Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Item 7

Management's Discussion And Analysis Of Financial Condition And Results Of Operations.

Forward-Looking Statement Notice

This Current Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "believes," "management believes" and similar language. Except for the historical information contained herein, the matters discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report are forward-looking statements that involve risks and uncertainties. The factors listed in the section captioned "Risk Factors," as well as any cautionary language in this report, provide examples of risks, uncertainties, and events that may cause our actual results to differ materially from those projected. Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the date of this Form 10-K.

Overview

The Company was incorporated in the state of Nevada on September 14, 2001 under the name Biocorp North America, Inc. On March 18, 2005, it changed its name to Cereplast, Inc. In the summer of 2014, the Company ceased all operations.

A change of control of the Company was completed on November 3, 2020, control was obtained by the sale of 50,000,000 common shares and $5,000,000 Series A-1 Preferred Shares from Custodian Ventures, LLC to Xudong Li. After November 3, 2020, the Company's operations are determined and structured by the new major shareholder.

On November 18, 2020, the Company filed an amendment to its certificate of incorporation to change its name to Hong Yuan Holding Group.

On October 1, 2024, The Company entered into an agreement to acquire from Xudong Li (the majority shareholder of the Company) 100% equity interest of Hongyuan International Holding Group Co., Ltd. ("Hongyuan HK") in exchange for HK $500,000 (approximately $64,103) or issuing the equivalent value of the Company's common stocks, payable upon the completion of changing registered owner with the Administration for Industrial and Commerce. Hongyuan HK was established in Hong Kong on July 28, 2021.

Also on October 1, 2024, Hongyuan HK entered into a series of agreements including a Shareholders' Voting Rights Entrustment Agreement, an Exclusive Management Consulting and Service Agreement and a Share Pledge Agreement (collectively the "Agreements") with Fengcuiyuan Chang Technology Development Co., Ltd ("Fengcuiyuan") and its registered owners (the "Transaction"). Fengcuiyuan is a corporation formed under the laws of the PRC on September 3, 2021, in which Xudong Li (the majority shareholder of the Company) controls 95% of its equity interest. Fengcuiyuan owns 98% of Rongcheng (Sichuan) Supply Chain Management Co., Ltd ("Rongcheng"), a corporation formed under the laws of the PRC located in Chengdu, Sichuan, China, incorporated on April 17, 2024. On November 12, 2024, Chongqing Xuchang Qingrong Trading Co., Ltd. ("Xuchang") located in Chongqing, Sichuan, China, was formed as a 55% subsidiary of Rongcheng.

According to the Agreements, Hongyuan HK assumed financial and operating control of Fengcuiyuan. As a result, Hongyuan HK has been determined to have a controlling financial interest in Fengcuiyuan, requiring Hongyuan HK to consolidate the financial statements of Fengcuiyuan and its subsidiaries, and ultimately consolidate with its parent company, Hong Yuan. The Transaction was accounted for as a reorganization of entities under common control. As the combining entities have been under common control since September 2021, the consolidated financial statements of the Company recognized the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of each entity.

The Company, through its subsidiary and the Agreements with Fengcuiyuan, focuses on supply chain management services, is mainly engaged in the wholesale and internet sales of fast-moving consumer goods such as food, daily necessities, and electronic products, covering diversified fields such as pre-packaged food, agricultural and by-products, and household goods.

In April 2025, the Company changed its business model. Rongcheng relinquished its 55% ownership in Xuchang and received its original investment back, but will still fund the opening of stores operated by Xuchang. In the future, the investment funds for stores will be recovered as loans from the stores' profits. As a result, Xuchang was deconsolidated from the Company's consolidated financial statements starting in the second quarter of 2025 and Xuchang's operating results prior to the deconsolidation was accounted for as discontinued operations.

We have not yet generated sustained profits from our prior operations. Our independent accountants have expressed a "going concern" opinion. As of December 31, 2025, we had an accumulated deficit of $97,652,645 and a negative working capital of $11,622.

While our current burn rate is nominal, it is expected that our costs of operations will continue to exceed revenues, primarily due to the costs associated with being a public reporting company. Based upon our current business plan, we may continue to incur losses in the foreseeable future and there can be no assurances that we will ever establish profitable operations. These and other factors raise substantial doubt about our ability to continue as a going concern.

Critical Accounting Policies, Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

Revenue Recognition

ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"), became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company's revenue recognition as there were no revenues during the period.

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

Accounts receivable

The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary. Our allowance for doubtful accounts is maintained to provide for losses arising from customers' inability to make required payments. If there is deterioration of our customers' credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required. The Company has no allowance for doubtful accounts as of December 31, 2025 and 2024, respectively.

Income Taxes

The Company follows the asset and liability method of accounting for future income taxes. Under this method, future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of assets and liabilities and their corresponding tax basis. In addition, the future benefits of income tax assets including unused tax losses, are recognized, subject to a valuation allowance to the extent that it is more likely than not that such future benefits will ultimately be realized. Future income tax assets and liabilities are measured using enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized. The Company's effective tax rate approximates the Federal statutory rates.

Results of Operations for the Year Ended December 31, 2025 compared to the Year Ended December 31, 2024

Revenue was $837,753 in 2025 compared to $245,572 in 2024. The increase in revenue was mainly due to the consolidation of the Chinese VIEs under common control which started generating revenue in the second quarter of 2024 and has been ramping up the operations to generate more revenues.

Cost of goods sold was $298,108 in 2025 compared to $152,675 in 2024 due to the increase in revenue.

Operating expenses were $363,167 and $189,198 for 2025 and 2024, respectively, an increase of $173,969 or 92.0%. The increase was mainly due to the increase in general and administrative expenses, selling and marketing expenses, and professional fees. The increase in general and administrative expenses in 2025 was mainly due to the increase in personnel expense, license and regulatory fee, and office expense, partly offset by the decrease in travel, rent, and auto expenses.

During the year ended December 31, 2025, the Company had a net income of $157,944, compared to a net loss of $96,437 during the year ended December 31, 2024, an increase of $254,381. The increase in net income in 2025 was primarily due to the increase in gross profit as a result of the Chinese VIEs ramping up the operations to generate more revenues,, partly offset by higher operating expenses and the loss from discontinued operations.

Liquidity and Capital Resources

As of December 31, 2025 and 2024, we had a cash balance of $16,747 and $38,527 respectively. During 2025 and 2024, the company's operations are primarily funded by the Company's CEO and major shareholder and the minority owners of the Chinese VIEs.

To the extent that the Company's capital resources are insufficient to meet current or planned operating requirements, the Company will seek additional funds through equity or debt financing, collaborative or other arrangements with corporate partners, licensees or others, and from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has no current arrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders will provide any portion of the Company's future financing requirements. Mr. Xudong, the CEO and principal shareholder of the Company, would favorably entertain funding, through loans, corporate expenses for approximately 24 months. Any loans by Mr. Xudong would be on an interest-free basis, documented by a promissory note and payable only upon consummation of a business combination transaction. Upon consummation of a business combination, we or the target may reimburse Mr. Xudong for any such loans from funds furnished by the target. We have no written agreement with Mr. Xudong to advance any further funds for future operating expense, therefore there is no assurance that such funds from Mr. Xudong will be forth coming, if required.

No assurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its programs that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

Operating Activities

For the year ended December 31, 2025, net cash used in operating activities was $28,440. This was primarily due to the net income of $163,783, adjusted by non-cash related expenses including depreciation of $1,614, and then decreased by unfavorable changes in working capital of $185,953. The unfavorable changes in working capital mainly resulted from an increase in accounts receivable of $372,088, an increase in prepaid expense and other receivables of $93,555, and an increase in inventory of $2,093, offset by an increase in accounts payable and accrued liabilities of $69,726, an increase in deferred revenue of $117,389, an increase in due to related party of $86,243 and an increase in tax payable of $8,425.

For the year ended December 31, 2024, net cash used in operating activities was $89,582. This was primarily due to the net loss of $96,437, adjusted by non-cash related expenses including depreciation of $1,356, and then increase by favorable changes in working capital of $5,499. The favorable changes in working capital mainly resulted from an increase in accounts payable and accrued liabilities of $36,418, an increase in tax payable of $4,281, and an increase in due to related party of $37,609, offset by an increase in accounts receivable of $11,540, an increase in inventory of $44,378, and an increase in prepaid expense and other receivable of $16,891.

Investing Activities

For the year ended December 31, 2025, net cash used in investing activities was payment for deferred renovation of $12,519, and software development cost of $9,236.

We neither generated nor used cash in investing activities during the year ended December 31, 2024.

Financing Activities

For the year ended December 31, 2025 and 2024, net cash provided by financing activities were proceeds from capital contribution received by Chinese VIEs of $19,478 and $130,634 respectively.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, we have a net income of $157,944 for the year ended December 31, 2025 and incurred net losses of $96,437 for the year ended December 31, 2024, respectively, and have a working capital deficit of $11,622 as of December 31, 2025, which raise substantial doubt about the Company's ability to continue as a going concern.

Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company but cannot assure that such financing will be available on acceptable terms.

The Company's continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. Our auditors have included a "going concern" qualification in their Report of Independent Certified Public Accountants accompanying our audited financial statements appearing elsewhere herein which cites substantial doubt about our ability to continue as a going concern. Such a "going concern" qualification may make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot be assured.

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve our operating results.

Off Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

Inflation

We do not believe that inflation has had in the past or will have in the future any significant negative impact on our operations.