statements of
operations for these periods present our consolidated results of operations
giving pro forma effect to the Business Combination as if it had occurred on
January 1, 2018. The pro forma combined adjustments give effect to the items
identified in the unaudited pro forma combined tables below in connection with
the Business Combination.



The unaudited pro forma combined adjustments are based on available information
and upon assumptions that our management believes are reasonable in order to
reflect, on a pro forma combined basis, the impact of the Business Combination
on our historical financial information, as applicable.



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Les états financiers mondiaux B&R et nos états financiers ont été
ajusté dans les informations financières pro forma pour donner effet aux événements
sont (1) directement attribuables au regroupement d'entreprises, (2) factuellement
soutenable et (3) devrait avoir un impact continu sur l’ensemble des
entreprise.




The unaudited pro forma combined financial information has been prepared for
informational purposes only and is not necessarily indicative of or intended to
represent what the combined company's financial position or results of
operations actually would have been had the Business Combination occurred as of
the dates indicated. In addition, the unaudited pro forma combined financial
information does not purport to project the future financial position or
operating results of the combined company. The unaudited pro forma adjustments
are based on information available at the time of the preparation of the
unaudited pro forma combined financial information.



The unaudited pro forma combined financial information does not reflect cost
savings, synergies or revenue enhancements that the Company may achieve with
respect to combining the companies or costs to integrate the B&R Global business
or the impact of any non-recurring activity and any one-time transaction related
costs. Synergies and integration costs have been excluded from consideration
because they do not meet the criteria for unaudited pro forma adjustments.



Résultats d'exploitation Pro Forma non audités




The pro forma adjustments are based on our preliminary estimates and assumptions
that are subject to change. The following adjustments have been reflected in the
unaudited pro forma financial statements:



                                                                Year ended December 31, 2019
                                                                  B&R                                 Pro Forma
                                                HF              Global          Adjustments            Combined

Net revenue                                $ 302,103,038$ 525,942,665     $           -        $  828,045,703

Net income                                     5,864,471        11,825,523       (10,890,300 )(1)        6,799,694

Net Income Attributable to HF Foods
Group Inc.                                 $   5,406,526$  11,146,273$ (10,890,300 )$    5,662,499




                                                                 Year ended December 31, 2018
                                                                   B&R                                 Pro Forma
                                                 HF              Global          Adjustments            Combined

Net revenue                                 $ 291,006,698$ 526,974,506     $           -        $  817,981,204

Net income                                      6,353,695        20,650,852

(10 890 300) (1) 16 114 247

Résultat net attribuable à Groupe HF Foods6 286 456 $20 378 257 $

    $ (10,890,300 )$   15,774,413




  (1) Includes intangibles asset amortization expense of $10,890,300 and

10 890 300 $ pour les années terminées 31 décembre 2019 et 31 décembre 2018,

      respectively.




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Liquidité et ressources en capital




As of December 31, 2019, the Company had cash of approximately $14.5 million.
The Company funded working capital and other capital requirements primarily by
equity contribution from shareholders, cash flows from operations, and bank
loans and lines of credit. Cash is required to pay purchase costs for inventory,
salaries, fuel and trucking expenses, selling expenses, rental expenses, income
taxes, other operating expenses and repay debts.



On April 18, 2019, the Company and its operating subsidiaries Han Feng, New
Southern Food Distributers and Kirnland entered into a credit agreement with
East West Bank, which replaced our prior credit agreement with East West Bank.
The credit agreement provides a $25,000,000 revolving credit facility which was
due August 18, 2021, accrued interest based on the prime rate less 0.375% or
2.20% above LIBOR, but in no event less than 4.214% per annum, and was secured
by virtually all assets of the Company and our domestic subsidiaries. On
November 4, 2019, the East West Bank revolving credit facility loan was paid off
from borrowings under the Amended and Restated Credit Agreement entered into
connection with the merger with B&R Global, as described below.



On November 4, 2019, the Company entered into an Amended and Restated Credit
Agreement with JP Morgan. The Amended and Restated Credit Agreement provides for
(a) a $100 million asset-secured revolving credit facility maturing on November
4, 2022, and (b) mortgage-secured term loans of $55.4 million.



On January 17, 2020, the Company, B&R Global, and the Borrowers, and certain
material subsidiaries of the Company as guarantors, entered into a Second
Amended and Restated Credit Agreement (the "Second Amended Credit Agreement") by
and among JPMorgan, as Administrative Agent, and certain lender parties thereto,
including Comerica Bank. The Second Amended Credit Agreement provided for (a) a
$100 million asset-secured revolving credit facility maturing on November 4,
2022 (the "Facility"), and (b) mortgage-secured Term Loans of $75.6 million. The
Second Amended Credit Agreement amended and restated the existing $55.0 million
of real estate term loans under the Amended Credit Agreement. As of January 17,
2020, the existing balance of revolving debt under the Amended Credit Agreement,
$41.2 million, was rolled over, and an additional $18.7 million available to the
Company under the Facility was drawn. The Company used the $75.6 million in
mortgage-secured term loans and $18.7 million drawn from the revolving credit
facility to fund in part the Acquisition of the B&R Realty Subsidiaries, as
noted above. Borrowings under the Second Amended Credit Agreement may be used
for, among other things, working capital and other general corporate purposes of
the Company and its subsidiaries (including permitted acquisitions). The
Borrowers have the ability to increase the amount of the Facility, which
increases may take the form of increases to the revolving credit commitments, by
an aggregate amount of up $30 million upon satisfaction of customary conditions
precedent for such increases or incremental loans and receipt of additional
commitments by one or more existing or new lenders. Borrowings under the
Facility bear interest at a floating rate, which will be, at the Borrowers'
option, either LIBOR plus 1.375%, or a base rate of prime rate minus 1.125%. The
mortgage-secured Term Loans bear interest at a floating rate, which will be, at
the Borrowers' option, either LIBOR plus 1.875%, or a base rate of prime rate
minus 0.625%. A commitment fee of 0.15% is payable monthly in arrears based on
the daily amount of the undrawn portion of each lender's revolving credit
commitments under the Facility. The Borrowers are obligated to pay monthly
installments on the mortgage-secured Term Loans in the amount of $252,000.00,
with a final installment of the remaining principal balance of the Term Loans
due on January 17, 2030, the Term Loan Maturity Date.



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Although management believes that the cash generated from operations will be
sufficient to meet our normal working capital needs for at least the next twelve
months, our ability to repay our current obligations will depend on the future
realization of our current assets. Management has considered the historical
experience, the economy, trends in the foodservice distribution industry, the
expected collectability of accounts receivable and the realization of the
inventories as of December 31, 2019. Based on the above considerations,
management is of the opinion that the Company has sufficient funds to meet our
working capital requirements and debt obligations as they become due. However,
there is no assurance that the Company will be successful in our plan. There are
a number of factors that could potentially arise that could result in shortfalls
to our plan, such as the demand for our products, economic conditions, the
competitive pricing in the foodservice distribution industry and the ability of
our banks and suppliers to provide continued support. If the future cash flow
from operations and other capital resources are insufficient to fund our
liquidity needs, the Company may be forced to reduce or delay our acquisition
plan, sell assets, obtain additional debt or equity capital which may not be
available on terms acceptable to us, if at all, or refinance all or a portion of
our debt.



The following table summarizes cash flow data for the years ended December 31,
2019 and 2018:



                                                               For the years ended December 31,
                                                                 2019                   2018
Net cash provided by operating activities                  $      4,666,528$      11,953,466
Net cash provided by (used) in investing activities               2,775,115              (6,365,313 )
Net cash provided by (used) in financing activities               1,607,239              (6,184,793 )

Augmentation (diminution) nette de la trésorerie et des équivalents de trésorerie 9 048 882 $

      $        (596,640 )




Operating Activities



Net cash provided by operating activities consists primarily of net income
adjusted for non-cash items, including depreciation and amortization, changes in
deferred income taxes and others, and adjusted for the effect of working capital
changes. Net cash provided by operating activities was approximately $4.7
million for the year ended December 31, 2019, a decrease of $7.3 million, or
61%, compared to net cash provided by operating activities of $12.0 million for
the year ended December 31, 2018. The decrease was a combined results of a
decrease of $10.5 million from changes in working capital items mainly resulting
from changes in accounts receivable, inventory, accounts payable, advances to
suppliers, accrued expenses, other long- term assets and net income which were
offset by an increase of $1.8 million in depreciation and amortization expense,
and advances from customers - related parties. In addition, the decrease was
offset by an increase from newly acquired B&R Global with total net cash
provided by operating activities of $3.2 million.



Investing Activities



Net cash provided in investing activities was approximately $2.8 million for the
year ended December 31, 2019, an increase of $9.1 million, or 144%, compared to
$6.4 million net cash used investing activities for the year ended December 31,
2018. The increase was a combined result of cash acquired of $7.0 million from
the merger with B&R Global, decreased cash paid for notes receivable to third
parties and related parties of $2.9 million and $1.4 million, respectively,
offset by increased cash paid for the purchase of property and equipment of $1.6
million and decrease of cash acquired from the reverse merger with Atlantic
Acquisition Corp. of $1.4 million.



Financing Activities



Net cash provided in financing activities was approximately $1.6 million for the
year ended December 31, 2019, an increase of $7.8 million, or 126%, compared
with $6.2 million of net cash used in financing activities for the year ended
December 31, 2018. The increase was a combined result of increase in proceeds
from lines of credit and long term debt of $38.2 million and a decrease of $0.9
million in cash dividend to shareholders, offset by an increase of $28.4 million
in repayment of lines of credit, long term debt and finance leases and newly
acquired B&R Global with cash provided by financing activities of $2.9 million.



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Engagements et obligations contractuelles




The following table presents our material contractual obligations as of December
31, 2019:



                                                   Less than 1                                       More than 5
Contractual Obligations              Total             year          1-3 years        3-5 years         Years
Lines of credit                   $ 41,268,554     $          -     $ 41,268,554     $         -     $          -
Long-term debt                      21,261,997        2,726,981        4,668,439       1,886,975       11,979,602
Finance lease liabilities            1,610,911          373,715          696,248         540,948                -
Operating lease obligations         18,684,526        4,930,181        8,239,473       5,514,872                -
Total                             $ 82,825,987$  8,030,876$ 54,872,714$ 7,942,795$ 11,979,601




On July 2, 2018, AnHeart, Inc., one of our subsidiaries, entered into two
separate leases for two buildings located in Manhattan, New York, at 273 Fifth
Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively, which are
net leases, meaning that AnHeart is required to pay all costs associated with
the buildings, including utilities, maintenance and repairs. HF Holding provided
a guaranty for all rent and related costs of the leases, including costs
associated with the construction of a two-story structure at 273 Fifth Avenue
and rehabilitation of the building at 275 Fifth Avenue. Under the lease for 273
Fifth Avenue, the fixed rent costs over 30 years commence at $325,000 for the
first year and escalate every year during the term to $1,047,000 in year 30.
Under the lease for 275 Fifth Avenue, the fixed rent costs over 15 years
commence at $462,000 for the first year and escalate every year during the term
to approximately $760,878 in year 15. The 275 Fifth Avenue lease includes an
option to extend the term for an additional 10 years. Under the leases, AnHeart
delivered a letter of credit in favor of the Landlord in the amount of $213,000
as security for AnHeart's obligations under the lease at 273 Fifth Avenue, and
$115,500 with respect to 275 Fifth Avenue. The Company entered into the leases
for the purpose of expanding our product lines to include Chinese herb
supplements, and to use the sites to develop into a hub for such products. The
Company has since determined to cease this business expansion.



On February 23, 2019, the Company executed an agreement to transfer all of our
ownership interest in AnHeart to Jianping An, a resident of New York, for a sum
of $20,000. The transfer of ownership has been disclosed and landlord consent
was obtained. However, the transfer of ownership does not release HF Holding's
guaranty of AnHeart's obligations or liabilities under the original lease
agreements. Under the terms of the transfer agreement, AnHeart executed a
security agreement which grants us a security interest in AnHeart assets and a
covenant to assign the leases to HF Group if AnHeart defaults. Further, AnHeart
has tendered an unconditional guaranty of all liabilities arising under the
leases, in favor of the Company, executed by Minsheng Pharmaceutical Group
Company, Ltd., a Chinese manufacturer and distributor of herbal medicines.



Dispositions hors bilan

La Société n'est partie à aucun arrangement hors bilan.

Conventions comptables critiques




The discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with GAAP. These principles require our management to make estimates and
judgments that affect the reported amounts of assets, liabilities, sales and
expenses, cash flow and related disclosure of contingent assets and liabilities.
The estimates include, but are not limited to, accounts receivable, revenue
recognition, impairment of long-lived assets and income taxes. The Company bases
our estimates on historical experience and various other assumptions that the
Company believes to be reasonable under the circumstances. Actual results may
differ from these estimates. To the extent that there are material differences
between these estimates and the actual results, future financial statements will
be affected.



The Company believes that among our significant accounting policies, which are
described in Note 2 to the audited consolidated financial statements included in
this report, the following accounting policies involve a greater degree of
judgment and complexity. Accordingly, the Company believes these are the most
critical to fully understand and evaluate our financial condition and results of
operations.



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Accounts receivable



Accounts receivable represent amounts due from customers in the ordinary course
of business and are recorded at the invoiced amount and do not bear interest.
Receivables are presented net of the allowance for doubtful accounts in the
accompanying unaudited condensed consolidated balance sheets. The Company
evaluates the collectability of our accounts receivable and determines the
appropriate allowance for doubtful accounts based on a combination of factors.
When the Company becomes 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 when uncollectible receivables are to be written
off, including, e.g., bankruptcy filings, the referral of customer accounts to
outside parties for collection, and the length that accounts remain past due. As
of December 31, 2019, and December 31, 2018, the allowances for doubtful
accounts were $623,970 and $658,104, respectively.



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.



On January 1, 2018 the Company adopted Accounting Standards Update ("ASU")
2014-09 Revenue from Contracts with Customers (FASB ASC Topic 606) using the
modified retrospective method for contracts that were not completed as of
January 1, 2018. The results of applying Topic 606 using the modified
retrospective approach were insignificant and did not have a material impact on
our consolidated financial condition, results of operations, cash flows,
business process, controls or systems.



The core principle underlying the referenced ASU is that the Company will
recognize revenue to represent the transfer of goods and services to customers
in an amount that reflects the consideration to which the Company expects to be
entitled in such exchange. This will require us to identify contractual
performance obligations and determine whether revenue should be recognized at a
point in time or over time, based on when control of goods and services
transfers to a customer. The majority of our 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. Our revenue streams are recognized at a specific point in time.



Les actifs et passifs des contrats sont enregistrés dans le
Bilan consolidé en tant que débiteurs et paiements anticipés de
clients au 31 décembre 2019 et 31 décembre 2018. Pour l'année terminée
31 décembre 2018, revenus constatés des obligations de performance liées aux
les périodes précédentes étaient insignifiantes.




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



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




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Dépréciation d'actifs à long terme




The Company assesses our 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 which the assets are
expected to generate. If property and equipment 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.



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 the Company
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 our
deferred tax assets in the future in excess of their net recorded amount, the
Company would make an adjustment to the deferred tax asset valuation allowance,
which would reduce the provision for income taxes.



The Company records uncertain tax positions in accordance with ASC 740 on the
basis of a two-step process in which (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 December 31, 2019, and
2018.


Déclarations comptables récentes




In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on
Financial Instruments (Topic 326): Measurement of Credit Losses on Financial
Instruments ("ASU 2016-13"). ASU 2016-13 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 16-13 was further amended in November 2019,
Codification Improvements to Topic 326, Financial Instruments-Credit losses.
This guidance is effective for fiscal years beginning after December 15, 2019,
including those interim periods within those fiscal years. The Company is
currently assessing the impact of adopting this standard, but based on a
preliminary assessment, does not expect the adoption of this guidance to have a
material impact on its consolidated financial statements.



In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic
820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement" ("ASU 2018-13"). ASU 2018-13 removes, modifies and adds certain
disclosure requirements in Topic 820 "Fair Value Measurement". ASU 2018-13
eliminates certain disclosures related to transfers and the valuations process,
modifies disclosures for investments that are valued based on net asset value,
clarifies the measurement uncertainty disclosure, and requires additional
disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for
the Company for annual and interim reporting periods beginning January 1, 2020.
The Company is currently evaluating the impact ASU 2018-13 will have on its
consolidated financial statements.



In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes, which is intended to simplify
various aspects related to accounting for income taxes. ASU 2019-12 removes
certain exceptions to the general principles in Topic 740 and also clarifies and
amends existing guidance to improve consistent application. This guidance is
effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2020, with early adoption permitted. The Company is
currently assessing the impact of adopting this standard, but based on a
preliminary assessment, does not expect the adoption of this guidance to have a
material impact on its consolidated financial statements.



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