LEASES

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

LEASES

LEASES

The Company leases office space and warehouses under non-cancelable operating leases, with terms typically ranging from one to 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 finance lease assets and finance lease liabilities 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						For the Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Operating lease cost	$	301,734		$	184,002		$	1,058,611		$	476,262
Weighted Average Remaining Lease Term (Months)
Operating leases	32			26			32			26
Weighted Average Discount Rate
Operating leases	4.1		%	5.1		%	4.1		%	5.1		%

Finance Leases

The components of lease expense were as follows:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Finance leases cost:
Amortization of right-of-use assets	$	139,687	$	139,686	$	419,060	$	431,444
Interest on lease liabilities	21,647		25,697		72,767		86,303
Total finance leases cost	$	161,334	$	165,383	$	491,827	$	517,747

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

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Operating cash flows from finance leases	$	21,647	$	25,697	$	72,767	$	86,303

Supplemental balance sheet information related to leases was as follows:

	September 30, 2020			December 31, 2019
Finance Leases
Property and equipment, at cost	$	2,793,731		$	2,793,731
Accumulated depreciation	(1,712,190)			(1,293,130)
Property and equipment, net	$	1,081,541		$	1,500,601
Weighted Average Remaining Lease Term (Months)
Finance leases	46			54
Weighted Average Discount Rate
Finance leases	7.54		%	7.51		%

Maturities of lease liabilities were as follows:

Twelve months ending September 30,	Operating Leases		Finance Leases
2021	$	315,505	$	370,309
2022	271,849		335,812
2023	196,960		331,070
2024	—		253,056
2025	—		40,378
Total Lease Payments	784,314		1,330,625
Less Imputed Interest	(90,332)		(204,735)
Total	$	693,982	$	1,125,890

On July 2, 2018, AnHeart Inc. ("AnHeart"), a wholly-owned subsidiary of HF Holding, entered into two separate leases for two properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively. The leases were on a triple net basis, meaning AnHeart is required to pay all costs associated with the properties, including taxes, insurance, utilities, maintenance and repairs. HF Holding provided a guaranty for all rent and related costs of the leases, including costs associated with the planned construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue. The Company entered into the leases with the planned purpose of expanding its 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, HF Holding executed an agreement to divest all of its ownership interest in AnHeart to Ms. Jianping An, a resident of New York, for the sum of $20,000. The transfer of ownership was completed on May 2, 2019. However, the divestment 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 on the original lease agreements. Further, Ms. An 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.

LEASES

LEASES

The Company leases office space and warehouses under non-cancelable operating leases, with terms typically ranging from one to 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 finance lease assets and finance lease liabilities 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						For the Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Operating lease cost	$	301,734		$	184,002		$	1,058,611		$	476,262
Weighted Average Remaining Lease Term (Months)
Operating leases	32			26			32			26
Weighted Average Discount Rate
Operating leases	4.1		%	5.1		%	4.1		%	5.1		%

Finance Leases

The components of lease expense were as follows:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Finance leases cost:
Amortization of right-of-use assets	$	139,687	$	139,686	$	419,060	$	431,444
Interest on lease liabilities	21,647		25,697		72,767		86,303
Total finance leases cost	$	161,334	$	165,383	$	491,827	$	517,747

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

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Operating cash flows from finance leases	$	21,647	$	25,697	$	72,767	$	86,303

Supplemental balance sheet information related to leases was as follows:

	September 30, 2020			December 31, 2019
Finance Leases
Property and equipment, at cost	$	2,793,731		$	2,793,731
Accumulated depreciation	(1,712,190)			(1,293,130)
Property and equipment, net	$	1,081,541		$	1,500,601
Weighted Average Remaining Lease Term (Months)
Finance leases	46			54
Weighted Average Discount Rate
Finance leases	7.54		%	7.51		%

Maturities of lease liabilities were as follows:

Twelve months ending September 30,	Operating Leases		Finance Leases
2021	$	315,505	$	370,309
2022	271,849		335,812
2023	196,960		331,070
2024	—		253,056
2025	—		40,378
Total Lease Payments	784,314		1,330,625
Less Imputed Interest	(90,332)		(204,735)
Total	$	693,982	$	1,125,890

On July 2, 2018, AnHeart Inc. ("AnHeart"), a wholly-owned subsidiary of HF Holding, entered into two separate leases for two properties located in Manhattan, New York, at 273 Fifth Avenue and 275 Fifth Avenue, for 30 years and 15 years, respectively. The leases were on a triple net basis, meaning AnHeart is required to pay all costs associated with the properties, including taxes, insurance, utilities, maintenance and repairs. HF Holding provided a guaranty for all rent and related costs of the leases, including costs associated with the planned construction of a two-story structure at 273 Fifth Avenue and rehabilitation of the building at 275 Fifth Avenue. The Company entered into the leases with the planned purpose of expanding its 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, HF Holding executed an agreement to divest all of its ownership interest in AnHeart to Ms. Jianping An, a resident of New York, for the sum of $20,000. The transfer of ownership was completed on May 2, 2019. However, the divestment 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 on the original lease agreements. Further, Ms. An 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.