NOTE

- LEASES

January 1, 2019,

the Company adopted ASU

2016

02,

Leases (ASC Topic

842

)

. For all leases that were entered into prior to the effective date of Topic

842,

the Company elected to apply the package of practical expedients. The Company leases office space and warehouses under non-cancelable operating leases, with terms typically ranging from

one

five

years, as well as operating and finance leases for vehicles and delivery trucks, forklifts and computer equipment with various expiration dates through

2021.

The Company determines whether an arrangement is or includes an embedded lease at contract inception.

Operating lease assets and lease liabilities are recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term. Lease expense is recognized on a straight-line basis over the lease term. For finance leases, the Company also recognizes a finance lease asset and finance lease liability at inception, with lease expense recognized as interest expense and amortization of the lease payment.

Operating Leases

The components of lease expense were as follows:

	For the Three Months Ended
	March 31, 2020			March 31, 2019
Operating lease cost	$	503,057		$	164,752

Weighted Average Remaining Lease Term (Months)
Operating leases		36			31

Weighted Average Discount Rate
Operating leases		4.1	%		5.1	%

Finance Leases

The components of lease expense were as follows:

	For the Three Months Ended
	March 31, 2020		March 31, 2019
Finance leases cost:
Amortization of right-of-use assets	$	139,687	$	145,879
Interest on lease liabilities		27,903		32,327
Total finance leases cost	$	167,590	$	178,206

Supplemental cash flow information related to finance leases was as follows:

	For the Three Months Ended
	March 31, 2020		March 31, 2019

Operating cash flows from finance leases		27,903		32,327

Supplemental balance sheet information related to leases was as follows:

	March 31, 2020			December 31, 2019

Finance Leases
Property and equipment, at cost	$	2,793,731		$	2,793,731
Accumulated depreciation		(1,432,817	)		(1,293,130	)
Property and equipment, net	$	1,360,914		$	1,500,601

Weighted Average Remaining Lease Term (Months)
Finance leases		51			54

Weighted Average Discount Rate
Finance leases		7.52	%		7.51	%

Maturities of lease liabilities were as follows

Twelve months ending March 31,	Operating Leases			Finance Leases
2021	$	395,354		$	373,715
2022		288,902			352,151
2023		245,773			334,224
2024		78,784			295,250
2025		-			162,142
Total Lease Payments		1,008,813			1,517,482
Less Imputed Interest		(125,261	)		(249,599	)
Total	$	883,552		$	1,267,883

July 2, 2018,

AnHeart entered into

two

separate leases for

two

buildings located in Manhattan, New York, at

273

Fifth Avenue and

275

Fifth Avenue, for

years and

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.

February 23, 2019,

HF Group executed an agreement to transfer all of its ownership interest in AnHeart to Jianping An, a resident of New York, for a sum of

$20,000.

The transfer of ownership was completed on

May 2, 2019.

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 sale of AnHeart stock to Ms. An, and in consideration of the Company’s ongoing guaranty of AnHeart’s performance of the lease obligations, AnHeart granted to the Company a security interest in all AnHeart assets, together with a covenant that the Company will be assigned the leases, to be exercised if AnHeart defaults. Further, AnHeart has tendered an unconditional guaranty of all AnHeart liabilities arising from the leases, in favor of the Company, executed by Minsheng Pharmaceutical Group Company, Ltd., a Chinese manufacturer and distributor of herbal medicines.