Hongchang International Co., Ltd 10-Q for FY2025 Q1
Hongchang International Co., Ltd (HCIL)
About this 10-Q
Hongchang International Co., Ltd filed this 10-Q on August 13, 2024, covering the quarter ended June 30, 2024 (FY2025 Q1).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.98M
- Net loss
- $64.8K
- compared with a net loss of $138.38K a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ___________ to ___________
Commission file number
| (Exact name of registrant as specified in its charter)
| ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
|
Chengtou Town, Fuqing City, | 350300 | |
| (Address of principal executive offices) | (Zip Code) |
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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 last 90 days.
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).
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 | ☐ |
| ☒ | 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 August 2, 2024,
TABLE OF CONTENTS
i
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q (“Report”), financial statements, and notes to financial statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations, and financial conditions. Forward-looking statements may appear throughout this Report and other documents we file with the Securities and Exchange Commission (the “SEC”), including without limitation, the following section: Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report.
Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “may,” “could,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
ii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Hongchang International Co., Ltd
Condensed Consolidated Balance Sheets
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | ||||||||
| US$ | US$ | |||||||
| ASSETS: | ||||||||
| Current assets: | ||||||||
| Cash | ||||||||
| Accounts receivable, net | ||||||||
| Amount due from a related party | ||||||||
| Other receivable, net | ||||||||
| Inventories, net | ||||||||
| Advance to supplier | ||||||||
| Advance to supplier-related party | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Construction-in-progress | ||||||||
| Intangible assets, net | ||||||||
| Land use right, net | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | ||||||||
| Accounts payable-related party | ||||||||
| Accounts payable-construction in progress | ||||||||
| Advances from customers | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Deferred subsidies | ||||||||
| Long term loans | - | |||||||
| Amounts due to related parties | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock (US$ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| Total Hongchang International Co., Ltd’s stockholders’ equity | ||||||||
| Non-controlling interests | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
Hongchang International Co., Ltd
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Net revenue: | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross loss | ( |
) | ( |
) | ||||||||||||
| Sales and marketing expenses | ( |
) | ( |
) | ||||||||||||
| General and administrative expenses | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total operating expenses | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest income | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expenses | ( |
) | ( |
) | ( |
) | ||||||||||
| Loss before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax benefit | ||||||||||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Less: net income attributable to non-controlling interests | ||||||||||||||||
| Net loss attributable to Hongchang International Co., Ltd’s common stockholders | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Comprehensive loss net of tax: | ||||||||||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Foreign currency translation difference net of tax | ( |
) | ( |
) | ( |
) | ||||||||||
| Total comprehensive loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Less: comprehensive income attributable to non-controlling interest | ||||||||||||||||
| Comprehensive loss attributable to Hongchang International Co., Ltd’s common stockholders | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Loss per share: | ||||||||||||||||
| ( |
) | ( |
) | ( |
) | ( |
) | |||||||||
| Weighted average shares outstanding used in calculating basic and diluted loss per share: | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Hongchang International Co., Ltd
Condensed Consolidated Statements of Changes in Stockholders’ Equity
| Ordinary Shares | Subscription | Additional Paid-in | Accumulated | Accumulated
other comprehensive | Total Hongchang International Co., Ltd’s stockholders’ | Non-controlling | Total Stockholder’s | |||||||||||||||||||||||||||||
| Shares | Amount | receivable | Capital | Deficit | income (loss) | equity | interests | Equity | ||||||||||||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||||||||||||
| Balance as of January 1, 2024 | ( | ) | - | |||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Contribution from shareholder | - | |||||||||||||||||||||||||||||||||||
| Deemed issuance of share upon the Merger transaction | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024(unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Ordinary Shares | Subscription | Additional Paid-in | Accumulated | Accumulated other comprehensive | Total
Hongchang International Co., Ltd’s stockholders’ | Non-controlling | Total Stockholder’s | |||||||||||||||||||||||||||||
| Shares | Amount | receivable | Capital | Deficit | income | equity | interests | Equity | ||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||||||||||||||
| Contribution from shareholder | ||||||||||||||||||||||||||||||||||||
| Deemed issuance of share upon the Merger transaction | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023(unaudited) | ( | ) | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Hongchang International Co., Ltd
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| US$ | US$ | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Accrued interest income derived from loan to third party | ( | ) | ||||||
| Deferred tax benefit | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Advance to supplier | ( | ) | ||||||
| Advance to supplier-related party | ||||||||
| Other receivable | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable-related party | ||||||||
| Accrued expenses and other payables | ( | ) | ||||||
| Advance from customers | ||||||||
| Deferred subsidies | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Repayments from a related party | ||||||||
| Repayments from a third party | ||||||||
| Loan to a third party | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Capital contribution by stockholders | ||||||||
| Proceeds from long term loans | ||||||||
| Repayments of a loan from a related party | ( | ) | ( | ) | ||||
| Proceeds from loans from related parties | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of year | ||||||||
| Cash at end of year | ||||||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid | ||||||||
| Interest capitalized | ||||||||
| Supplemental disclosure of non-cash transactions | ||||||||
| Decreased accounts payable-construction in progress for construction-in-progress | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Hongchang International Co., Ltd
Notes to Unaudited Condensed Consolidated Financial Statements
1. ORGANIZATION
(a) Nature of operations
Hongchang International Co., Ltd (the “Company”) was incorporated in the state of Nevada on May 18, 1987. The Company is a holding company.
On September 4, 2023, Heyu Biological Technology Corporation (“HYBT”), the Company’s predecessor, completed the merger and other related transactions (the “Merger Transactions”) with Hongchang Global Investment Holdings Limited (“Hongchang BVI”), as a result of which Hongchang BVI became a wholly-owned subsidiary of HYBT and HYBT assumed and began conducting the principal business of Hongchang BVI. The name of the Company was changed from “Heyu Biological Technology Corporation” to “Hongchang International Co., Ltd.” (HCIL).
The “Group” means (i) prior to the completion of the Reorganization, Hongchang BVI and its subsidiaries that engage in businesses of food trade and biotechnology in China (ii) upon and after completion of the Merger Transactions, the Company and its subsidiaries that engage in businesses of food trade and meat processing in China.
(b) History and reorganization of the Group
In preparation of the Merger
Transactions, the following transactions were undertaken to reorganize the legal structure of Operating Entity (“Reorganization”).
On January 13, 2023, Mr. Zengqiang Lin and Ms. Zhenzhu Lin, the existing stockholders of Fuqing Hongchang Food Co., Ltd (“Hongchang
Food”) established two wholly-owned subsidiaries (“BVI-1” and “BVI-2”) in British Virgin Island, respectively.
On January 18, 2023, Hong Chang Global Investment Holdings Limited (“Hongchang BVI”) was then incorporated by BVI-1 and BVI-2
which held
(c) Reverse merger
On August 21, 2023, HYBT entered
into a Share Exchange Agreement (the “Share Exchange Agreement”) with Hongchang BVI and Hongchang BVI’s stockholders,
Zengqiang Investment Limited, a business company incorporated in the BVI, and Hong Jin Investment Limited, a business company incorporated
in the BVI (the “Selling Stockholders” and each a “Selling Stockholder”), in relation to the acquisition of Hongchang
BVI by HYBT (the “Hongchang Acquisition”). Zengqiang Investment Limited is wholly-owned by Mr. Zengqiang Lin and Hong Jin
Investment Limited is wholly-owned by Ms. Zhenzhu Lin. Mr. Zengqiang Lin has been a director of HYBT since February 17, 2023, and Ms.
Zhenzhu Lin is the sister of Mr. Zengqiang Lin. In accordance with the terms of the Share Exchange Agreement, the Selling Stockholders
sold and transferred
Immediately following the
closing of the Hongchang Acquisition, HYBT had a total of
As HYBT, the legal acquirer and accounting acquiree, does not meet the definition of a business, management concluded that the Merger should be accounted for as a continuation of the financial statements of Hongchang BVI (the legal subsidiary), together with a deemed issue of shares and a re-capitalization of the equity of Hongchang BVI. Hongchang BVI is the continuing entity and is deemed to have issued shares in exchange for the identifiable net assets held by HYBT together with the listing status of HYBT. Management concluded that September 4, 2023 is the acquisition date of the Merger.
Upon the completion of the reverse merger, the Company has set up a few new subsidiaries: Fujian Hongchang Global Food Co., Ltd (“Hongchang Global Food”), Fuqing Hongchang Global Import & Export Co., Ltd (“Hongchang Import & Export”), Fuqing Hongchang Global Supply Chain Co., Ltd (“Hongchang Supply Chain”), and Hongchang Global (Fuqing City) Agricultural Technology Development Co., Ltd (“Hongchang Agricultural”) in order for the company to develop different businesses. As of the date of this report, these subsidiaries have not generated significant revenue.
5
In May 2024, the Company set up a new subsidiary Hongfu Food (Fujian) Co., Ltd (“Hongfu Food”), which is mainly engaged in the initial processing of agricultural products, specializing in pork segmentation and trade. Hongfu Food purchasing pork as raw materials and processing or dividing them into various finished products according to customer needs, or through secondary segmentation into various specifications of packed finished products.
| Entity | Place of incorporation | Percentage of direct or indirect ownership by the Company | Principal activities | |||
| Subsidiaries: | ||||||
| Hong Chang Global Investment Holdings Limited (Hongchang BVI) | ||||||
| Hong Chang Biotechnologies (HK) Limited (Hongchang HK) | ||||||
| Fujian Hongjin Biotechnology Co., Ltd.(WFOE) | ||||||
| Fuqing Hongchang Food Co., Ltd(Hongchang Food) | ||||||
| Fujian Hongchang Global Food Co., Ltd (“Hongchang Global Food”) | ||||||
| Fuqing Hongchang Global Import & Export Co., Ltd(“Hongchang Import&Export”) | ||||||
| Fuqing Hongchang Global Supply Chain Co., Ltd(“Hongchang Supply Chain”) | ||||||
| Hongchang Global (Fuqing City) Agricultural Technology Development Co., Ltd (“Hongchang Agricultural”) | ||||||
| Hongfu Food (Fujian) Co., Ltd (“Hongfu Food”) |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited condensed consolidated financial statements include the accounts of the Group and its subsidiaries and have been prepared in accordance with U.S. GAAP and the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These unaudited condensed consolidated financial statements have been prepared on the same basis as its annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Group’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024, or for any other interim period or for any other future year. All intercompany balances and transactions have been eliminated in consolidation.
Through the Reorganization, the Company became the holding company of the companies now comprising the Group. Accordingly, for the purpose of preparation of the unaudited condensed consolidated financial statements of the Group, the Company is considered as the holding company of the companies now comprising the Group throughout the reporting period. Through the Reorganization, the Company became the holding company of the contributed businesses now comprising the Group, which were under the common control of the controlling stockholder before and after the Reorganization. Accordingly, the financial statements were prepared on a consolidated basis by applying the principles of the pooling of interest method as if the Reorganization had been completed at the date when contributed business first came under the control of the controlling party. The unaudited condensed consolidated statements of operations and comprehensive income(loss), changes in equity and cash flows of the Group included the results and cash flows of all companies now comprising the Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the controlling stockholder, whenever the period is shorter.
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements of the Company include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of the unaudited condensed 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, related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenue and expenses during the reported period in the unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s unaudited condensed consolidated financial statements mainly include, but are not limited to, assessment for impairment of long-lived assets, valuation of deferred tax assets and current expected credit loss of receivables.
6
Management bases the estimates on historical experience and on various other assumptions as discussed elsewhere to the unaudited condensed consolidated financial statements that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. On an ongoing basis, management evaluates its estimates based on information that is currently available. Changes in circumstances, facts and experience may cause the Group to revise its estimates. Changes in estimates are recorded in the period in which they become known. Actual results could materially differ from these estimates.
Foreign Currency
The Group’s principal
country of operations is the PRC. The accompanying unaudited condensed consolidated financial statements are presented in US$. The functional
currency of the Company is US$, and the functional currency of the Company’s subsidiaries is RMB. The unaudited condensed consolidated
financial statements are translated into US$ from RMB at year-end exchange rates as to assets and liabilities and average exchange rates
as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
The resulting translation adjustments are recorded as a component of stockholders’ equity included in other comprehensive income.
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| RMB: US$ exchange rate | ||||||||
For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| RMB: US$ exchange rate | ||||||||
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
Cash
Cash consists of cash on hand
and cash in bank, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or
use. The Group maintains cash with various financial institutions primarily in mainland China. Deposit insurance system in China only
insured each depositor at one bank for a maximum of approximately US$
Accounts receivable and allowance for credit losses
Accounts receivable are stated at the historical carrying amount net of allowance for expected credit losses. The Group adopted ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” on January 1, 2023 using a modified retrospective approach. The Group also adopted this guidance to other receivables. To estimate expected credit losses, The Group has identified the relevant risk characteristics of its customers and the related receivables. The Group considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Group’s customer collection trends. The allowance for credit losses and corresponding receivables were written off when they are determined to be uncollectible.
7
Inventories
Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. Cost of inventory are determined using the weighted average cost method. The Group records inventory reserves for obsolete and slow-moving inventory. Inventory reserves are based on inventory obsolescence trends, historical experience and application of the specific identification method.
Property and equipment, net
Property and equipment are
stated at cost less accumulated depreciation and impairment loss, if any.
| Category | Estimated useful life | |
| Equipment |
Construction-in-progress
Property and equipment that are purchased or constructed which require a period of time before the assets are ready for their intended use are accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including installation costs. Construction-in-progress is transferred to specific property and equipment accounts and commences depreciation when these assets are ready for their intended use.
Capitalized Interest
Interest incurred during and directly related to construction-in-progress
is capitalized to the related property under construction during the active construction period, which generally commences when borrowings
are used to acquire assets of construction-in-progress and ends when the properties are substantially complete or the property becomes
inactive. Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable
to other borrowings during the period. All other interest is expensed as incurred. For the six months ended June 30, 2024 and 2023, the
total interest capitalized in the construction-in-progress was US$
Intangible assets
Intangible assets are carried
at cost less accumulated amortization and impairment, if any. Intangible assets are amortized using the straight-line method over the
estimated useful lives.
| Category | Estimated useful life | |
| Purchased software |
Land use right, net
The land use rights represent the operating lease prepayments for the rights to use the land in the PRC. Amortization of the prepayments is provided on a straight-line basis over the terms of the respective land use rights certificates.
Impairment of long-lived assets other than goodwill
Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment by comparing carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, The Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. Impairment charge recognized for the six months ended June 30, 2024 and 2023 was US$ and US$, respectively.
8
Fair value of financial instruments
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, the Group considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability.
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Other inputs that are directly or indirectly observable in the marketplace.
Level 3 — Unobservable inputs which are supported by little or no market activity.
Financial assets and liabilities of the Group primarily consist of cash, accounts receivable, amounts due from related party, other receivables, accounts payables, accounts payable-related party, accounts payables - construction in progress and accrued expenses and other liabilities. As of June 30, 2024 and December 31, 2023, the carrying values of these financial assets and liabilities approximate their fair values due to the short-term nature.
Revenue recognition
The Group adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customer. To determine revenue recognition for contracts with customers, the Group performs the following five steps:
| Step 1: | Identify the contract with the customer |
| Step 2: | Identify the performance obligations in the contract |
| Step 3: | Determine the transaction price |
| Step 4: | Allocate the transaction price to the performance obligations in the contract |
| Step 5: | Recognize revenue when The Group satisfies a performance obligation |
The Group generates revenue from food trading business.
9
The Group enters into contract with their customers to provide food, mainly frozen pork. All of the Group’s contracts have single performance obligation as the promise is to transfer the goods to customers, and there are no other separately identifiable promises in the contracts. The Group recognizes revenue when it transfers its goods to customers in an amount that reflects the consideration to which The Group expects to be entitled in such exchange. The Group accounts for the revenue generated from sales of its products to its customers on a gross basis, because the Group is acting as a principal in these transactions, is subject to inventory risk, has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods. The Group’s revenue is recognized at a point in time when the control has been transferred, usually when the customer accepts the goods.
Cost of revenue
Costs of revenues consist primarily of purchase price of products,
shipping and handling expense from supplier to the Group and related costs, which are directly attributable to products. Write-down of
inventories is also recorded in cost of sales, if any. Shipping and handling costs incurred to transport goods to customers are expensed
in the periods incurred and are included in cost of revenues. The Group accounts for shipping and handling expenses as fulfillment costs
because shipping and handling activities occur before the customers obtains control of the goods. Shipping and handling expenses amounted
to US$
Sales and marketing expenses
Sales and marketing expenses consist primarily of travelling expenses, marketing conference expenses, advertising expenses and salaries and other compensation-related expenses to sales and marketing personnel. The Group expenses all advertising costs as incurred. Advertising costs amounted to US$ and US$ for the six months ended June 30, 2024 and 2023, respectively.
General and administrative expenses
General and administrative expenses consist primarily of salaries and benefits for employees involved in general corporate functions, amortization of land use right, legal and other professional services fees, rental and other general corporate related expenses.
Government Subsidies
Government subsidies are recognized
when there is reasonable assurance that the subsidy will be received and all attaching conditions will be complied with. When the subsidy
relates to an expense item, it is recognized as income over the periods necessary to match the subsidy on a systematic basis to the costs
that it is intended to compensate. Where the subsidy relates to an asset, it is recognized as deferred subsidies and is released to the
statement of operations over the expected useful life in a consistent manner with the depreciation method for the relevant asset. Total
government subsidies recorded in the deferred subsidies were US$
Value-added taxes
Sales revenue represents the
invoiced value of goods, net of VAT. The applicable VAT rate was
Income taxes
Current income taxes are recorded in accordance with the regulations of the relevant tax jurisdiction. The Group accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Tax, (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between carrying amounts of existing assets and liabilities in the financial statements and their respective tax basis, and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in the unaudited condensed consolidated statements of operations and comprehensive income(loss) in the period of change. Valuation allowances are established when necessary to reduce the amount of deferred tax assets if it is considered more likely than not that amount of the deferred tax assets will not be realized.
10
The Group records liabilities related to uncertain tax positions when, despite the Group’s belief that the Group’s tax return positions are supportable, the Group believes that it is more likely than not that those positions may not be fully sustained upon review by tax authorities. Accrued interest and penalties related to unrecognized tax benefits are classified as income tax expense. The Group did not recognize uncertain tax positions as of June 30, 2024 and December 31, 2023.
Related party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.
Earnings per share
The Group calculates earnings per share in accordance with ASC Topic
260 “Earnings per Share.” Basic earnings per share is computed by dividing the net income by the weighted average number of
common stock outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the
denominator is increased to include the number of additional common stock that would have been outstanding if the potential common stock
equivalents had been issued and if the additional common stock were dilutive. On September 4, 2023, the Group completed its reorganization
whereby Hongchang BVI’s stockholders received
Before the reorganization, Hongchang Food depended on loans from stockholders
for the construction of the Hongchang Food Industrial Park and its daily operations. These were recorded as loans from related parties.
In May 2023, Hongchang Food reached an agreement with a stockholder to convert an outstanding loan balance of US$
Comprehensive income
The Group applies ASC 220, Comprehensive Income (“ASC 220”), with respect to reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is defined to include all changes in equity of the Group during a period arising from transactions and other event and circumstances except those resulting from investments by stockholders and distributions to stockholders. For the six months ended June 30, 2024 and 2023, the Group’s comprehensive income(loss) includes net income(loss) and other comprehensive income(loss).
11
Segment reporting
ASC 280, Segment Reporting,
(“ASC 280”), establishes standards for companies to report in their financial statements information about operating segments,
products, services, geographic areas, and major customers. Based on the criteria established by ASC 280, our chief operating decision
maker (“CODM”) has been identified as our Chief Executive Officer, who reviews consolidated results when making decisions
about allocating resources and assessing performance of the Group. As a whole and hence, we have only
Uncertainty and risks
Political, social and economic risks
The Group has substantial operations in China through its PRC subsidiaries. Accordingly, the Group’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Group’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Group has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
The Group’s business, financial condition and results of operations may also be negatively impacted by risks related to regional wars, geopolitical tensions, natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could potentially and significantly disrupt The Group’s operations.
Liquidity
The Company had an accumulated deficit of US$
Concentration risks
Concentration of credit risk
Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash in bank and accounts receivable. The Group places its cash with financial institutions with high credit ratings and quality.
The Group conducts credit evaluations of customers, and generally does not require collateral or other security from its customers. The Group establishes an allowance for expected credit losses primarily based upon the factors surrounding the credit risk of specific customers.
Concentration of customers and suppliers
For
the six months ended June 30, 2024, one major client accounted for
For
the six months ended June 30, 2023, one major client accounted for
As
of June 30, 2024, five major clients accounted for
As
of December 31, 2023, one major client accounted for
Financial Statement Reclassification
Certain balances in the prior year consolidated financial statements have been reclassified for comparison purposes to conform to the presentation in the current year consolidated financial statements. These reclassifications had no effect on the reported results of operations or financial position.
12
Recent accounting pronouncements
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Group is currently evaluating the potential impact of adopting this new guidance on its unaudited condensed consolidated financial statements and related disclosures.
Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Group does not discuss recent pronouncements that are not anticipated to have an impact on, or are unrelated to, its consolidated financial condition, results of operations, cash flows or disclosures.
3. ACCOUNTS RECEIVABLE
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Accounts receivable | ||||||||
For the six months ended June 30, 2024, and 2023, the Company had allowance for expected credit losses for accounts receivable.
4. OTHER RECEIVALBE
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Loans to third parties | ||||||||
| Others | ||||||||
For the six months ended June 30, 2024, and 2023, the Company had allowance for expected credit losses for other receivable.
| As of December 31, 2023 | Balance | Maturity Date | Effective Interest Rate | Collateral/Guarantee | ||||||||
| US$ | ||||||||||||
| Sichuan Xiongji Construction Engineering Co., Ltd (Sichuan Xiongji)* | % | |||||||||||
| Total | ||||||||||||
| * |
As of June 30, 2024, the outstanding balances of loans to third parties have been collected in full.
13
5. INVENTORIES
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Raw materials | ||||||||
| Finished goods | ||||||||
| Less: provision for impairment of inventories | ||||||||
6. ADVANCE TO SUPPLIER
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Advance to supplier | ||||||||
| Advance to supplier-related party | ||||||||
7. OTHER CURRENT ASSETS
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| VAT recoverable | ||||||||
| Deferred tax assets | ||||||||
| Prepaid Expenses | ||||||||
8. PROPERTY AND EQUIPMENT
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Office equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
Depreciation expense was US$
14
9. CONSTRUCTION-IN-PROGRESS
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Construction in progress | ||||||||
Hongchang Food Industrial
Park covers a site area of
10. INTANGIBLE ASSETS
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Purchased software | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| For the years ended December 31, | ||||||||||||||||||||||||
| 2024* | 2025 | 2026 | 2027 | 2028 | 2029 and thereafter |
|||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||
| Amortization expenses | ||||||||||||||||||||||||
| * |
11. LAND USE RIGHT, NET
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Land use rights | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
15
Amortization expenses for
the land use rights were US$
| For the years ended December 31, | ||||||||||||||||||||||||
| 2024* | 2025 | 2026 | 2027 | 2028 | 2029 and thereafter | |||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||
| Amortization expenses | ||||||||||||||||||||||||
| * |
12. OTHER NON-CURRENT ASSTES
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Advance payment for construction | ||||||||
| Advance payment for equipment | ||||||||
Advance
payment for construction were US$
13. ACCRUED EXPENSES AND OTHER LIABILITIES
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| US$ | US$ | |||||||
| Payroll and welfare payables | ||||||||
| Value-added tax and other taxes payable | ||||||||
| Others | ||||||||
16
14. LONG TERM LOANS
Long-term loans represent
the amounts due to various banks lasting over one year. Usually, the long-term bank loans cannot be renewed with these banks upon maturities.
The Group is in compliance with all long-term bank loan covenants.
| Effective | ||||||||||||||
| Maturity | Interest | |||||||||||||
| As of June 30, 2024 | Balance | Date | Rate | Collateral/Guarantee | ||||||||||
| US$ | ||||||||||||||
| Fujian Fuqing Huitong Rural Commercial Bank Co., Ltd. | 1 | | % | |||||||||||
| 2 | ||||||||||||||
| 3 | | |||||||||||||
| 4 | | |||||||||||||
| Total | ||||||||||||||
| For the years ended December 31, | Principal | |||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ | ||||
The purposes of these long
term loans are for the construction of Hongchang Food Industrial Park, the interest of these loans was capitalized in construction-in-progress,
Interest capitalized in construction-in-progress was US$
15. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
In January 2023,
As per the Reorganization
described in Note 1(b) History and reorganization of the Group, the unaudited condensed consolidated financial statements were prepared
as if the
In preparation of the Merger
Transactions, the following transactions were undertaken to reorganize the legal structure of Operating Entity (“Reorganization”).
On January 13, 2023, Mr. Zengqiang Lin and Ms. Zhenzhu Lin, the existing stockholders of Fuqing Hongchang Food Co., Ltd (“Hongchang
Food”) established two wholly-owned subsidiaries (“BVI-1” and “BVI-2”) in British Virgin Island, respectively.
On January 18, 2023, Hong Chang Global Investment Holdings Limited (“Hongchang BVI”) was then incorporated by BVI-1 and BVI-2
which held
17
On August 21, 2023, HYBT entered
into a Share Exchange Agreement (the “Share Exchange Agreement”) with Hongchang BVI and Hongchang BVI’s stockholders,
Zengqiang Investment Limited, a business company incorporated in the BVI, and Hong Jin Investment Limited, a business company incorporated
in the BVI (the “Selling Stockholders” and each a “Selling Stockholder”), in relation to the acquisition of Hongchang
BVI by HYBT (the “Hongchang Acquisition”). Zengqiang Investment Limited is wholly-owned by Mr. Zengqiang Lin and Hong Jin
Investment Limited is wholly-owned by Ms. Zhenzhu Lin. Mr. Zengqiang Lin has been a director of HYBT since February 17, 2023, and Ms.
Zhenzhu Lin is the sister of Mr. Zengqiang Lin. In accordance with the terms of the Share Exchange Agreement, the Selling Stockholders
sold and transferred
In May 2023, Hongchang BVI
received US$
On September 1, 2023, upon
closing the Merger,
16. RELATED PARTY TRANSACTIONS
| (a) | Related parties |
| Names of related parties | Relationship with The Group | |
| Zengqiang Lin | ||
| Fuqing Xinhongbo Trading Co., Ltd. (“Xinhongbo”) | ||
| Fuqing Changhong Agricultural Products Supply Chain Co. Ltd.(“Changhong”) | ||
| Zhenzhu Lin | ||
| Fujian Xindefu Agricultural Products Co., Ltd.(“Xindefu”) | ||
| Xiuhua Zhou |
| (b) |
| For six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| US$ | US$ | |||||||
| Proceeds from loans from related parties: | ||||||||
| -Zengqiang Lin | ||||||||
| -Zhenzhu Lin | ||||||||
| -Xiuhua Zhou | ||||||||
| Repayment of a loan from a related party: | ||||||||
| -Zengqiang Lin | ( |
) | ( |
) | ||||
| Refunds from a related party | ||||||||
| -Xinhongbo | ||||||||
| -Changhong | ||||||||
| Capital contribution to Hongchang Food: | ||||||||
| -Zengqiang Lin | ||||||||
| Sales of goods: | ||||||||
| -Fujian Xindefu Agricultural Products Co., Ltd. | ||||||||
| Procurement of goods: | ||||||||
| -Fujian Xindefu Agricultural Products Co., Ltd. | ||||||||
| Procurement of service: | ||||||||
| -Fujian Xindefu Agricultural Products Co., Ltd. | ||||||||
18
| (c) |
| As of | ||||||||
| June 30, 2024 |
December 31, 2023 |
|||||||
| US$ | US$ | |||||||
| Advance to supplier-related party | ||||||||
| -Xinhongbo | ||||||||
| Amount due from a related party | ||||||||
| -Changhong | ||||||||
| Accounts payable-related party | ||||||||
| -Fujian Xindefu Agricultural Products Co., Ltd. | ||||||||
| Amounts due to related parties: | ||||||||
| -Zengqiang Lin | ||||||||
| -Zhenzhu Lin | ||||||||
| -Xiuhua Zhou | ||||||||
All balances with the related parties as of June 30, 2024 and December 31, 2023 were unsecured, interest-free and had no fixed terms of repayments except the followings:
On April 1, 2023, Hongchang
Food entered into an interest-free loan agreement with Zengqiang Lin to obtain aggregate maximum loans of up to RMB
On May 16, 2024, Hongfu Food
entered into an interest-free loan agreement with Zhenzhu Lin to obtain aggregate maximum loans of up to RMB
On May 30, 2024, Hongfu
Food entered into an interest-free loan agreement with Xiuhua Zhou to obtain aggregate maximum loans of up to RMB
17. COMMITMENTS AND CONTINGENCIES
As of June 30, 2024, the Group
has entered into several contracts for construction of the Hongchang Food Industrial Park and the improvement of Industrial Buildings.
Total outstanding commitments under these contracts were US$
18. SUBSEQUENT EVENTS
The Group has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. Based on the Company’s evaluation, no event has occurred requiring adjustment or disclosure in the notes to the unaudited condensed consolidated financial statements.
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in our unaudited condensed consolidated financial statements, which appear elsewhere in this Report, and should be read in conjunction with such financial statements and related notes included in this Report. Except for the historical information contained herein, the following discussion, as well as other information in this Report, contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections. Actual results and the timing of the events may differ materially from those contained in these forward-looking statements due to many factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this Report.
Overview
Hongchang International Co., Ltd (the “Company”, formerly known as Heyu Biological Technology Corporation) was incorporated in the state of Nevada on May 18, 1987.
Hongchang Global Investment Holdings Limited (“Hongchang BVI”)) was incorporated in British Virgin Island under the laws of the British Virgin Islands in January 2023. Fuqing Hongchang Food Co., Ltd. (“Hongchang Food”, or the “Operating Entity”) was established in September 2017, and primarily engages in the construction of and investment in Hongchang Food Industrial Park project. Its main asset is its investment in the food industrial park, which was obtained by bidding in September 2020 and is currently under construction. Upon completion of such project, Hongchang Food will undertake the operation of the food industry park as the leader, and aim to drive the business of food trade, meat processing, and end retail. Our goal is to establish a complete industry chain for meat products and develop an innovative business model with core competitiveness in this traditional industry to ensure stable and sustainable profit growth. Hongchang Food has commenced limited sales operations in 2023, starting from May 2024, and established a meat processing and trade business, during which revenue has been recognized. Hongchang Food Industrial Park is part of the third batch of key projects in Fujian Province, PRC, and is located adjacent to the Taiwan Strait in Fujian province, PRC, in the Fuqing Functional Zone of Fuzhou New District, in the Yuanhong Investment Zone, which is jointly developed by the PRC and Indonesia.
On September 4, 2023, the Company completed the merger and other related transactions (the “Merger Transactions”) with Hongchang BVI, as a result of which Hongchang BVI became a wholly-owned subsidiary of the Company and the Company assumed and began conducting the principal business of Hongchang Food.
Results of Operations
Comparison of the Six Months Ended June 30, 2024 and 2023
The following chart provides a summary of our results of operations for the six months ended June 30, 2024 and 2023:
| Six months ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Net revenue | $ | 2,000,102 | $ | 26,807 | ||||
| Cost of revenue | 1,901,660 | 41,475 | ||||||
| Gross profit loss | 98,442 | (14,668 | ) | |||||
| Total operating expenses | (224,765 | ) | (244,386 | ) | ||||
| Loss from operations | (126,323 | ) | (259,054 | ) | ||||
| Total other income (expense) | 1,915 | 11,112 | ||||||
| Loss before income taxes | (124,408 | ) | (247,942 | ) | ||||
| Income tax benefit | 6,159 | - | ||||||
| Net loss | $ | (118,249 | ) | $ | (247,942 | ) | ||
| Basic net loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
20
Revenue
Our business is in its early stages, revenue represents the sales of goods supplied to customers, and sales are primarily driven by the demand from customer. The growth of our revenue will be primarily driven by increasing our product variety, expanding the distribution network, both in China and overseas and the initiation of other projects or business lines in the future. Revenue is influenced by potential competitors entering the market, economic conditions, pricing, inflation, product diversification, and customer consumption habits. We generated revenue of US$2,000,102 for the six months ended June 30, 2024, compared to US$26,807 for the same period of 2023, the increase was mainly because we have established a subsidiary, Hongfu Food, which primarily engaged in meat processing and trade, mainly customized processed meat for customers in the second quarter of 2024. We began market trial operations in the first quarter of 2023, and until the first half year of 2024, we have increased our business lines and achieved a significant increase in business revenue. Ensure that revenue and costs are within a reasonable range of market operations.
Cost of revenue
Cost of revenues represents costs and expenses directly attributable to the purchase of our products sold and delivered, and direct labor costs. Cost of revenues were US$1,901,660 for the six months ended June 30, 2024, compared to US$41,475 for the same period of 2023. The increase of cost of revenues was primarily due to the fact that our subsidiary Hongfu food began to provision of food and we recognized related cost including purchase price of products, shipping and handling expense and related costs. We have been operating since the beginning of 2023, continuously accumulating industry experience and adjusting our strategic plans according to market changes over the course of past year.
Gross profit and margin
Gross profit is the difference between revenue and cost of revenue. Our cost of revenue mainly includes purchasing raw material and prepackaged products. The supply and prices of our products may be influenced by various factors, including product types, seasonal fluctuations, demand, and macroeconomic environment. Due to the increase in the prices of our suppliers’ goods, we may not be able to raise prices to compensate for the increased costs, which will have a negative impact on our business results and profitability. We believe that if our strategic business development plan can proceed smoothly, we will collaborate with more suppliers to expand our product supply range and establish mature procurement plans to control costs.
Gross margin is gross profit divided by revenue. Gross margin is a measure used by management to indicate whether we are selling products at an appropriate gross profit. Our gross margin is influenced by product prices, product combinations, availability, and discounts, as some products typically offer higher gross profit margins, as well as the impact of our product costs, which may vary. At present, we offer competitive prices to attract and retain customers. In the future, as we grow, we will launch diversified products and competitive services to increase market share. We regularly evaluate the profitability of its products. As our business activities started in 2023 and till now, we are still at an early stage, we had a gross profit of US$98,442 and gross loss of US$14,668 for the six months ended June 30, 2024 and 2023 respectively.
Operating expenses
Our operating expenses consist of sales and marketing expenses and general and administrative expenses, which primarily include payroll, employee benefit expenses and bonus expenses, shipping expenses, promotion and advertising expenses, and other facility related costs, such as utilities, and depreciation.
21
General and administrative expenses
We incurred general and administrative expenses of US$224,574 for the six months ended June 30, 2024, as compared to US$244,386 in the same period of 2023, respectively. The decrease in general and administrative expenses was mainly due to the decrease in professional fees paid to third party.
Income tax benefit
We incurred income tax benefit of US$6,159 and nil for the six months ended June 30, 2024 and 2023, respectively.
Net loss
As a result of the foregoing, we reported a net loss of US$118,249 and US$247,942 for the six months ended June 30, 2024 and 2023 respectively.
Comparison of the Three Months Ended June 30, 2024 and 2023
The following chart provides a summary of our results of operations for the three months ended June 30, 2024 and 2023:
| Three months ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Net revenue | $ | 1,981,898 | $ | - | ||||
| Cost of revenue | 1,883,183 | 3,011 | ||||||
| Gross profit loss | 98,715 | (3,011 | ) | |||||
| Total operating expenses | (122,729 | ) | (146,300 | ) | ||||
| Loss from operations | (24,014 | ) | (149,311 | ) | ||||
| Total other income (expense) | 1,601 | 10,930 | ||||||
| Loss before income taxes | (22,413 | ) | (138,381 | ) | ||||
| Income tax benefit | 733 | - | ||||||
| Net loss | $ | (21,680 | ) | $ | (138,381 | ) | ||
| Basic net loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
Revenue
Our business is in its early stages, revenue represents the sales of goods supplied to customers, and sales are primarily driven by the demand from customer. Our revenue growth will mainly be achieved through improving the layout of the industrial chain, increasing the operation of the food industry park, conducting comprehensive and group based operations in food trade, meat processing, and retail sales. Revenue is influenced by potential competitors entering the market, economic conditions, pricing, inflation, product diversification, and customer consumption habits. We generated revenue of US$1,981,898 for the three months ended June 30, 2024, compared to nil for the same period of 2023, the increase was mainly because we have established a subsidiary, Hongfu Food, which primarily engaged in meat processing and trade, mainly customized processed meat for customers in the second quarter of 2024. We are in a start-up stage and began experimenting with some business in 2023, generated virtually no revenue in the second quarter of 2023. We recognized RMB 92 in revenue for the three months ended June 30, 2023. We calculated the revenue in US$ for the three months ended June 30, 2023 by converting the revenue for the six months ended June 30, 2023 from RMB into US$ and then subtracting the revenue in US$ for the three months ended March 31, 2023. However, due to exchange rate fluctuations, this calculation resulted in a negative US$324 in revenue. Therefore, we adjusted the related negative revenue to the costs of revenue, which resulted in revenue of nil for the three months ended June 30, 2023.
Cost of revenue
Cost of revenues represents costs and expenses directly attributable to the purchase of our products sold and delivered, and direct labor costs. Cost of revenues were US$1,883,183 for the for the three months ended June 30, 2024, compared to US$3,011 for the same period of 2023. The increase of cost of revenues was primarily due to the fact that our subsidiary Hongfu food began provision of food and we recognized related cost including purchase price of products, shipping and handling expense and related costs.
22
Gross profit and margin
Gross profit is the difference between revenue and cost of revenue. Our cost of revenue mainly includes purchasing raw material and prepackaged products. The supply and prices of our products may be influenced by various factors, including product types, seasonal fluctuations, demand, and macroeconomic environment. Due to the increase in the prices of our suppliers’ goods, we may not be able to raise prices to compensate for the increased costs, which will have a negative impact on our business results and profitability. We believe that if our strategic business development plan can proceed smoothly, we will collaborate with more suppliers to expand our product supply range and establish mature procurement plans to control costs.
Gross margin is gross profit divided by revenue. Gross margin is a measure used by management to indicate whether we are selling products at an appropriate gross profit. Our gross margin is influenced by product prices, product combinations, availability, and discounts, as some products typically offer higher gross profit margins, as well as the impact of our product costs, which may vary. At present, we offer competitive prices to attract and retain customers. In the future, as we grow, we will launch diversified products and competitive services to increase market share. We regularly evaluate the profitability of its products. As our business activities started in 2023 and till now, we are still at an early stage, we had a gross profit of US$98,715 and gross loss of US$3,011 for the three months ended June 30, 2024 and 2023 respectively.
Operating expenses
Our operating expenses consist of sales and marketing expenses and general and administrative expenses, which primarily include payroll, employee benefit expenses and bonus expenses, shipping expenses, promotion and advertising expenses, and other facility related costs, such as utilities, and depreciation.
General and administrative expenses
We incurred general and administrative expenses of US$122,574 for the three months ended June 30, 2024, as compared to US$146,300 in the same period of 2023, respectively. The decrease in general and administrative expenses was mainly due to the decrease in professional fees paid to third party and general office expense.
Income tax benefit
We incurred income tax benefit of US$733 and nil for the three months ended June 30, 2024 and 2023, respectively.
Net loss
As a result of the foregoing, we reported a net loss of US$21,680 and US$138,381 for the three months ended June 30, 2024 and 2023 respectively.
23
Liquidity and Capital Resources
The following chart provides a summary of our key balance sheet items as of June 30, 2024 and December 31, 2023, and should be read in conjunction with the financial statements, and notes thereto, included with this Report at Item 1, above.
| As
of June 30, 2024 | As
of December 31, 2023 | |||||||
| Cash | $ | 317,374 | $ | 895,730 | ||||
| Accounts receivables, net | $ | 1,033,707 | $ | 742,851 | ||||
| Inventories | $ | 1,780,691 | $ | 13,713 | ||||
| Other receivables, net | $ | 6,977 | $ | 1,106,574 | ||||
| Advance to supplier | $ | 942,056 | $ | 13,811 | ||||
| Other current assets | $ | 969,209 | $ | 1,128,598 | ||||
| Total current assets | $ | 5,050,014 | $ | 3,960,742 | ||||
| Construction-in-progress | $ | 42,277,536 | $ | 41,423,399 | ||||
| Land use right, net | $ | 3,969,005 | $ | 4,118,101 | ||||
| Total assets | $ | 56,218,451 | $ | 50,215,568 | ||||
| Accounts payable-construction in progress | $ | 15,672 | $ | 18,493 | ||||
| Total current liabilities | $ | 866,454 | $ | 1,055,203 | ||||
| Long term loans | $ | 5,916,793 | $ | - | ||||
| Amounts due to a related party | $ | 8,196,503 | $ | 6,682,959 | ||||
| Total non-current liabilities | $ | 16,051,390 | $ | 8,672,422 | ||||
| Total liabilities | $ | 16,917,844 | $ | 9,727,625 | ||||
| Total stockholders’ (deficit) equity | $ | 39,300,607 | $ | 40,487,943 | ||||
As of June 30, 2024, we had US$317,374 in cash, as compared to US$895,730 as of December 31, 2023. As we started our business operation in 2023 and still at an early stage, we have been relying on directors’ loan, capital contribution and bank loans to finance our daily operation and construction in progress.
As of June 30, 2024, our construction in progress balance amounted to approximately US$42,277,536, as compared to US$41,423,399 as of December 31, 2023. This reflects the construction progress of our Hongchang Food Industrial Park.
Capital Expenditure Commitment as of June 30, 2024
As of June 30, 2024, the Company has entered into several contracts for construction of the Hongchang Food Industrial Park and the improvement of Industrial Buildings. Total outstanding commitments under these contracts were US$17,128,091 and US$23,698,063 as of June 30, 2024, and December 31, 2023, respectively. The Company expected to pay off all the balances within 1-3 years.
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2024, and December 31, 2023.
The following table sets forth a summary of our cash flows for the periods presented:
| For six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| US$ | US$ | |||||||
| Net cash provided by (used in) operating activities | $ | (3,085,210 | ) | $ | 922,491 | |||
| Net cash used in investing activities | $ | (5,127,011 | ) | $ | (41,657,671 | ) | ||
| Net cash provided by financing activities | $ | 7,651,822 | $ | 39,877,710 | ||||
| Effect of foreign exchange on cash, cash | $ | (17,957 | ) | $ | 1,728,475 | |||
| Net increase (decrease) in cash | $ | (578,356 | ) | $ | 871,005 | |||
| Cash at the beginning of the year | $ | 895,730 | $ | 3,141 | ||||
| Cash at the end of the year | $ | 317,374 | $ | 874,146 | ||||
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Operating activities
Net cash used in operating activities for the six months ended June 30, 2024 was US$3,085,210, which primarily reflected our net loss of US$118,249 as mainly adjusted for (i) increase in accounts receivable of US$312,923; (ii) increase in inventories of US$1,783,784, (iii) increase in advance to supplier of US$937,246, partially offset by (i) decrease in accounts payable of US$487,123 and (ii) decrease in accrued expenses and other payables of US$261,937.
Net cash provided by operating activities for the six months ended June 30, 2023 was US$922,491, which primarily reflected our net loss of US$247,942 as mainly adjusted for the increase in other current assets of US$867,382, and offset by the increase in deferred subsidies of US$2,032,732.
Investing activities
Net cash used in investing activities for the six months ended June 30, 2024 and 2023 was US$5,127,011 and US$41,657,671, mainly attributable to purchase of property and equipment.
Financing activities
Net cash provided by financing activities for the six months ended June 30, 2024 was US$7,651,822, primarily due to (i) proceeds from long term loans of US$5,971,873 and (ii) proceeds from loans from related parties of US$3,435,416 and repayments of a loan from a related party US$1,755,467.
Net cash provided by financing activities for the six months ended June 30, 2023 was US$39,877,710, primarily due to (i) capital contributions made by stockholders of US$41,241,108 and (ii) proceeds from a loan from a related party of US$1,331,757 and repayments of a loan from a related party US$2,695,155.
Critical Accounting Policies Involving Critical Accounting Estimates
The discussion and analysis of our Group’s financial condition and results of operations are based upon our Group’s unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP in a consistent manner. The preparation of these financial statements requires the selection and application of accounting policies. Further, the application of U.S. GAAP requires our Group to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, our Group evaluate its estimates, including those discussed below. our Group bases its estimates on historical experience, current trends and various other assumptions that it believes 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 under different assumptions or conditions. Our Group believes it is possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. Our Group believes that it has appropriately applied its critical accounting policies. However, in the event that inappropriate assumptions or methods were used relating to the critical accounting policies below, our Group’s consolidated statements of operations could be misstated.
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A detailed summary of significant accounting policies is summarized below:
Use of estimates
The preparation of the unaudited condensed 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, related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenue and expenses during the reported period in the unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in our Group’s unaudited condensed consolidated financial statements mainly include, but are not limited to, assessment for impairment of long-lived assets, valuation of deferred tax assets and current expected credit loss of receivables. Actual results could differ from those estimates.
Construction-in-progress
Property and equipment that are purchased or constructed which require a period of time before the assets are ready for their intended use are accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including installation costs. Construction-in-progress is transferred to specific property and equipment accounts and commences depreciation when these assets are ready for their intended use.
Land use right, net
The land use rights represent the operating lease prepayments for the rights to use the land in the PRC. Amortization of the prepayments is provided on a straight-line basis over the terms of the respective land use rights certificates.
Revenue recognition
The Group adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customer. To determine revenue recognition for contracts with customers, The Group performs the following five steps:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the Group satisfies a performance obligation
The Group generates revenue from food trading business.
The Group enters into contracts with their customers to provide food, mainly frozen pork. All of the Group’s contracts have single performance obligation as the promise is to transfer the goods to customers, and there are no other separately identifiable promises in the contracts. The Group recognizes revenue when it transfers its goods to customers in an amount that reflects the consideration to which the Group expects to be entitled in such exchange. The Group accounts for the revenue generated from sales of its products to its customers on a gross basis, because the Group is acting as a principal in these transactions, is subject to inventory risk, has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods. The Group’s revenue is recognized at a point in time when the control has been transferred, usually when the customer accepts the goods.
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ITEM 3. QUANTITATIVE AND QUALITATIVE ABOUT MATERIAL RISKS
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective as a result of a material weakness primarily related to a lack of a sufficient number of personnel with appropriate training and experience in accounting principles generally accepted in the United States of America, or U.S. GAAP. In the future, we intend to hire more personnel with sufficient training and experience in U.S. GAAP.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarterly period ended June 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are currently no legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition, or operating results.
ITEM 1A. RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
There were no material changes
to the procedures by which security holders may recommend nominees to the registrant’s board of directors.
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ITEM 6. – EXHIBITS
| * | Filed herewith. |
| ** | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act. |
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| Hongchang International Co., Ltd | ||
| Dated: August 13, 2024 | By: | /s/ Zengqiang Lin |
| Name: | Zengqiang Lin | |
| Title: | Chief Executive Officer and Chief Financial Officer (Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer) | |
30
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Zengqiang Lin, certify that:
I have reviewed this report on Form 10-Q of Hongchang International Co., Ltd;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15I and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 13, 2024
| /s/ Zengqiang Lin | ||
| Name: | Zengqiang Lin | |
| Title: | Director, Chief Executive Officer, and President (Principal Executive Officer) |
|
Exhibit 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Zengqiang Lin, certify that:
I have reviewed this report on Form 10-Q of Hongchang International Co., Ltd;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15I and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 13, 2024
| /s/ Zengqiang Lin | |
| Zengqiang Lin | |
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, in his capacity as an officer of Hongchang International Co., Ltd (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
| (1) | The Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 13, 2024
| /s/ Zengqiang Lin | |
| Zengqiang Lin | |
| Director, Chief Executive Officer, and President (Principal Executive Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, in his capacity as an officer of Hongchang International Co., Ltd (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
| (1) | The Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 13, 2024
| /s/ Zengqiang Lin | |
| Zengqiang Lin | |
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.