10-Q: Hong Yuan Reports Strong Revenue Growth in Q3 2025

Hong Yuan Holding Group reported significant revenue growth and a return to net income for the nine months ended September 30, 2025, despite ongoing going concern issues and a working capital deficit.

Summary

• Net income for the nine months ended September 30, 2025, was $117,813, a substantial improvement from a net loss of $119,747 in the prior year period.
• Revenue surged to $612,206 for the nine months ended September 30, 2025, compared to $15,290 in the same period last year, primarily driven by the ramping up of Chinese VIE operations.
• Gross profit for the nine months ended September 30, 2025, reached $390,289, up from $9,111 in the prior year.
• Operating expenses increased by 98.8% to $256,498 for the nine months ended September 30, 2025, mainly due to higher general and administrative, selling and marketing, and professional fees.
• The company continues to operate under a going concern warning, with an accumulated deficit of $97,667,803 and a net working capital deficit of $65,836 as of September 30, 2025.
• Cash and cash equivalents decreased to $12,610 as of September 30, 2025, from $38,527 at December 31, 2024.
• A loss from discontinued operations of $5,813 was recorded for the nine months ended September 30, 2025, following the deconsolidation of Xuchang in April 2025.
• The company owed its current majority shareholder $317,322 as of September 30, 2025, for working capital advances and the acquisition of Hongyuan HK.

Sentiment

Score: 4

Explanation: While the company demonstrated significant revenue growth and a return to net income, indicating operational progress, these positives are heavily overshadowed by persistent and severe 'going concern' issues, a substantial accumulated deficit, a working capital deficit, and reliance on related-party funding or future capital raises. The acknowledged weakness in internal controls further adds to the financial instability and high risk profile.

Positives

• Revenue for the nine months ended September 30, 2025, increased significantly to $612,206, compared to $15,290 in the same period of 2024.
• The company achieved a net income of $117,813 for the nine months ended September 30, 2025, a substantial turnaround from a net loss of $119,747 in the prior year.
• Gross profit saw a significant increase to $390,289 for the nine months ended September 30, 2025, from $9,111 in the previous year.
• Chinese Variable Interest Entities (VIEs) are actively ramping up operations, contributing to the observed revenue growth.

Negatives

• The company faces a significant going concern issue due to insufficient revenues to cover operating costs and dependence on external financing.
• An accumulated deficit of $97,667,803 was reported as of September 30, 2025.
• A net working capital deficit of $65,836 was reported as of September 30, 2025.
• Cash and cash equivalents declined to $12,610 as of September 30, 2025, from $38,527 at December 31, 2024.
• Operating expenses increased substantially by 98.8% for the nine months ended September 30, 2025.
• A loss of $5,813 was incurred from discontinued operations for the nine months ended September 30, 2025.
• Disclosure controls and procedures were deemed not effective as of September 30, 2025, due to a weakness in the design of internal control over financial reporting.

Risks

• Inability to establish an ongoing source of revenues sufficient to cover operating costs.
• Dependence on debt and equity financing to fund operations, with no assurance of availability on acceptable terms.
• Uncertainty regarding the ability to raise additional equity capital or successfully develop and commercialize products.
• The company may continue to incur losses and negative cash flows from operating activities for the foreseeable future.
• Substantial doubt about the company's ability to continue as a going concern, as highlighted by auditors.
• A going concern qualification from auditors may make it more difficult to raise necessary funds.
• Ineffective disclosure controls and procedures due to a weakness in internal control over financial reporting.
• Potential for material adverse effects from legal proceedings, although none are currently deemed material by management.

Future Outlook

The company expects to continue incurring losses and negative cash flows from operating activities for the foreseeable future. It is dependent on debt and equity financing to fund operations and is making efforts to raise additional funding. The CEO and principal shareholder, Mr. Xudong, has indicated a willingness to provide interest-free loans for corporate expenses for approximately 24 months, payable upon a business combination, but there is no written agreement for future advances. There is no assurance that additional financing will be available when needed or on acceptable terms.

Management Comments

• "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."
• "Mr. Xudong, the CEO and principal shareholder of the Company, would favorably entertain funding, through loans, corporate expenses for approximately 24 months."
• "Management believes the Company may continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever."

Industry Context

The company's operations are focused on supply chain management services, primarily engaged in the wholesale and internet sales of fast-moving consumer goods such as food, daily necessities, and electronic products in China. The filing does not provide broader industry trends or competitive analysis to contextualize its performance within the sector.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• The company is not a party to or otherwise involved in any legal proceedings that are expected to have a material adverse effect on its financial position or results of operations.

Related Party Transactions

• During the nine months ended September 30, 2025, the current majority shareholder advanced $65,435 to the company as working capital.
• As of September 30, 2025, the company owed its current majority shareholder $317,322, including $64,103 for the acquisition of Hongyuan HK.
• The advances from the majority shareholder are non-interest bearing and are due on demand.
• The company acquired 100% equity interest of Hongyuan International Holding Group Co., Ltd. (Hongyuan HK) from Xudong Li, the majority shareholder, for HK $500,000 (approximately $64,103).
• Hongyuan HK entered into a series of agreements with Fengcuiyuan, a corporation in which Xudong Li controls 95% of the equity interest.

Stakeholder Impact

• Shareholders face potential for significant dilution if additional equity financing is pursued and risk of loss of investment due to ongoing going concern issues.
• Creditors face increased risk of non-payment given the company's going concern status, working capital deficit, and reliance on future financing.
• Employees may experience instability if the company cannot secure sufficient funding to sustain operations.
• Customers and suppliers could face disruptions if the company's financial instability impacts its ability to operate effectively and fulfill obligations.

Next Steps

• Raise additional funding through equity or debt financing to sustain operations.
• Seek collaborative or other arrangements with corporate partners, licensees, or others.
• Continue efforts to establish an ongoing source of revenues sufficient to cover operating costs.
• Recover investment funds for stores operated by Xuchang as loans from store profits.

Key Dates

Recommendation

While the company has demonstrated impressive revenue growth and a shift to net income, indicating operational progress in its new business model, the severe 'going concern' warning, substantial accumulated deficit, and working capital deficit present fundamental solvency risks. The reliance on related-party funding and the acknowledged weakness in internal controls further complicate the investment thesis. A 'hold' recommendation is appropriate for existing investors to monitor if the company can successfully address its liquidity and going concern issues, while new investors should exercise extreme caution due to the high risk profile despite the operational improvements.

Keywords

supply chain management, fast-moving consumer goods, FMCG, wholesale, internet sales, China operations, VIE structure, going concern, quarterly report, financial results, revenue growth, net income, working capital deficit, SEC filing, Hong Yuan Holding Group