UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 000-26731

Hongchang International Co., Ltd
(Exact name of registrant as specified in its charter)
Nevada		87-0627910
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Block 20, Hongchang Food Co., Ltd.,

Yuanhong Investment Zone, Donggao Village,

Chengtou Town,

Fuqing City, Fuzhou City, Fujian Province,

350300, China

350300

(Address of principal executive offices)

(Zip Code)

(86) 180 5901 6050

(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. Yes ☒ No ☐

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). Yes ☒ No ☐

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	☐
Non-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 May 10, 2024, 518,831,367 shares of common stock were issued and outstanding.

TABLE OF CONTENTS

		Page
Part I

FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets (Unaudited)	1

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)	2

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	3

	Condensed Consolidated Statement of Cash Flows (Unaudited)	4

	Notes to Condensed Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

Item 4.	Controls and Procedures	25

Part II

OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Mine Safety Disclosures	26

Item 5.	Other Information	26

Item 6.	Exhibits	27

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.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Hongchang International Co., Ltd

Condensed Consolidated Balance Sheets

	As of
	March 31, 2024			December 31, 2023
	(unaudited)
	US$			US$
ASSETS:
Current assets:
Cash		895,074			895,730
Accounts receivable, net		4,375			742,851
Amount due from a related party		-			141
Other receivable, net		1,757			1,106,574
Inventories, net		164			13,713
Advance to supplier-related party		-			59,324
Other current assets		1,132,815			1,142,409
Total current assets		2,034,185			3,960,742

Non-current assets:
Property and equipment, net		2,854			3,193
Construction-in-progress		41,508,424			41,423,399
Intangible assets, net		3,069			3,213
Land use right, net		4,015,455			4,118,101
Advance payment for construction		5,886,383			706,920
Total non-current assets		51,416,185			46,254,826
Total assets		53,450,370			50,215,568

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		560			650,905
Accounts payable-construction in progress		29,616			18,493
Accrued expenses and other liabilities		317,140			385,805
Total current liabilities		347,316			1,055,203

Non-current liabilities
Deferred subsidies		1,950,269			1,989,463
Long term loans		5,953,963			-
Amounts due to a related party		5,622,858			6,682,959
Total non-current liabilities		13,527,090			8,672,422

Total liabilities		13,874,406			9,727,625

Commitments and contingencies		-			-

Stockholders’ equity:
Common stocks (US$0.001 par value; 2,000,000,000 shares authorized; 518,831,367 and 518,831,367 issued and outstanding as of December 31, 2023 and March 31, 2024, respectively)		518,831			518,831
Additional paid-in capital		39,905,228			39,905,228
Accumulated deficit		(909,108	)		(812,539	)
Accumulated other comprehensive income (loss)		61,013			876,423
Total stockholders’ equity		39,575,964			40,487,943

Total liabilities and stockholders’ equity		53,450,370			50,215,568

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Hongchang International Co., Ltd

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

	For the three months ended March 31,
	2024			2023
	US$			US$
Net revenue:		18,204			27,131
Cost of revenue		18,477			38,788
Gross loss		(273	)		(11,657	)
Sales and marketing expenses		(36	)		-
General and administrative expenses		(102,000	)		(98,086	)
Total operating expenses		(102,036	)		(98,086	)
Operating loss		(102,309	)		(109,743	)
Interest income		460			204
Other income		1			-
Other expenses		(147	)		(22	)
Loss before income taxes		(101,995	)		(109,561	)
Income tax benefit		5,426			-
Net loss		(96,569	)		(109,561	)

Other comprehensive loss net of tax:
Foreign currency translation difference net of tax		(815,410	)		2,139,618
Total comprehensive income (loss)		(911,979	)		2,030,057

Loss per share:
Common stocks - basic and diluted		(0.00	)		(0.00	)

Weighted average shares outstanding used in calculating basic and diluted loss per share:
Common stocks - basic and diluted		518,831,367			265,079,848

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Hongchang International Co., Ltd

Condensed Consolidated Statements of Changes in Stockholders’ Equity

	Common Stocks				Subscription			Additional Paid-in		Accumulated			Accumulated other comprehensive			Total Stockholder’s
	Shares		Amount		receivable			Capital		Deficit			income			Equity
			US$		US$			US$		US$			US$			US$
Balance as of January 1, 2024		518,831,367		518,831		-			39,905,228		(812,539	)		876,423			40,487,943
Net loss		-		-		-			-		(96,569	)		-			(96,569	)
Foreign currency translation adjustment		-		-					-		-			(815,410	)		(815,410	)
Contribution from shareholder
Deemed issuance of share upon the Merger transaction		-		-		-			-		-			-			-
Balance as of March 31, 2024(unaudited)		518,831,367		518,831		-			39,905,228		(909,108	)		61,013			39,575,964

Balance as of January 1, 2023		415,582,375		415,582		(415,582	)		-		(433,745	)		15,092			(418,653	)
Net loss											(109,561	)					(109,561	)
Foreign currency translation adjustment		-		-		-			-		-			2,139,618			2,139,618
Contribution from stockholder		-		-		415,582			40,687,133		-			-			41,102,715
Deemed issuance of share upon the Merger transaction		-		-		-			-		-			-			-
Balance as of March 31, 2023(unaudited)		415,582,375		415,582		-			40,687,133		(543,306	)		2,154,710			42,714,119

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Hongchang International Co., Ltd

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the three months ended March 31,
	2024			2023
	US$			US$
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		(96,569	)		(109,561	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		22,063			22,703
Deferred tax benefit		(5,426	)		-
Changes in operating assets and liabilities:
Accounts receivable		730,098			(30,658	)
Inventories		13,394			-
Other receivable		2,395			-
Advance to supplier-related party		58,657			-
Other current assets		(7,599	)		(864,866	)
Accounts payable		(643,033	)		24,009
Accrued expenses and other payables		(64,262	)		10,919
Net cash provided by (used in) operating activities		9,718			(947,454	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(6,135,585	)		(42,092,917	)
Repayments from a related party		140			-
Repayments from a third party		1,089,984			-
Net cash used in investing activities		(5,045,461	)		(42,092,917	)

CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution by stockholders		-			41,102,715
Proceeds from long term loans		6,005,435			-
Repayments of a loan from a related party		(1,118,701	)		(1,539,529	)
Proceeds from a loan from a related party		166,144			1,179,963
Net cash provided by financing activities		5,052,878			40,743,149

Effect of exchange rate changes		(17,791	)		2,299,299

Net increase (decrease) in cash		(656	)		2,077
Cash at beginning of year		895,730			3,141
Cash at end of year		895,074			5,218
Supplemental disclosure of cash flow information
Interest paid		48,087			-
Interest capitalized		56,943			-
Supplemental disclosure of non-cash transactions
Increased accounts payable-construction in progress for construction-in-progress		11,588			-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Hongchang International Co., Ltd

Notes to Unaudited Condensed Consolidated Financial Statements

1. ORGANIZATION

(a) Nature of operations

Hongchang International Co., Ltd (the “Company”) was incorporated in the state of Nevada on May 18, 1987. The Company is a holding company.

On September 4, 2023, Heyu Biological Technology Corporation (“HYBT”), the Company’s predecessor, completed the merger and other related transactions (the “Merger Transactions”) with Hongchang Global Investment Holdings Limited (“Hongchang BVI”), as a result of which Hongchang BVI became a wholly-owned subsidiary of HYBT and HYBT assumed and began conducting the principal business of Hongchang BVI. The name of the Company was changed from “Heyu Biological Technology Corporation” to “Hongchang International Co., Ltd.” (HCIL).

The “Group” means (i) prior to the completion of the Reorganization, Hongchang BVI and its subsidiaries that engage in businesses of food trade and biotechnology in China (ii) upon and after completion of the Merger Transactions, the Company and its subsidiaries that engage in businesses of food trade and biotechnology in China.

(b) History and reorganization of the Group

In preparation of the Merger Transactions, the following transactions were undertaken to reorganize the legal structure of Operating Entity (“Reorganization”). On January 13, 2023, Mr. Zengqiang Lin and Ms. Zhenzhu Lin, the existing stockholders of Fuqing Hongchang Food Co., Ltd (“Hongchang Food”) established two wholly-owned subsidiaries (“BVI-1” and “BVI-2”) in British Virgin Island, respectively. On January 18, 2023, Hong Chang Global Investment Holdings Limited (“Hongchang BVI”) was then incorporated by BVI-1 and BVI-2 which held 70% and 30% equity interest of Hongchang BVI, respectively. On February 6, 2023, Hongchang BVI incorporated a wholly-owned subsidiary, Hong Chang Biotechnologies (HK) Limited (“Hongchang HK”). On February 28, 2023, Hongchang HK incorporated a wholly-owned subsidiary, Fujian Hongjin Biotechnology Co., Ltd. (“WFOE”) in the People’s Republic of China (“PRC”). WFOE then purchased the total equity interest of Hongchang Food. After the Reorganization, Mr. Zengqiang Lin and Ms. Zhenzhu Lin hold 70% and 30% equity interest of Hongchang Food through WFOE, respectively. As all the entities involved in the process of the Reorganization are under common ownership of Hongchang Food’s stockholders before and after the Reorganization, the Reorganization is accounted for in a manner similar to a pooling of interests with the assets and liabilities of the parties to the Reorganization carried over at their historical amounts. Therefore, the accompanying unaudited condensed consolidated financial statements were prepared as if the corporate structure of the Group had been in existence since the beginning of the periods presented.

(c) Reverse merger

On August 21, 2023, HYBT entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Hongchang BVI and Hongchang BVI’s stockholders, Zengqiang Investment Limited, a business company incorporated in the BVI, and Hong Jin Investment Limited, a business company incorporated in the BVI (the “Selling Stockholders” and each a “Selling Stockholder”), in relation to the acquisition of Hongchang BVI by HYBT (the “Hongchang Acquisition”). Zengqiang Investment Limited is wholly-owned by Mr. Zengqiang Lin and Hong Jin Investment Limited is wholly-owned by Ms. Zhenzhu Lin. Mr. Zengqiang Lin has been a director of HYBT since February 17, 2023, and Ms. Zhenzhu Lin is the sister of Mr. Zengqiang Lin. In accordance with the terms of the Share Exchange Agreement, the Selling Stockholders sold and transferred 100 shares of Hongchang BVI, constituting all of the issued and outstanding share capital of Hongchang BVI, to HYBT in exchange for an aggregate of 415,582,375 new shares of HYBT’s common stock (the “Consideration Shares”), of which 353,322,843 shares were issued to Zengqiang Investment Limited and 62,259,532 shares were issued to Hong Jin Investment Limited.

Immediately following the closing of the Hongchang Acquisition, HYBT had a total of 518,831,367 issued and outstanding shares of common stock. The 415,582,375 Consideration Shares constitute 80.1% of its enlarged share capital following the closing of the Hongchang Acquisition. The exchange consideration for the Hongchang Acquisition was determined on an arms’ length basis based on our valuation of Hongchang BVI and its subsidiaries and its assets.

As HYBT, the legal acquirer and accounting acquiree, does not meet the definition of a business, management concluded that the Merger should be accounted for as a continuation of the financial statements of Hongchang BVI (the legal subsidiary), together with a deemed issue of shares and a re-capitalization of the equity of Hongchang BVI. Hongchang BVI is the continuing entity and is deemed to have issued shares in exchange for the identifiable net assets held by HYBT together with the listing status of HYBT. Management concluded that September 4, 2023 is the acquisition date of the Merger.

Upon the completion of the reverse merger, the Company has set up a few new subsidiaries: Fujian Hongchang Global Food Co., Ltd (“Hongchang Global Food”), Fuqing Hongchang Global Import & Export Co., Ltd (“Hongchang Import & Export”), Fuqing Hongchang Global Supply Chain Co., Ltd (“Hongchang Supply Chain”), and Hongchang Global (Fuqing City) Agricultural Technology Development Co., Ltd (“Hongchang Agricultural”) in order for the company to develop different businesses. As of the date of this report, these subsidiaries have not generated significant revenue.

Based on above transactions, the accompanying unaudited condensed consolidated financial statements reflect the activities of each of the following entities:

Entity	Place of incorporation	Percentage of direct or indirect ownership by the Company	Principal activities
Subsidiaries:
Hong Chang Global Investment Holdings Limited (Hongchang BVI)	British Virgin Island	100%	Investment holding
Hong Chang Biotechnologies (HK) Limited (Hongchang HK)	Hong Kong	100%	Investment holding
Fujian Hongjin Biotechnology Co., Ltd.(WFOE)	PRC	100%	Provision of technical and consultation services
Fuqing Hongchang Food Co., Ltd(Hongchang Food)	PRC	100%	Provision of food trade and biotechnology
Fujian Hongchang Global Food Co., Ltd (“Hongchang Global Food”)	PRC	100%	Provision of food trade and biotechnology
Fuqing Hongchang Global Import & Export Co., Ltd(“Hongchang Import&Export”)	PRC	100%	Provision of food trade and biotechnology
Fuqing Hongchang Global Supply Chain Co., Ltd(“Hongchang Supply Chain”)	PRC	100%	Provision of food trade and biotechnology
Hongchang Global (Fuqing City) Agricultural Technology Development Co., Ltd (“Hongchang Agricultural”)	PRC	100%	Provision of food trade and biotechnology

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The unaudited condensed consolidated financial statements include the accounts of the Group and its subsidiaries and have been prepared in accordance with U.S. GAAP and the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These unaudited condensed consolidated financial statements have been prepared on the same basis as its annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Group’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024, or for any other interim period or for any other future year. All intercompany balances and transactions have been eliminated in consolidation.

Through the Reorganization, the Company became the holding company of the companies now comprising the Group. Accordingly, for the purpose of preparation of the unaudited condensed consolidated financial statements of the Group, the Company is considered as the holding company of the companies now comprising the Group throughout the reporting period. Through the Reorganization, the Company became the holding company of the contributed businesses now comprising the Group, which were under the common control of the controlling stockholder before and after the Reorganization. Accordingly, the financial statements were prepared on a consolidated basis by applying the principles of the pooling of interest method as if the Reorganization had been completed at the date when contributed business first came under the control of the controlling party. The unaudited condensed consolidated statements of operations and comprehensive income(loss), changes in equity and cash flows of the Group included the results and cash flows of all companies now comprising the Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the controlling stockholder, whenever the period is shorter.

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements of the Company include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenue and expenses during the reported period in the unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s unaudited condensed consolidated financial statements mainly include, but are not limited to, assessment for impairment of long-lived assets, valuation of deferred tax assets and current expected credit loss of receivables.

Management bases the estimates on historical experience and on various other assumptions as discussed elsewhere to the unaudited condensed consolidated financial statements that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. On an ongoing basis, management evaluates its estimates based on information that is currently available. Changes in circumstances, facts and experience may cause the Group to revise its estimates. Changes in estimates are recorded in the period in which they become known. Actual results could materially differ from these estimates.

Foreign Currency

The Group’s principal country of operations is the PRC. The accompanying unaudited condensed consolidated financial statements are presented in US$. The functional currency of the Company is US$, and the functional currency of the Company’s subsidiaries is RMB. The unaudited condensed consolidated financial statements are translated into US$ from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The resulting translation adjustments are recorded as a component of stockholders’ equity included in other comprehensive income. Gains and losses from foreign currency transactions are included in profit or loss.

	As of
	March 31, 2024		December 31, 2023
RMB: US$ exchange rate		7.2221		7.0798

For the three months ended

March 31,

2024

2023

RMB: US$ exchange rate

7.1602

6.8430

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

Cash

Cash consists of cash on hand and cash in bank, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use. The Group maintains cash with various financial institutions primarily in mainland China. Deposit insurance system in China only insured each depositor at one bank for a maximum of approximately $72,000 (RMB 500,000). The Group has not experienced any losses in bank accounts.

Accounts receivable and allowance for credit losses

Accounts receivable are stated at the historical carrying amount net of allowance for expected credit losses. The Group adopted ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” on January 1, 2023 using a modified retrospective approach. The Group also adopted this guidance to advance to suppliers, other receivables and long-term prepayments. To estimate expected credit losses, The Group has identified the relevant risk characteristics of its customers and the related receivables. The Group considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Group’s customer collection trends. The allowance for credit losses and corresponding receivables were written off when they are determined to be uncollectible.

Inventories

Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. Cost of inventory are determined using the weighted average cost method. The Group records inventory reserves for obsolete and slow-moving inventory. Inventory reserves are based on inventory obsolescence trends, historical experience and application of the specific identification method.

Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation and impairment loss, if any. Property and equipment are depreciated at rates sufficient to write off their costs less impairment and residual value, if any, over their estimated useful lives on a straight-line basis.

Category		Estimated useful life
Equipment		3 years

Construction-in-progress

Property and equipment that are purchased or constructed which require a period of time before the assets are ready for their intended use are accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including installation costs. Construction-in-progress is transferred to specific property and equipment accounts and commences depreciation when these assets are ready for their intended use.

Capitalized Interest

Interest incurred during and directly related to construction-in-progress is capitalized to the related property under construction during the active construction period, which generally commences when borrowings are used to acquire assets of construction-in-progress and ends when the properties are substantially complete or the property becomes inactive. Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period. All other interest is expensed as incurred. For the three months ended March 31, 2024 and 2023, the total interest capitalized in the construction-in-progress was $56,943 and $nil, respectively.

Intangible assets

Intangible assets are carried at cost less accumulated amortization and impairment, if any. Intangible assets are amortized using the straight-line method over the estimated useful lives. The estimated useful lives of amortized intangible assets are reassessed if circumstances occur that indicate the original estimated useful lives have changed.

Category		Estimated useful life
Purchased software		10 years

Land use right, net

The land use rights represent the operating lease prepayments for the rights to use the land in the PRC. Amortization of the prepayments is provided on a straight-line basis over the terms of the respective land use rights certificates.

Impairment of long-lived assets other than goodwill

Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment by comparing carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, The Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. Impairment charge recognized for the three months ended March 31, 2024 and 2023 was $nil and $nil, respectively.

Fair value of financial instruments

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, the Group considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability.

Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Other inputs that are directly or indirectly observable in the marketplace.

Level 3 — Unobservable inputs which are supported by little or no market activity.

Financial assets and liabilities of the Group primarily consist of cash, accounts receivable, amounts due from related party, advance to suppliers-related party, other receivables, accounts payables, accounts payables - construction in progress and accrued expenses and other liabilities. As of March 31, 2024 and December 31, 2023, the carrying values of these financial assets and liabilities approximate their fair values due to the short-term nature.

Revenue recognition

The Group adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customer. To determine revenue recognition for contracts with customers, the Group performs the following five steps:

Step 1:

Identify the contract with the customer

Step 2:

Identify the performance obligations in the contract

Step 3:

Determine the transaction price

Step 4:

Allocate the transaction price to the performance obligations in the contract

Step 5:

Recognize revenue when The Group satisfies a performance obligation

The Group generates revenue from food trading business.

The Group enters into contract with their customers to provide food, mainly frozen pork. All of the Group’s contracts have single performance obligation as the promise is to transfer the goods to customers, and there are no other separately identifiable promises in the contracts. The Group recognizes revenue when it transfers its goods to customers in an amount that reflects the consideration to which The Group expects to be entitled in such exchange. The Group accounts for the revenue generated from sales of its products to its customers on a gross basis, because the Group is acting as a principal in these transactions, is subject to inventory risk, has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods. The Group’s revenue is recognized at a point in time when the control has been transferred, usually when the customer accepts the goods.

Cost of revenue

Costs of revenues consist primarily of purchase price of products, shipping and handling expense from supplier to the Group and related costs, which are directly attributable to products. Write-down of inventories is also recorded in cost of sales, if any. Shipping and handling costs incurred to transport goods to customers are expensed in the periods incurred and are included in cost of revenues. The Group accounts for shipping and handling expenses as fulfillment costs because shipping and handling activities occur before the customers obtains control of the goods. Shipping and handling expenses amounted to $68 and $nil for the three months ended March 31, 2024 and 2023, respectively.

Sales and marketing expenses

Sales and marketing expenses consist primarily of travelling expenses, marketing conference expenses, advertising expenses and salaries and other compensation-related expenses to sales and marketing personnel. The Group expenses all advertising costs as incurred. Advertising costs amounted to $nil and $nil for the three months ended March 31, 2024 and 2023, respectively.

General and administrative expenses

General and administrative expenses consist primarily of salaries and benefits for employees involved in general corporate functions, amortization of land use right, legal and other professional services fees, rental and other general corporate related expenses.

Government Subsidies

Government subsidies are recognized when there is reasonable assurance that the subsidy will be received and all attaching conditions will be complied with. When the subsidy relates to an expense item, it is recognized as income over the periods necessary to match the subsidy on a systematic basis to the costs that it is intended to compensate. Where the subsidy relates to an asset, it is recognized as deferred subsidies and is released to the statement of operations over the expected useful life in a consistent manner with the depreciation method for the relevant asset. Total government subsidies recorded in the deferred subsidies were $1,950,269 and $1,989,463 as of March 31, 2024 and December 31, 2023, respectively.

Value-added taxes

Sales revenue represents the invoiced value of goods, net of VAT. The applicable VAT rate was 13% or 9% (depending on the type of goods involved) for products sold in the PRC. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded as VAT payable if output VAT is larger than input VAT and is recorded as VAT recoverable if input VAT is larger than output VAT. All of the VAT returns filed by the Group’s subsidiaries in China, have been and remain subject to examination by the tax authorities

Income taxes

Current income taxes are recorded in accordance with the regulations of the relevant tax jurisdiction. The Group accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Tax, (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between carrying amounts of existing assets and liabilities in the financial statements and their respective tax basis, and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in the unaudited condensed consolidated statements of operations and comprehensive income(loss) in the period of change. Valuation allowances are established when necessary to reduce the amount of deferred tax assets if it is considered more likely than not that amount of the deferred tax assets will not be realized.

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 March 31, 2024 and December 31, 2023.

Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.

Earnings per share

The Group calculates earnings per share in accordance with ASC Topic 260 “Earnings per Share.” Basic earnings per share is computed by dividing the net income by the weighted average number of common stocks outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common stocks that would have been outstanding if the potential common stocks equivalents had been issued and if the additional common stocks were dilutive. On September 4, 2023, the Group completed its reorganization whereby Hongchang BVI’s stockholders received 415,582,375 shares in exchange for all the share capital of Hongchang BVI, which is reflected retroactively to December 31, 2021 and will be utilized for calculating earnings per share in all prior periods. The per share amounts have been updated to show the effect of the exchange on earnings per share as if the exchange occurred at the beginning of both years for the annual financial statements of the Group. The impact of the stock exchange is also shown on the Group’s Statements of Stockholders’ Equity.

Before the reorganization, Hongchang Food depended on loans from stockholders for the construction of the Hongchang Food Industrial Park and its daily operations. These were recorded as loans from related parties. In May 2023, Hongchang Food reached an agreement with a stockholder to convert an outstanding loan balance of US$41,241,108 into a capital contribution. The company then recalculated the weighted average number of common stocks outstanding during the period, based on the timing of the cash inflows from the stockholder loans.

Comprehensive income

The Group applies ASC 220, Comprehensive Income (“ASC 220”), with respect to reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is defined to include all changes in equity of the Group during a period arising from transactions and other event and circumstances except those resulting from investments by stockholders and distributions to stockholders. For the three months ended March 31, 2024 and 2023, the Group’s comprehensive income(loss) includes net income(loss) and other comprehensive income(loss).

Segment reporting

ASC 280, Segment Reporting, (“ASC 280”), establishes standards for companies to report in their financial statements information about operating segments, products, services, geographic areas, and major customers. Based on the criteria established by ASC 280, our chief operating decision maker (“CODM”) has been identified as our Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. As a whole and hence, we have only one reportable segment. We do not distinguish between markets or segments for the purpose of internal reporting. As our long-lived assets are substantially located in the PRC, no geographical segments are presented.

Uncertainty and risks

Political, social and economic risks

The Group has substantial operations in China through its PRC subsidiaries. Accordingly, the Group’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Group’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Group has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.

The Group’s business, financial condition and results of operations may also be negatively impacted by risks related to regional wars, geopolitical tensions, natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could potentially and significantly disrupt The Group’s operations.

Liquidity

The Company had an accumulated deficit of $909,108 at March 31, 2024 and a net loss of $96,569 during the three months ended March 3l, 2024. However, in May 2023, Hongchang BVI received a cash injection of US$41,241,108 from shareholders via its subsidiary, Hongchang Food. On April 1, 2023, Hongchang Food secured an interest-free loan agreement with Zengqiang Lin, enabling it to access up to RMB60.0 million (approximately US$8.5 million) from April 1, 2023, to March 31, 2026. Consequently, the combination of the Company's current cash reserves, the capital contributions received, and the loans from shareholders are anticipated to provide sufficient funds to carry out the Company’s planned operations through the next twelve months.

Concentration risks

Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash in bank and accounts receivable. The Group places its cash with financial institutions with high credit ratings and quality.

The Group conducts credit evaluations of customers, and generally does not require collateral or other security from its customers. The Group establishes an allowance for expected credit losses primarily based upon the factors surrounding the credit risk of specific customers.

Concentration of customers and suppliers

For the three months ended March 31, 2024, one major client accounted for 76% of the Group’s total revenues, and one major supplier accounted for 89% of the Group’s total cost of revenues.

For the three months ended March 31, 2023, one client accounted for 100% of The Group’s total revenues, and one supplier accounted for 100% of the Group’s total cost of revenues.

As of March 31, 2024, two major clients accounted for 83% and 10% of The Group’s total accounts receivable, one vendor accounted for 86% of the Group’s total account payable.

As of December 31, 2023, one major client accounted for 96.0% of the Group’s total accounts receivable, two vendors accounted for 81% and 15% of the Group’s total account payable.

Recent accounting pronouncements

In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Group is currently evaluating the potential impact of adopting this new guidance on its unaudited condensed consolidated financial statements and related disclosures.

Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Group does not discuss recent pronouncements that are not anticipated to have an impact on, or are unrelated to, its consolidated financial condition, results of operations, cash flows or disclosures.

3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	As of
	March 31, 2024		December 31, 2023
	US$		US$
Accounts receivable		4,375		742,851
		4,375		742,851

For the three months ended March 31, 2024, and 2023, the Company had no allowance for expected credit losses for accounts receivable.

4. OTHER RECEIVALBE

Other receivable consisted of the following:

	As of
	March 31, 2024		December 31, 2023
	US$		US$
Loans to third parties		-		1,079,127
Others		1,757		27,447
		1,757		1,106,574

For the three months ended March 31, 2024, and 2023, the Company had no allowance for expected credit losses for other receivable.

Outstanding balances of loan to third parties consist of the following:

As of December 31, 2023

Balance

Maturity

Date

Effective

Interest

Rate

Collateral/Guarantee

US$

Sichuan Xiongji Construction Engineering Co., Ltd (Sichuan Xiongji)*

1,079,127

February 28, 2024

3.00

N/A

Total

1,079,127

*	Sichuan Xiongji is the general contractor of the Group’s industrial park currently under construction, and the Group provided loans to Sichuan Xiongji for construction capital turnover.

As of March 31, 2024, the outstanding balances of loans to third parties have been collected in full.

5. OTHER CURRENT ASSETS

Other current assets consisted of the following:

	As of
	March 31, 2024		December 31, 2023
	US$		US$
VAT recoverable		1,015,735		1,039,421
Deferred tax assets		69,940		65,858
Prepaid Expenses		3,266		23,319
Advance to suppliers		43,874		13,811
		1,132,815		1,142,409

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	As of
	March 31, 2024			December 31, 2023
	US$			US$
Office equipment		3,314			3,381
Accumulated depreciation		(460	)		(188	)
		2,854			3,193

Depreciation expense was US$279 and US$0 for the three months ended March 31, 2024, and 2023, respectively.

7. CONSTRUCTION-IN-PROGRESS

Construction-in-progress consisted of the following:

	As of
	March 31, 2024		December 31, 2023
	US$		US$
Construction in progress		41,508,424		41,423,399
		41,508,424		41,423,399

Hongchang Food Industrial Park covers a site area of 108,000 square meters, with a floor area of about 130,000 square meters. Hongchang Food Industrial Park is still under construction and expected to complete construction by 2024.

8. INTANGIBLE ASSTES

Intangible assets consist of the following:

	As of
	March 31, 2024			December 31, 2023
	US$			US$
Purchased software		3,230			3,295
Less: accumulated amortization		(161	)		(82	)
		3,069			3,213

Amortization expenses for the Purchased software were US$81 and US$0 for the three months ended March 31, 2024, and 2023. No impairment charge was recorded for the three months ended March 31, 2024, and 2023, respectively.

	For the years ended December 31,
	2024*		2025		2026		2027		2028		2029 and thereafter
	US$		US$		US$		US$		US$		US$
Amortization expenses		243		323		323		323		323		1,534

For the nine months ended December 31,2024

9. LAND USE RIGHT, NET

Land use rights, net consist of the following:

	As of
	March 31, 2024			December 31, 2023
	US$			US$
Land use rights		4,302,346			4,388,808
Less: accumulated amortization		(286,891	)		(270,707	)
		4,015,455			4,118,101

Amortization expenses for the land use rights were US$21,703, and US$22,703 for the three months ended March 31, 2024, and 2023, respectively. No impairment charge was recorded for the three months ended March 31, 2024, and 2023, respectively. The term is 50 years of the land use right and will terminate in 2070.

	For the years ended December 31,
	2024*		2025		2026		2027		2028		2029 and thereafter
	US$		US$		US$		US$		US$		US$
Amortization expenses		64,534		86,047		86,047		86,047		86,047		3,606,733

For the nine months ended December 31,2024

10. ADVANCE PAYMENT FOR CONSTRUCTION

Other non-current assets consisted of the following:

	As of
	March 31, 2024		December 31, 2023
	US$		US$
Advance payment for construction		5,886,383		706,920
		5,886,383		706,920

Advance payment for construction were US$5,886,383, and US$706,920 as of March 31, 2024, and December 31, 2023, respectively, which is advanced payment to Sichuan Xiongji for the construction of Hongchang Food Industrial Park.

11. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consisted of the following:

	As of
	March 31, 2024		December 31, 2023
	US$		US$
Payroll and welfare payables		84,254		92,262
Value-added tax and other taxes payable		169,618		239,543
Others		63,268		54,000
		317,140		385,805

12. LONG TERM LOANS

Long-term loans represent the amounts due to various banks lasting over one year. Usually, the long-term bank loans cannot be renewed with these banks upon maturities. The Group is in compliance with all long-term bank loan covenants. As of December 31, 2023, the Group had no loans, from 2024, the Group entered four loan agreements and the outstanding balances of loans consist of the following:

Effective

Maturity

Interest

As of March 31, 2024

Balance

Date

Rate

Collateral/Guarantee

US$

Fujian Fuqing Huitong Rural Commercial Bank Co., Ltd.

2,215,428

16-Jan-34

5.25

Construction in progress of the Hongchang Food Industrial Park

2,492,357

969,250

276,929

Total

5,953,963

The future maturities of long-term loans are as follows:

Due in twelve-month periods ending March 31,	Principal
2024	$	-
2025		69,232
2026		130,156
2027		130,156
2028		249,236
Thereafter		5,375,183
	$	5,953,963

The purposes of these long term loans are for the construction of Hongchang Food Industrial Park, the interest of these loans was capitalized in construction-in-progress, Interest capitalized in construction-in-progress was $56,943 and $nil for the three months ended March 31,2024 and 2023, respectively.

13. COMMON STOCKS AND ADDITIONAL PAID-IN CAPITAL

In January 2023, 100 common stocks of Hongchang BVI were allotted and issued to the controlling stockholders, of par value US$1.

As per the Reorganization described in Note 1(b) History and reorganization of the Group, the unaudited condensed consolidated financial statements were prepared as if the 100 shares had been in existence since the beginning of the periods presented. As per the Reverse merger described in Note 1(c), in the “Unaudited Condensed Consolidated Statements of Stockholder’s Equity”, the 100 shares of the legal subsidiary (the accounting acquirer) was restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent (the accounting acquiree) issued in the reverse acquisition.

In preparation of the Merger Transactions, the following transactions were undertaken to reorganize the legal structure of Operating Entity (“Reorganization”). On January 13, 2023, Mr. Zengqiang Lin and Ms. Zhenzhu Lin, the existing stockholders of Fuqing Hongchang Food Co., Ltd (“Hongchang Food”) established two wholly-owned subsidiaries (“BVI-1” and “BVI-2”) in British Virgin Island, respectively. On January 18, 2023, Hong Chang Global Investment Holdings Limited (“Hongchang BVI”) was then incorporated by BVI-1 and BVI-2 which held 70% and 30% equity interest of Hongchang BVI, respectively. On February 6, 2023, Hongchang BVI incorporated a wholly-owned subsidiary, Hong Chang Biotechnologies (HK) Limited (“Hongchang HK”). On February 28, 2023, Hongchang HK incorporated a wholly-owned subsidiary, Fujian Hongjin Biotechnology Co., Ltd. (“WFOE”) in the People’s Republic of China (“PRC”). WFOE then purchased the total equity interest of Hongchang Food. After the Reorganization, Mr. Zengqiang Lin and Ms. Zhenzhu Lin hold 70% and 30% equity interest of Hongchang Food through WFOE, respectively. As all the entities involved in the process of the Reorganization are under common ownership of Hongchang Food’s stockholders before and after the Reorganization, the Reorganization is accounted for in a manner similar to a pooling of interests with the assets and liabilities of the parties to the Reorganization carried over at their historical amounts. Therefore, the unaudited condensed consolidated financial statements were prepared as if the 100 shares had been in existence since the beginning of the periods presented.

In May 2023, Hongchang BVI received US$41,241,108 cash contribution from stockholders through its subsidiary Hongchang Food.

On September 1, 2023, upon closing the Merger, 100 shares of Hongchang BVI par value US$1.00, constituting all of the issued and outstanding share capital of Hongchang BVI, were exchanged for the right to receive 415,582,375 common stocks of the Company, par value US$0.001.

14. RELATED PARTY TRANSACTIONS

(a)

Related parties

The principal related parties with which the Group had transactions during the years presented are as follows:

Names of related parties		Relationship with The Group
Zengqiang Lin		The principal stockholder and director of the Company
Fuqing Xinhongbo Trading Co., Ltd. (“Xinhongbo”)		An entity controlled by the principal stockholder of the Company
Fuqing Changhong Agricultural Products Supply Chain Co. Ltd.(“Changhong”)		An entity controlled by the principal stockholder of the Company

(b)

Other than disclosed elsewhere, the Group had the following significant related party transactions for the three months ended March 31, 2024 and 2023:

	For three months ended March 31,
	2024			2023
	US$			US$
Proceeds from a loan from a related party:
-Zengqiang Lin		166,144			1,179,963

Repayment of a loan from a related party:
-Zengqiang Lin		(1,118,701	)		(1,539,529	)

Refunds from a related party
-Xinhongbo		58,657			-
-Changhong		140			-

Capital contribution to Hongchang Food:
-Zengqiang Lin		-			41,102,715

(c)

The Group had the following related party balances as of March 31, 2024 and December 31, 2023:

	As of
	March 31, 2024		December 31, 2023
	US$		US$
Advance to supplier-related party
-Xinhongbo		-		59,324
Amount due from a related party
-Changhong		-		141

Amount due to a related party:
-Zengqiang Lin		5,622,858		6,682,959

All balances with the related parties as of March 31, 2024 and December 31, 2023 were unsecured, interest-free and had no fixed terms of repayments. On April 1, 2023, Hongchang Food entered into an interest-free loan agreement with Zengqiang Lin to obtain aggregate maximum loans of up to RMB60.0 million (US$8.5million) for the period from April 1, 2023 to March 31, 2026.

15. COMMITMENTS AND CONTINGENCIES

As of March 31, 2024, the Group has entered into several contracts for construction of the Hongchang Food Industrial Park and the improvement of Industrial Buildings. Total outstanding commitments under these contracts were $17,235,692 and $23,698,063 as of March 31, 2024 and December 31, 2023, respectively. The Group expected to pay off all the balances within 1-3 years.

16. SUBSEQUENT EVENTS

The Group has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. Based on the Company’s evaluation, no other event has occurred requiring adjustment or disclosure in the notes to the unaudited condensed consolidated financial statements, except the following:

Effective May 8, 2024, Ms. Wendy Li resigned as the Chief Financial Officer of Hongchang International Co., Ltd (the “Company”), due to personal reasons. Ms. Li’s resignation was not related to disagreements on any matter relating to the Company’s operations, policies or practices.

Effective May 8, 2024, Mr. Zengqiang Lin was appointed as the Chief Financial Officer of the Company, in addition to his appointments as the Chief Executive Officer and Director of the Company. Mr. Lin has been our director since February 17, 2023, and was appointed as our Chief Executive Officer and President on August 21, 2023.

Effective May 8, 2024, Mr. Xingjia Gao resigned as a Director from the Board of the Company, due to personal reasons. Mr. Gao’s resignation was not related to disagreements on any matter relating to the Company’s operations, policies or practices.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in our unaudited condensed consolidated financial statements, which appear elsewhere in this Report, and should be read in conjunction with such financial statements and related notes included in this Report. Except for the historical information contained herein, the following discussion, as well as other information in this Report, contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections. Actual results and the timing of the events may differ materially from those contained in these forward-looking statements due to many factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this Report.

Overview

Hongchang International Co., Ltd (the “Company”, formerly known as Heyu Biological Technology Corporation) was incorporated in the state of Nevada on May 18, 1987.

Hongchang Global Investment Holdings Limited (“Hongchang BVI”)) was incorporated in British Virgin Island under the laws of the British Virgin Islands in January 2023. Fuqing Hongchang Food Co., Ltd. (“Hongchang Food”, or the “Operating Entity”) was established in September 2017, and primarily engages in the construction of and investment in Hongchang Food Industrial Park project. Its main asset is its investment in the food industrial park, which was obtained by bidding in September 2020 and is currently under construction. Upon completion of such project, Hongchang Food will engage in the core businesses of food trade. Hongchang Food has commenced limited sales operations in 2023, during which revenue has been recognized. Hongchang Food Industrial Park is part of the third batch of key projects in Fujian Province, PRC, and is located adjacent to the Taiwan Strait in Fujian province, PRC, in the Fuqing Functional Zone of Fuzhou New District, in the Yuanhong Investment Zone, which is jointly developed by the PRC and Indonesia.

On September 4, 2023, the Company completed the merger and other related transactions (the “Merger Transactions”) with Hongchang BVI, as a result of which Hongchang BVI became a wholly-owned subsidiary of the Company and the Company assumed and began conducting the principal business of Hongchang Food.

Results of Operations

The following chart provides a summary of our results of operations for the three months ended March 31, 2024 and 2023:

	Three months ended March 31,
	2024			2023
Net revenue	$	18,204		$	27,131
Cost of revenue		18,477			38,788
Gross profit loss		(273	)		(11,657	)
Total operating expenses		(102,036	)		(98,086	)
Loss from operations		(102,309	)		(109,743	)
Total other income (expense)		314			182
Loss before income taxes		(101,995	)		(109,561	)
Income tax benefit		5,426			-
Net loss	$	(96,569	)	$	(109,561	)
Basic net loss per share	$	(0.00	)	$	(0.00	)

Revenue

Our business is in its early stages, revenue represents the sales of goods supplied to customers, and sales are primarily driven by the demand from customer. The growth of our revenue will be primarily driven by increasing our product variety, expanding the distribution network, both in China and overseas and the initiation of other projects or business lines in the future. Revenue is influenced by potential competitors entering the market, economic conditions, pricing, inflation, product diversification, and customer consumption habits. We generated revenue of US$18,204 for the three months ended March 31, 2024, compared to US$27,131 for the same period of 2023, the slight decrease was mainly because we have adjusted our strategy with market demand while controlling costs to ensure stable income in the future. We began market trial operations in the first quarter of 2023, and until the first quarter of 2024, we have made strategic adjustments based on market conditions and experience to ensure that revenue and costs are within the logical range of market operations.

Cost of revenue

Cost of revenues represents costs and expenses directly attributable to the purchase of our products sold and delivered, and direct labor costs. Cost of revenues were US$18,477 for the for the three months ended March 31, 2024, compared to US$38,788 for the same period of 2023, due to we effectively control costs. We have been operating since the beginning of 2023, continuously accumulating industry experience and adjusting our strategic plans according to market changes over the course of past year.

Gross profit and margin

Gross profit is the difference between revenue and cost of revenue. Our cost of revenue mainly includes purchasing raw material and prepackaged products. The supply and prices of our products may be influenced by various factors, including product types, seasonal fluctuations, demand, and macroeconomic environment. Due to the increase in the prices of our suppliers’ goods, we may not be able to raise prices to compensate for the increased costs, which will have a negative impact on our business results and profitability. We believe that if our strategic business development plan can proceed smoothly, we will collaborate with more suppliers to expand our product supply range and establish mature procurement plans to control costs.

Gross margin is gross profit divided by revenue. Gross margin is a measure used by management to indicate whether we are selling products at an appropriate gross profit. Our gross margin is influenced by product prices, product combinations, availability, and discounts, as some products typically offer higher gross profit margins, as well as the impact of our product costs, which may vary. At present, we offer competitive prices to attract and retain customers. In the future, as we grow, we will launch diversified products and competitive services to increase market share. We regularly evaluate the profitability of its products. As our business activities started in 2023 and till now, we are still at an early stage, we had a gross loss of US$273 and US$11,657 for the three months ended March 31, 2024 and 2023 respectively.

Operating expenses

Our operating expenses consist of sales and marketing expenses and general and administrative expenses, which primarily include payroll, employee benefit expenses and bonus expenses, shipping expenses, promotion and advertising expenses, and other facility related costs, such as utilities, and depreciation.

General and administrative expenses

We incurred general and administrative expenses of US$102,000 for the three months ended March 31, 2024, as compared to US$98,086 in the same period of 2023, respectively. The increase in general and administrative expenses was mainly due to the increase in professional fees paid to third party and overall office expenses.

Income tax benefit

We incurred income tax benefit of US$5,426 and nil for the three months ended March 31, 2024 and 2023, respectively.

Net loss

As a result of the foregoing, we reported a net loss of US$96,569 and US$109,561 for the three months ended March 31, 2024 and 2023 respectively.

Liquidity and Capital Resources

The following chart provides a summary of our key balance sheet items as of March 31, 2024 and December 31, 2023, and should be read in conjunction with the financial statements, and notes thereto, included with this Report at Item 1, above.

	As of March 31, 2024		As of December 31, 2023
Cash	$	895,074	$	895,730
Accounts receivables, net	$	4,375	$	742,851
Other receivables, net	$	1,757	$	1,106,574
Other current assets	$	1,132,815	$	1,142,409
Total current assets	$	2,034,185	$	3,960,742
Construction-in-progress	$	41,508,424	$	41,423,399
Land use right, net	$	4,015,455	$	4,118,101
Total assets	$	53,450,370	$	50,215,568
Accounts payable-construction in progress	$	29,616	$	18,493
Total current liabilities	$	347,316	$	1,055,203
Long term loans	$	5,953,963	$	-
Amounts due to a related party	$	5,622,858	$	6,682,959
Total non-current liabilities	$	13,527,090	$	8,672,422
Total liabilities	$	13,874,406	$	9,727,625
Total stockholders’ (deficit) equity	$	39,575,964	$	40,487,943

As of March 31, 2024, we had US$895,074 in cash, as compared to US$895,730 as of December 31, 2023. As we started our business operation in 2023 and still at an early stage, we have been relying on directors’ loan, capital contribution and bank loans to finance our daily operation and construction in progress.

As of March 31, 2024, our construction in progress balance amounted to approximately US$41,508,424, as compared to US$41,423,399 as of December 31, 2023. This reflects the construction progress of our Hongchang Food Industrial Park.

Capital Expenditure Commitment as of March 31, 2024

As of March 31, 2024, the Company has entered into several contracts for construction of the Hongchang Food Industrial Park and the improvement of Industrial Buildings. Total outstanding commitments under these contracts were US$17,235,692 and US$23,698,063 as of March 31, 2024, and December 31, 2023, respectively. The Company expected to pay off all the balances within 1-3 years.

Off Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2024, and December 31, 2023.

The following table sets forth a summary of our cash flows for the periods presented:

	For three months ended March 31,
	2024			2023
	US$			US$
Net cash provided by (used in) operating activities	$	9,718		$	(947,454	)
Net cash used in investing activities	$	(5,045,461	)	$	(42,092,917	)
Net cash provided by financing activities	$	5,052,878		$	40,743,149
Effect of foreign exchange on cash, cash	$	(17,791	)	$	2,299,299
Net increase (decrease) in cash	$	(656	)	$	2,077
Cash at the beginning of the year	$	895,730		$	3,141
Cash at the end of the year	$	895,074		$	5,218

Operating activities

Net cash provided by operating activities for the three months ended March 31, 2024 was US$9,718, which primarily reflected our net loss of US$96,569 as mainly adjusted for (i) accounts receivable of US$730,098; and (ii) accounts payable of US$643,033.

Net cash used in operating activities for the three months ended March 31, 2023 was US$947,454, which primarily reflected our net loss of US$109,561 as mainly adjusted for (i) accounts receivable for US$30,658, and (ii) other current asset for US$864,866.

Investing activities

Net cash used in investing activities for the three months ended March 31, 2024 and 2023 was US$5,045,461 and US$42,092,917, mainly attributable to purchase of property and equipment.

Financing activities

Net cash provided by financing activities for the three months ended March 31, 2024 was US$5,052,878, primarily due to (i) proceeds from long term loans of US$6,005,435 and (ii) proceeds from a loan from a related party of US$166,144 and repayments of a loan from a related party US$1,118,701.

Net cash provided by financing activities for the three months ended March 31, 2023 was US$40,743,149, primarily due to (i) capital contributions made by stockholders of US$41,102,715 and (ii) proceeds from a loan from a related party of US$1,179,963 and repayments of a loan from a related party US$1,539,529.

Critical Accounting Policies Involving Critical Accounting Estimates

The discussion and analysis of our Group’s financial condition and results of operations are based upon our Group’s unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP in a consistent manner. The preparation of these financial statements requires the selection and application of accounting policies. Further, the application of U.S. GAAP requires our Group to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, our Group evaluate its estimates, including those discussed below. our Group bases its estimates on historical experience, current trends and various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions. Our Group believes it is possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. Our Group believes that it has appropriately applied its critical accounting policies. However, in the event that inappropriate assumptions or methods were used relating to the critical accounting policies below, our Group’s consolidated statements of operations could be misstated.

A detailed summary of significant accounting policies is summarized below:

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenue and expenses during the reported period in the unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in our Group’s unaudited condensed consolidated financial statements mainly include, but are not limited to, assessment for impairment of long-lived assets, valuation of deferred tax assets and current expected credit loss of receivables. Actual results could differ from those estimates.

Construction-in-progress

Land use right, net

Revenue recognition

The Group adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customer. To determine revenue recognition for contracts with customers, The Group performs the following five steps:

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the Group satisfies a performance obligation

The Group generates revenue from food trading business.

The Group enters into contracts with their customers to provide food, mainly frozen pork. All of the Group’s contracts have single performance obligation as the promise is to transfer the goods to customers, and there are no other separately identifiable promises in the contracts. The Group recognizes revenue when it transfers its goods to customers in an amount that reflects the consideration to which the Group expects to be entitled in such exchange. The Group accounts for the revenue generated from sales of its products to its customers on a gross basis, because the Group is acting as a principal in these transactions, is subject to inventory risk, has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods. The Group’s revenue is recognized at a point in time when the control has been transferred, usually when the customer accepts the goods.

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 March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are currently no legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition, or operating results.

ITEM 1A. RISK FACTORS

Smaller reporting companies are not required to provide the information required by this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

There were no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors. 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.

ITEM 6. – EXHIBITS

Exhibit		Exhibit Description
31.1*		Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		Inline XBRL Instance Document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	Hongchang International Co., Ltd

Dated: May 15, 2024	By:	/s/ Zengqiang Lin
	Name:	Zengqiang Lin
	Title:	Chief Executive Officer and Chief Financial Officer (Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer)

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Hongchang International Co., Ltd 10-Q