{"url_path":"/sec/hgyn/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 **","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-05-08","source_url":"https://www.sec.gov/Archives/edgar/data/1324759/0001493152-26-021954-index.html","accession_number":"0001493152-26-021954","cik":"0001324759","ticker":"HGYN","issuer_name":"HONG YUAN HOLDING GROUP","edgar_url":"https://www.sec.gov/Archives/edgar/data/1324759/0001493152-26-021954-index.html","primary_entity_key":"0001324759","primary_entity_name":"HONG YUAN HOLDING GROUP"},"word_count":2656,"has_tables":true,"body_markdown":"**Item\n7**\n**Management’s\nDiscussion And Analysis Of Financial Condition And Results Of Operations.**\n\n \n\n**Forward-Looking\nStatement Notice**\n\n \n\nThis\nCurrent Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These include statements\nabout our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,”\n“expect,” “intend,” “plan,” “will,” “we believe,” “believes,”\n“management believes” and similar language. Except for the historical information contained herein, the matters discussed\nin this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this\nreport are forward-looking statements that involve risks and uncertainties. The factors listed in the section captioned “Risk Factors,”\nas well as any cautionary language in this report, provide examples of risks, uncertainties, and events that may cause our actual results\nto differ materially from those projected. Except as may be required by law, we undertake no obligation to update any forward-looking\nstatement to reflect events after the date of this Form 10-K.\n\n \n\n**Overview**\n\n \n\nThe\nCompany was incorporated in the state of Nevada on September 14, 2001 under the name Biocorp North America, Inc. On March 18, 2005, it\nchanged its name to Cereplast, Inc. In the summer of 2014, the Company ceased all operations.\n\n \n\nA\nchange of control of the Company was completed on November 3, 2020, control was obtained by the sale of 50,000,000 common shares and\n$5,000,000 Series A-1 Preferred Shares from Custodian Ventures, LLC to Xudong Li. After November 3, 2020, the Company’s operations\nare determined and structured by the new major shareholder.\n\n \n\nOn\nNovember 18, 2020, the Company filed an amendment to its certificate of incorporation to change its name to Hong Yuan Holding Group.\n\n \n\nOn\nOctober 1, 2024, The Company entered into an agreement to acquire from Xudong Li (the majority shareholder of the Company) 100% equity\ninterest of Hongyuan International Holding Group Co., Ltd. (“Hongyuan HK”) in exchange for HK $500,000 (approximately $64,103)\nor issuing the equivalent value of the Company’s common stocks, payable upon the completion of changing registered owner with the\nAdministration for Industrial and Commerce. Hongyuan HK was established in Hong Kong on July 28, 2021.\n\n \n\nAlso\non October 1, 2024, Hongyuan HK entered into a series of agreements including a Shareholders’ Voting Rights Entrustment Agreement,\nan Exclusive Management Consulting and Service Agreement and a Share Pledge Agreement (collectively the “Agreements”) with\nFengcuiyuan Chang Technology Development Co., Ltd (“Fengcuiyuan”) and its registered owners (the “Transaction”).\nFengcuiyuan is a corporation formed under the laws of the PRC on September 3, 2021, in which Xudong Li (the majority shareholder of the\nCompany) controls 95% of its equity interest. Fengcuiyuan owns 98% of Rongcheng (Sichuan) Supply Chain Management Co., Ltd (“Rongcheng”),\na corporation formed under the laws of the PRC located in Chengdu, Sichuan, China, incorporated on April 17, 2024. On November 12, 2024,\nChongqing Xuchang Qingrong Trading Co., Ltd. (“Xuchang”) located in Chongqing, Sichuan, China, was formed as a 55% subsidiary\nof Rongcheng.\n\n \n\nAccording\nto the Agreements, Hongyuan HK assumed financial and operating control of Fengcuiyuan. As a result, Hongyuan HK has been determined to\nhave a controlling financial interest in Fengcuiyuan, requiring Hongyuan HK to consolidate the financial statements of Fengcuiyuan and\nits subsidiaries, and ultimately consolidate with its parent company, Hong Yuan. The Transaction was accounted for as a reorganization\nof entities under common control. As the combining entities have been under common control since September 2021, the consolidated financial\nstatements of the Company recognized the assets and liabilities received in the reorganization at their historical carrying amounts,\nas reflected in the historical financial statements of each entity.\n\n \n\nThe\nCompany, through its subsidiary and the Agreements with Fengcuiyuan, focuses on supply chain management services, is mainly engaged in\nthe wholesale and internet sales of fast-moving consumer goods such as food, daily necessities, and electronic products, covering diversified\nfields such as pre-packaged food, agricultural and by-products, and household goods.\n\n \n\nIn\nApril 2025, the Company changed its business model. Rongcheng relinquished its 55% ownership in Xuchang and received its original investment\nback, but will still fund the opening of stores operated by Xuchang. In the future, the investment funds for stores will be recovered\nas loans from the stores’ profits. As a result, Xuchang was deconsolidated from the Company’s consolidated financial statements\nstarting in the second quarter of 2025 and Xuchang’s operating results prior to the deconsolidation was accounted for as discontinued\noperations.\n\n \n\nWe\nhave not yet generated sustained profits from our prior operations. Our independent accountants have expressed a “going concern”\nopinion. As of December 31, 2025, we had an accumulated deficit of $97,652,645 and a negative working capital of $11,622.\n\n \n\nWhile\nour current burn rate is nominal, it is expected that our costs of operations will continue to exceed revenues, primarily due to the\ncosts associated with being a public reporting company. Based upon our current business plan, we may continue to incur losses in the\nforeseeable future and there can be no assurances that we will ever establish profitable operations. These and other factors raise substantial\ndoubt about our ability to continue as a going concern.\n\n \n\n8\n\n \n\n \n\n**Critical\nAccounting Policies, Judgments and Estimates**\n\n \n\nOur\ndiscussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which\nhave been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated\nfinancial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities,\nrevenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience\nand on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making\njudgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ\nfrom these estimates.\n\n \n\nAn\naccounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that\nare highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in\nthe accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe\nthat the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the\nconsolidated financial statements.\n\n \n\nRevenue\nRecognition\n\n \n\n*ASU\nNo. 2014-09*, *Revenue from Contracts with Customers*(“Topic 606”), became effective for the Company on January\n1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did\nnot change the Company’s revenue recognition as there were no revenues during the period.\n\n \n\nUnder\nthe new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount\nthat reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the\nfive step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations\nin the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;\nand (v) recognize revenues when (or as) we satisfy the performance obligation.\n\n \n\nAccounts\nreceivable\n\n \n\nThe\nCompany reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records bad\ndebt expense when deemed necessary. Our allowance for doubtful accounts is maintained to provide for losses arising from customers’\ninability to make required payments. If there is deterioration of our customers’ credit worthiness and/or there is an increase\nin the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required.\nThe Company has no allowance for doubtful accounts as of December 31, 2025 and 2024, respectively.\n\n \n\nIncome\nTaxes\n\n \n\nThe\nCompany follows the asset and liability method of accounting for future income taxes. Under this method, future income tax assets and\nliabilities are recorded based on temporary differences between the carrying amount of assets and liabilities and their corresponding\ntax basis. In addition, the future benefits of income tax assets including unused tax losses, are recognized, subject to a valuation\nallowance to the extent that it is more likely than not that such future benefits will ultimately be realized. Future income tax assets\nand liabilities are measured using enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled\nor realized. The Company’s effective tax rate approximates the Federal statutory rates.\n\n \n\n9\n\n \n\n \n\n**Results\nof Operations for the Year Ended December 31, 2025 compared to the Year Ended December 31, 2024**\n\n \n\nRevenue\nwas $837,753 in 2025 compared to $245,572 in 2024. The increase in revenue was mainly due to the consolidation of the Chinese VIEs under\ncommon control which started generating revenue in the second quarter of 2024 and has been ramping up the operations to generate more\nrevenues.\n\n \n\nCost\nof goods sold was $298,108 in 2025 compared to $152,675 in 2024 due to the increase in revenue.\n\n \n\nOperating\nexpenses were $363,167 and $189,198 for 2025 and 2024, respectively, an increase of $173,969 or 92.0%. The increase was mainly due to\nthe increase in general and administrative expenses, selling and marketing expenses, and professional fees. The increase in general and\nadministrative expenses in 2025 was mainly due to the increase in personnel expense, license and regulatory fee, and office expense,\npartly offset by the decrease in travel, rent, and auto expenses.\n\n \n\nDuring\nthe year ended December 31, 2025, the Company had a net income of $157,944, compared to a net loss of $96,437 during the year ended December\n31, 2024, an increase of $254,381. The increase in net income in 2025 was primarily due to the increase in gross profit as a result of\nthe Chinese VIEs ramping up the operations to generate more revenues,, partly offset by higher operating expenses and the loss from discontinued\noperations.\n\n \n\n**Liquidity\nand Capital Resources**\n\n \n\nAs\nof December 31, 2025 and 2024, we had a cash balance of $16,747 and $38,527 respectively. During 2025 and 2024, the company’s operations\nare primarily funded by the Company’s CEO and major shareholder and the minority owners of the Chinese VIEs.\n\n \n\nTo\nthe extent that the Company’s capital resources are insufficient to meet current or planned operating requirements, the Company\nwill seek additional funds through equity or debt financing, collaborative or other arrangements with corporate partners, licensees or\nothers, and from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has no current\narrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders\nwill provide any portion of the Company’s future financing requirements. Mr. Xudong, the CEO and principal shareholder of the Company,\nwould favorably entertain funding, through loans, corporate expenses for approximately 24 months. Any loans by Mr. Xudong would be on\nan interest-free basis, documented by a promissory note and payable only upon consummation of a business combination transaction. Upon\nconsummation of a business combination, we or the target may reimburse Mr. Xudong for any such loans from funds furnished by the target.\nWe have no written agreement with Mr. Xudong to advance any further funds for future operating expense, therefore there is no assurance\nthat such funds from Mr. Xudong will be forth coming, if required.\n\n \n\nNo\nassurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable\nto the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its\nprograms that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company. These factors\nraise substantial doubt about the ability of the Company to continue as a going concern.\n\n \n\n**Operating\nActivities**\n\n \n\nFor\nthe year ended December 31, 2025, net cash used in operating activities was $28,440. This was primarily due to the net income of $163,783,\nadjusted by non-cash related expenses including depreciation of $1,614, and then decreased by unfavorable changes in working capital\nof $185,953. The unfavorable changes in working capital mainly resulted from an increase in accounts receivable of $372,088, an increase\nin prepaid expense and other receivables of $93,555, and an increase in inventory of $2,093, offset by an increase in accounts payable\nand accrued liabilities of $69,726, an increase in deferred revenue of $117,389, an increase in due to related party of $86,243 and an\nincrease in tax payable of $8,425.\n\n \n\nFor\nthe year ended December 31, 2024, net cash used in operating activities was $89,582. This was primarily due to the net loss of $96,437,\nadjusted by non-cash related expenses including depreciation of $1,356, and then increase by favorable changes in working capital of\n$5,499. The favorable changes in working capital mainly resulted from an increase in accounts payable and accrued liabilities of $36,418,\nan increase in tax payable of $4,281, and an increase in due to related party of $37,609, offset by an increase in accounts receivable\nof $11,540, an increase in inventory of $44,378, and an increase in prepaid expense and other receivable of $16,891.\n\n \n\n**Investing\nActivities**\n\n \n\nFor\nthe year ended December 31, 2025, net cash used in investing activities was payment for deferred renovation of $12,519, and software\ndevelopment cost of $9,236.\n\n \n\nWe\nneither generated nor used cash in investing activities during the year ended December 31, 2024.\n\n \n\n**Financing\nActivities**\n\n \n\nFor\nthe year ended December 31, 2025 and 2024, net cash provided by financing activities were proceeds from capital contribution received\nby Chinese VIEs of $19,478 and $130,634 respectively.\n\n \n\n \n\n10\n\n \n\n \n\n**Going\nConcern**\n\n \n\nThe\naccompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying\nfinancial statements, we have a net income of $157,944 for the year ended December 31, 2025 and incurred net losses of $96,437 for the\nyear ended December 31, 2024, respectively, and have a working capital deficit of $11,622 as of December 31, 2025, which raise substantial\ndoubt about the Company’s ability to continue as a going concern.\n\n \n\nManagement\nbelieves the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will\nneed additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever.\nManagement plans to seek additional debt and/or equity financing for the Company but cannot assure that such financing will be available\non acceptable terms.\n\n \n\nThe\nCompany’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient\ncash flow to meet its obligations, and obtain additional financing as may be required. Our auditors have included a “going concern”\nqualification in their Report of Independent Certified Public Accountants accompanying our audited financial statements appearing elsewhere\nherein which cites substantial doubt about our ability to continue as a going concern. Such a “going concern” qualification\nmay make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot be assured.\n\n \n\nThe\naccompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be\nno assurance that management will be successful in implementing its business plan or that the successful implementation of such business\nplan will actually improve our operating results.\n\n \n\n**Off\nBalance Sheet Arrangements**\n\n \n\nWe\nhave not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our\nfinancial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or\ncapital resources and would be considered material to investors.\n\n \n\n**Inflation**\n\n \n\nWe\ndo not believe that inflation has had in the past or will have in the future any significant negative impact on our operations."}