Hongchang International Co., Ltd 10-Q for FY2024 Q2
Hongchang International Co., Ltd (HCIL)
About this 10-Q
Hongchang International Co., Ltd filed this 10-Q on November 14, 2023, covering the quarter ended September 30, 2023 (FY2024 Q2).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $51.4K
- Net loss
- $144.49K
- compared with a net loss of $77.08K 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.) | |
|
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 | ||
| None | None | None |
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 November 6, 2023,
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
Heyu Biological Technology Corporation
Consolidated Balance Sheets
(Unaudited)
| As of | ||||||||
| December 31, 2022 | September 30, 2023 | |||||||
| US$ | US$ | |||||||
| ASSETS: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | ||||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Other receivable | ||||||||
| Other current assets | ||||||||
| Amount due from a related party | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Construction-in-progress | ||||||||
| Land use right, net | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Advances from customers | ||||||||
| Deferred subsidies | ||||||||
| Amounts due to a related party | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ (deficit) equity: | ||||||||
| Ordinary shares (US$ | ||||||||
| Subscription receivable | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income(loss) | ( | ) | ||||||
| Total shareholders’ (deficit) equity | ( | ) | ||||||
| Total liabilities and shareholders’ (deficit) equity | ||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
1
Heyu Biological Technology Corporation
Consolidated Statements of Operations and Comprehensive Income(Loss)
(Unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2022 | 2023 | 2022 | 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Net revenues: | ||||||||||||||||
| Product sales | ||||||||||||||||
| Total net revenues | ||||||||||||||||
| Cost of revenues | ( | ) | ( | ) | ||||||||||||
| Gross profit | ( | ) | ( | ) | ||||||||||||
| 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 expense (benefit) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive loss, net of tax of nil: | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| ( | ) | ( | ) | ( | ) | |||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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 interim condensed consolidated financial statements.
2
Heyu Biological Technology Corporation
Consolidated Statements of Cash Flows
(Unaudited)
| For the nine months ended September 30, | ||||||||
| 2022 | 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 | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Other current assets | ( | ) | ( | ) | ||||
| 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 | ( | ) | ( | ) | ||||
| Loan to third party | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Capital contribution by shareholders | ||||||||
| Repayments of a loan from a related party | ( | ) | ||||||
| Proceeds from a loan from a related party | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes | ( | ) | ( | ) | ||||
| Net increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of year | ||||||||
| Cash and cash equivalents at end of year | ||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3
Heyu Biological Technology Corporation
Condensed Consolidated Statements of Stockholders’ Deficit
(Unaudited)
| Ordinary Shares | Subscription | Additional Paid-in | Accumulated | Accumulated other comprehensive | Total Shareholder’s (Deficit) | |||||||||||||||||||||||
| Shares | Amount | receivable | Capital | Deficit | income | Equity | ||||||||||||||||||||||
| Balance as of January 1, 2022 (US$) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of September 30, 2022 (US$) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Ordinary Shares | Subscription | Additional Paid-in | Accumulated | Accumulated other comprehensive | Total Shareholder’s (Deficit) | |||||||||||||||||||||||
| Shares | Amount | receivable | Capital | Deficit | income | Equity | ||||||||||||||||||||||
| Balance as of January 1, 2023 (US$) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||||||||||||||
| Contribution from shareholder | - | |||||||||||||||||||||||||||
| Deemed issuance of share upon the Merger transaction | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of September 30, 2023 (US$) | ( | ) | ( | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4
Heyu Biological Technology Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION
(a) Nature of operations
Heyu Biological Technology Corporation (the “Company”) 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 engage in the core businesses of food trade and biotechnology (collectively, “Principal Business”).
On September 4, 2023, the Company completed the merger and other related transactions (the “Merger Transactions” or “Merger”) 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.
(b) History and reorganization of the Group
In
preparation of its business combination with Heyu Biological Technology Corporation in the United States, 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 shareholders of 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, the Company
entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Hongchang BVI and Hongchang BVI’s shareholders,
Zengqiang Investment Limited, a business company incorporated in the BVI, and Hong Jin Investment Limited, a business company incorporated
in the BVI (the “Selling Shareholders” and each a “Selling Shareholder”), in relation to the acquisition of Hongchang
BVI by our Company (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 our Company 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 Shareholders
sold and transferred
5
1. ORGANIZATION (cont.)
(c) Reverse merger (cont.)
Immediately following the
closing of the Hongchang Acquisition, the Company had a total of
As Heyu Biological Technology Corporation, 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 Heyu Biological Technology Corporation together with the listing status of Heyu Biological Technology Corporation. Management concluded that September 4, 2023 is the acquisition date of the Merger.
| Entity | Place of incorporation |
Percentage of direct or indirect ownership by the Company |
Principal activities | |||
| Subsidiaries: | ||||||
| Hongchang BVI | ||||||
| Hongchang HK | ||||||
| WFOE | ||||||
| Hongchang Food |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding financial reporting that are consistent with those used in the preparation of the Company’s audited consolidated financial statements for the period ended September 30, 2022 and 2023. Accordingly, these unaudited interim condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, operating results and cash flows of the Company for each of the periods presented. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of results to be expected for any other interim period or for the year ending December 31, 2023. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements at that date but does not include all the disclosures required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the years ended December 31, 2022.
Through the Reorganization, the Company became the holding company of the companies now comprising the Group. Accordingly, for the purpose of preparation of the 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 shareholder 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 consolidated statements of loss and other comprehensive income, 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 shareholder, whenever the period is shorter.
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(b) Principles of consolidation
The accompanying consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries for which the Company is the ultimate primary beneficiary.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to appoint or remove the majority of the members of the board of directors (the “Board”); and to cast majority of votes at the meeting of the Board or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
All significant transactions and balances between the Company and its subsidiaries have been eliminated. The non-controlling interests in consolidated subsidiaries are shown separately in the consolidated financial statements.
(c) Use of estimates
The preparation of the 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 consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s consolidated financial statements mainly include, but are not limited to, standalone selling price of each distinct performance obligation in revenue recognition, estimated useful life of land use right, 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.
(d) Foreign Currency
For fiscal year 2022, the Company’s principal country of operations is the PRC. The accompanying 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 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 shareholders’ equity included in other comprehensive income. Gains and losses from foreign currency transactions are included in profit or loss.
7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(d) Foreign Currency (cont.)
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| RMB: US$ exchange rate | ||||||||
| Nine Months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| 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.
(e) 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.
(f) 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.
(g) Revenue recognition
Revenue is recognized when or as the control of the goods or services is transferred to a customer. Depending on the terms of the contract and the laws that apply to the contract, control of the goods and services may be transferred over time or at a point in time. Control of the goods and services is transferred over time if the Group’s performance:
| (i) | provides all of the benefits received and consumed simultaneously by the customer; |
| (ii) | creates and enhances an asset that the customer controls as the Group performs; or |
| (iii) | does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. If control of the goods and services transfers over time, revenue is recognized over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the goods and services. |
8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(g) Revenue recognition (cont.)
If control of the goods and services transfers over time, revenue is recognized over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the goods and services.
Contracts with customers may include multiple performance obligations. For such arrangements, the Group allocates revenue to each performance obligation based on its relative standalone selling price. The Group generally determines standalone selling prices based on the prices charged to customers. If the standalone selling price is not directly observable, it is estimated using expected cost plus a margin or adjusted market assessment approach, depending on the availability of observable information. Assumptions and estimations have been made in estimating the relative selling price of each distinct performance obligation, and changes in judgments on these assumptions and estimates may impact the revenue recognition.
When either party to a contract has performed, the Group presents the contract in the consolidated balance sheets as a contract asset or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment.
A contract asset is the Group’s right to consideration in exchange for goods and services that the Group has transferred to a customer. A receivable is recorded when the Group has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due.
If a customer pays consideration or the Group has a right to an amount of consideration that is unconditional, before the Group transfers a good or service to the customer, the Group presents the contract liability when the payment is made, or a receivable is recorded (whichever is earlier). A contract liability is the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer.
Product sales
The Group generates revenue from food trading business. The revenue is recognized at a point in time when the control of the product is transferred to the customer.
(h) 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.
(i) 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 consolidated statements of comprehensive 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.
9
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(i) Income taxes (cont.)
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 December 31, 2021 and 2022.
(j) Recent accounting pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes as part of the FASB’s overall initiative to reduce complexity in accounting standards. The amendments include removal of certain exceptions to the general principles of ASC 740, Income taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The update is effective in fiscal years beginning after December 15, 2020, and interim periods therein, and early adoption is permitted. Certain amendments in this update should be applied retrospectively or modified retrospectively, all other amendments should be applied prospectively. The Company does not expect the impact of this guidance to have a material impact on the Company’s consolidated financial statements.
3. OTHER CURRENT ASSETS
| As of | ||||||||
| December 31, | September 30, | |||||||
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| VAT recoverable | | |||||||
| Advance to suppliers | ||||||||
| | | |||||||
4. CONSTRUCTION-IN-PROGRESS
| As of | ||||||||
| December 31, | September 30, | |||||||
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Construction in progress | ||||||||
| | ||||||||
Hongchang Food Industrial Park covers an area of
5. LAND USE RIGHT, NET
| As of | ||||||||
| December 31, | September 30, | |||||||
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Land use rights | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Net book value | | | ||||||
10
5. LAND USE RIGHT, NET (cont.)
| For the years ended December 31, | ||||||||||||||||||||||||
| 2023* | 2024 | 2025 | 2026 | 2027 | 2028 and thereafter | |||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||
| Amortization expenses | ||||||||||||||||||||||||
| * |
6. ACCRUED EXPENSES AND OTHER LIABILITIES
| As of | ||||||||
| December 31, | September 30, | |||||||
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Payroll and welfare payables | ||||||||
| Others | ||||||||
11
7. ORDINARY SHARES AND ADDITIONAL PAID-IN CAPITAL
| Ordinary Shares | Subscription | Additional Paid-in | ||||||||||||||||||
| Shares | Amount | receivable | Capital | Total | ||||||||||||||||
| Balance as of January 1, 2022 (US$)(note i) | ( | ) | ||||||||||||||||||
| Balance as of September 30, 2022 (US$)(note i) | ( | ) | ||||||||||||||||||
| Ordinary Shares | Subscription | Additional Paid-in | ||||||||||||||||||
| Shares | Amount | receivable | Capital | Total | ||||||||||||||||
| Balance as of January 1, 2023 (US$)(note i) | ( | ) | ||||||||||||||||||
| Contribution from shareholder(note ii) | - | |||||||||||||||||||
| Recapitalization upon the Merger (note iii) | ( | ) | ||||||||||||||||||
| Deemed issuance of share upon the Merger Transaction | ( | ) | ( | ) | ||||||||||||||||
| Balance as of September 30, 2023 (US$) | ||||||||||||||||||||
Notes
| (i) |
| (ii) |
| (iii) |
8. RELATED PARTY TRANSACTIONS
| (a) | Related parties |
| Names of related parties | Relationship with the Company | |
| Mr. Zengqiang Lin | ||
| Fuqing Xinhongbo Trading Co., Ltd. (“Xinhongbo”) |
| (b) |
| For nine months ended September 30, | ||||||||
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Loan from a related party: | ||||||||
| -Mr. Zengqiang Lin | | | ||||||
| Repayment of loan from a related party: | ||||||||
| -Mr. Zengqiang Lin | | | ||||||
| Capital contribution to Hongchang Food: | ||||||||
| -Mr. Zengqiang Lin | | |||||||
12
8. RELATED PARTY TRANSACTIONS (cont.)
| (c) |
| As of | ||||||||
| December 31, | September 30, | |||||||
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Amount due from a related party: | ||||||||
| -Xinhongbo | | | ||||||
| Amount due to a related party: | ||||||||
| -Mr. Zengqiang Lin | | | ||||||
All balances with the related parties as of December 31, 2022 and September 30, 2023 were unsecured, interest-free and had no fixed terms of repayments.
9. Commitments and Contingencies
As of September 30, 2023,
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 $
13
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 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
Heyu Biological Technology Corporation (the “Company” or “HYBT”) 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 engage in the core businesses of food trade and biotechnology (collectively, “Principal Business”).
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 Three Months Ended September 30, 2023 and 2022
Our revenues during the three months ended September 30, 2023, were $51,397, and cost of revenues was $62,955, as compared to revenues of nil and cost of revenues of nil for the same period in 2022, respectively. Hongchang Group’s 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 Hongchang Group’s revenue was primarily driven by increasing Hongchang Group’s product variety, expanding Hongchang Group’s distribution network, both in China and overseas and the initiation of other projects or business lines in the future. We had incurred general and administrative expenses of $137,193 during the three months ended September 30, 2023, as compared to $75,684 for the same period in 2022, respectively. The increase in general and administrative expenses was mainly due to the increase in professional consulting fees, increase wages expenses related to the increase in headcount and overall higher general and administrative expenses.
14
Comparison of the Nine Months Ended September 30, 2023 and 2022
Our revenues during the nine months ended September 30, 2023, were $78,204, and cost of revenues was $104,430, as compared to revenues of nil and cost of revenues of nil for the same period in 2022, respectively. Hongchang Group’s 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 Hongchang Group’s revenue was primarily driven by increasing Hongchang Group’s product variety, expanding Hongchang Group’s distribution network, both in China and overseas and the initiation of other projects or business lines in the future. We had incurred general and administrative expenses of $381,579 during the nine months ended September 30, 2023, as compared to $150,939 for the same period in 2022, respectively. The increase in general and administrative expenses was mainly due to the increase in professional consulting fees, increase wages expenses related to the increase in headcount and overall higher general and administrative expenses.
Capital Expenditure Commitment as of September 30, 2023
As of September 30, 2023, 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 $46,517,560 and $23,114,913 as of December 31, 2022 and September 30, 2023, respectively. The Company expected to pay off all the balances within 1-3 years.
Liquidity and Capital Resources
As of September 30, 2023, we had US$863,119 in cash and cash equivalents, as compared to US$3,141 as of December 31, 2022. As we started our business operation in 2023, so we have been relying on directors’ loan and capital contribution to finance our daily operation and construction in progress.
As of September 30, 2023, our construction in progress balance amounted to approximately US$38,674,338 , as compared to US$26,837,950 as of December 31, 2022. This reflects the construction progress of our Hongchang Food Industrial Park.
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2023, and December 31, 2022.
Operating activities
Net cash used in operating activities for the nine months ended September 30, 2023 was US$777,143, which primarily reflected our net loss of US$392,435 as mainly adjusted for amortization of US$59,602, and adjustment for changes in working capital primarily consists of increase in other current assets of US$862,632 offset by increase in Deferred subsidies of US$2,003,319.
Net cash used in operating activities for the nine months ended September 30, 2022 was US$109,357, which primarily reflected our net loss of US$152,345 as mainly adjusted for amortization of US$62,771, and adjustment for changes in working capital primarily consists of increase in other current assets of US$18,358.
Investing activities
Net cash used in investing activities for the nine months ended September 30, 2023 and 2022 was US$41,407,175 and US$954,232 mainly attributable to purchase of property, plant and equipment.
Financing activities
Net cash provided by financing activities for or the nine months ended September 30, 2023 and 2022 was US$41,517,299 and US$1,062,404, primarily due to loan from related party and capital contributions made by shareholder.
15
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 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 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 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.
A detailed summary of significant accounting policies is included in Note 2 to our Group’s consolidated financial statements for the period ended December 31, 2022 and June 30, 2023 contained in this report.
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 September 30, 2023, 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.
16
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
Please refer to the Current Report on Form 8-K of the Company filed with the SEC on September 7, 2023.
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. No insider trading arrangements and policies (such as Rule 10b5–1 trading arrangements) have been entered into by the directors and officers of the Company.
17
ITEM 6. – EXHIBITS
| (1) | Filed as an exhibit to the Company’s Registration Statement on Form 10-12G, as filed with the SEC on July 16, 1999, and incorporated herein by this reference. |
| (2) | Filed as an exhibit to the Company’s Form 8-K, as filed with the SEC on July 6, 2018, and incorporated herein by reference. |
| (3) | Filed as an exhibit to the Company’s Form 8-K, as filed with the SEC on August 3, 2018, and incorporated herein by reference. |
| (4) | Filed as an exhibit to the Company’s Form 8-K, as filed with the SEC on September 14, 2018, and incorporated herein by reference. |
| (5) | Filed as an exhibit to the Company’s Form 8-K, as filed with the SEC on August 14, 2023, and incorporated herein by reference. |
| (6) | Filed as an exhibit to the Company’s Registration Statement on Form 10-12G, as filed with the SEC on July 16, 1999, and incorporated herein by this reference. |
| (7) | Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 13, 2018, and incorporated herein by this reference. |
| (8) | Filed as an exhibit to the Company’s Form 8-K, as filed with the SEC on July 1, 2019, and incorporated herein by reference. |
| (9) | Filed as an exhibit to the Company’s Form 8-K, as filed with the SEC on August 23, 2023, and incorporated herein by reference. |
| (10) | Filed as an exhibit to the Company’s Form 8-K, as filed with the SEC on August 23, 2023, and incorporated herein by reference. |
| (11) | Filed as an exhibit to the Company’s Form 8-K, as filed with the SEC on August 23, 2023, and incorporated herein by reference. |
| * | 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. |
18
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.
| Heyu Biological Technology Corporation | ||
| Dated: November 13, 2023 | By: | /s/ Zengqiang Lin |
| Name: | Zengqiang Lin | |
| Title: | Chief Executive Officer | |
| Dated: November 13, 2023 | By: | /s/ Wei Li |
| Name: | Wei Li | |
| Title: | Chief Financial Officer | |
19
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 Heyu Biological Technology Corporation;
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: November 13, 2023
| /s/ Zengqiang Lin | |
| Zengqiang Lin | |
| Chairman of the Board of Directors, 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, Wei Li, certify that:
I have reviewed this report on Form 10-Q of Heyu Biological Technology Corporation;
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: November 13, 2023
| /s/ Wei Li | |
| Wei Li | |
| 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 Heyu Biological Technology Corporation (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 September 30, 2023 (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: November 13, 2023
| /s/ Zengqiang Lin | |
| Zengqiang Lin | |
| Chairman of the Board of Directors, Chief Executive Officer, and President (Principal Executive Officer and Director) |
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 her capacity as an officer of Heyu Biological Technology Corporation (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 her knowledge:
| (1) | The Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2023 (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: November 13, 2023
| /s/ Wei Li | |
| Wei Li | |
| 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.