10-Q: Hi-Great Group Reports Worsening Losses and Critical Financial Weaknesses in Q1 2025 Filing

Hi-Great Group Holding Company, a development stage enterprise, reported a significantly increased net loss and declining cash reserves for the first quarter of 2025, alongside critical internal control deficiencies and ongoing going concern issues.

Summary

• For the three months ended March 31, 2025, Hi-Great Group Holding Company reported sales of $8,883, a decrease from $9,050 in the same period of 2024.
• Cost of sales increased to $7,501 in Q1 2025 from $4,873 in Q1 2024, leading to a sharp decline in gross profit from $4,178 to $1,382.
• The company's net loss widened significantly to $18,938 for Q1 2025, compared to a net loss of $8,778 for Q1 2024.
• Operating expenses rose to $20,758 in Q1 2025 from $14,987 in Q1 2024, primarily due to increased professional fees ($9,950 vs. $6,500) and general and administrative expenses ($3,916 vs. $1,596).
• Cash balance plummeted to $207 as of March 31, 2025, from $2,140 at December 31, 2024.
• The company used $8,387 in cash from operating activities in Q1 2025, a reversal from generating $2,631 in Q1 2024.
• Hi-Great Group has an accumulated deficit of $911,732 as of March 31, 2025, up from $892,794 at December 31, 2024.
• The company's disclosure controls and procedures were deemed not effective as of March 31, 2025, citing a lack of an audit committee and segregation of duties as material weaknesses.
• The company continues to operate as a development stage enterprise, dependent on debt and equity financing to fund operations, with no assurance of successful capital formation or product commercialization.
• The land lease agreement with Sella Property, LLC, a related party, for $30,000 annually, matured on March 16, 2025.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to significant worsening financial performance (increased losses, declining cash, negative operating cash flow), critical internal control deficiencies, and explicit statements about going concern risks and dependence on future uncertain financing.

Negatives

• Sales decreased from $9,050 in Q1 2024 to $8,883 in Q1 2025.
• Cost of sales increased significantly from $4,873 in Q1 2024 to $7,501 in Q1 2025.
• Gross profit declined sharply from $4,178 in Q1 2024 to $1,382 in Q1 2025.
• Net loss more than doubled, increasing from $8,778 in Q1 2024 to $18,938 in Q1 2025.
• Cash balance decreased substantially from $2,140 at December 31, 2024, to $207 at March 31, 2025.
• Operating activities shifted from generating $2,631 in cash in Q1 2024 to using $8,387 in Q1 2025.
• The accumulated deficit grew to $911,732, indicating persistent losses.
• Disclosure controls and procedures were found to be ineffective, highlighting significant internal control weaknesses.
• The company faces a going concern risk, as it has not established an ongoing source of revenue sufficient to cover operating costs and is dependent on external financing.

Risks

• The company has not yet established an ongoing source of revenues sufficient to cover its operating costs and is dependent on debt and equity financing to fund its operations.
• There is no assurance that the company will be able to raise additional equity capital or be successful in the development and commercialization of its products.
• The company's disclosure controls and procedures were not effective for the quarterly period ended March 31, 2025.
• Material weaknesses in internal controls include a lack of an audit committee and a lack of segregation of duties.
• The outbreak of COVID-19 could impact the company's efforts to enter into a business combination, although it has had a minimal impact on day-to-day operations to date.
• Future success is dependent on the general economy.
• There is a possibility of not successfully raising future financings.
• The adequacy of cash resources and working capital is a concern.

Future Outlook

Hi-Great Group Holding Company is refocusing its efforts on an exclusive global licensing agreement pertaining to the KRAS gene, which is frequently mutated in various cancers. The company will continue to market, sell, and distribute SellaCare, Inc.'s organic longevity health supplement under its existing worldwide exclusive license agreement. Additionally, it plans to diversify into the cosmetic sector as a strategic component of its sustainable revenue approach, while retaining its presence in other industry sectors. The company's website is currently under construction. The principal business objective is to maximize shareholder returns through dividends, sustainable long-term growth in cash flows from product distribution, potential long-term appreciation of properties, other sustainable agricultural business opportunities, and the distribution of plant-based finished consumer products, including specialty herbs and expansion into cosmetics.

Management Comments

• "The Company is a development stage enterprise devoting substantial efforts to establishing a new business, financial planning, raising capital, and research into products which may become part of the Company's product portfolio."
• "The Company has not realized significant sales through since inception."
• "Management of the Company is making efforts to raise additional funding until a registration statement relating to an equity funding facility is in effect."
• "While management of the Company believes that it will be successful in its capital formation and planned operating activities, there can be no assurance that the Company will be able to raise additional equity capital or be successful in the development and commercialization of the products it develops or initiates collaboration agreements thereon."
• "The increase in professional fees in the current period is attributed to an increase of audit expenses."
• "The increase in general and administrative expenses in the current year is attributed to an increase of bad debt expenses and other expenses in this quarter."
• "Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, they concluded that our disclosure controls and procedures were not effective for the quarterly period ended March 31, 2025."
• "The following aspects of the Company were noted as potential material weaknesses: lack of an audit committee, lack of segregation of duties."
• "No change occurred in the Company's internal controls over financial reporting during the quarter ended March 31, 2025, that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting."

Industry Context

Hi-Great Group Holding Company operates as a development stage enterprise with a diverse, yet nascent, business strategy spanning agritourism, herbal supplements, and a new focus on the lucrative KRAS gene research and cosmetic sectors. Its current financial performance, characterized by minimal sales and significant losses, indicates it is far from establishing a stable market position in any of these areas. The reliance on related-party transactions for licensing and property leases suggests a limited independent operational footprint. The shift towards KRAS gene research and cosmetics indicates an attempt to tap into high-growth, high-value markets, but without significant capital or established operations, these remain aspirational. The company's status as a 'smaller reporting company' and its stated internal control deficiencies suggest it is not yet operating at the level of established industry players.

Comparison to Industry Standards

• As a development stage company with minimal sales and significant accumulated deficits, Hi-Great Group Holding Company does not currently meet typical industry standards for profitability, revenue generation, or cash flow sustainability.
• The company's gross profit margin of approximately 15.5% ($1,382 gross profit / $8,883 sales) is extremely low, especially for a company selling herbal supplements, which typically have higher margins. For instance, established health supplement companies often report gross margins in the range of 40-60% or higher.
• The negative cash flow from operations ($8,387 used) is a critical concern, contrasting sharply with profitable companies in the health and wellness sector that typically generate positive operating cash flows to fund growth.
• The company's cash balance of $207 is critically low and far below what would be considered adequate working capital for any operational business, let alone one pursuing multiple new ventures.
• The identified material weaknesses in internal controls, specifically the lack of an audit committee and segregation of duties, fall significantly short of corporate governance best practices and regulatory expectations for publicly traded companies, regardless of size.

Management Changes

Corporate Governance

Related Party Transactions

• On October 11, 2019, Custodian Ventures, LLC (controlled by David Lazar) transferred 70,000,000 shares of common stock to Esther Yang for $225,000, resulting in a change of control.
• On March 19, 2020, the Company entered into a licensing agreement with SellaCare, Inc. (controlled by the Company's majority shareholder, Esther Yang) for patents and future products, requiring the Company to pay 25% of gross revenues or $1,000, whichever is greater. As of March 31, 2025, $164,443 of licensing expense has been accrued.
• On March 16, 2020, the Company entered into a land lease for property in Pearblossom, CA, with Sella Property, LLC (an entity controlled by Esther Yang), requiring annual rent payments of $30,000. The lease matured on March 16, 2025.
• On December 27, 2019, the company obtained a $5,000 loan from Jung Ho Yang, which has since been paid.
• On January 28, 2020, the company obtained a $10,000 loan from Sellacare America, Inc., which has since been paid.
• On April 29, 2020, Madeline Choi was transferred 1,000,000 shares from Alex Jun Ho Yang as compensation for serving as Secretary.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk if future capital raises occur. The increasing accumulated deficit and negative cash flow erode shareholder value. The ineffective internal controls and going concern warning pose substantial risks to their investment.
• **Employees**: While not explicitly mentioned, the company's precarious financial position and development stage status suggest potential instability regarding job security and growth opportunities.
• **Customers**: The company's ability to consistently supply products (herbal supplements) and develop new offerings (KRAS gene, cosmetics) may be impacted by its financial instability and dependence on external funding.
• **Suppliers**: Related-party suppliers (SellaCare, Inc., Sella Property, LLC) are directly impacted by the company's revenue and operational status, as their payments are tied to licensing agreements and leases. Other potential suppliers face payment risk due to the company's liquidity issues.
• **Creditors**: Existing creditors face increased risk due to the company's accumulated deficit, negative cash flow, and explicit going concern warning, which indicate potential difficulty in meeting future obligations.

Next Steps

• Management is making efforts to raise additional funding until a registration statement relating to an equity funding facility is in effect.
• The company plans to continue marketing, selling, and distributing SellaCare, Inc.'s organic longevity health supplement.
• The company plans to diversify into the cosmetic sector.
• The company's website is currently under construction.

Key Dates

Recommendation

Keywords

SEC filing, 10-Q, Quarterly Report, Financial Performance, Net Loss, Cash Flow, Going Concern, Internal Controls, Related Party Transactions, Herbal Supplements, KRAS Gene, Cosmetics Industry, Agritourism, Development Stage Company