NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2022
Note
1 – Organization and basis of accounting
Basis
of Presentation and Organization
This
summary of significant accounting policies of Hong Yuan Holding Group. (a development stage company) (“the Company”) is presented
to assist in understanding the Company’s financial statements. These accounting policies conform to accounting principles generally
accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements.
The Company has realized minimal revenues from its planned principal business purpose and, accordingly, is considered to be in its development
stage in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic No. 915 (SFAS No. 7). The Company has elected a fiscal year end of December 31.
Business
Description
We
were incorporated on September 29, 2001 in the State of Nevada under the name of Biocorp North America Inc. On March 18, 2005, we filed
an amendment to our certificate of incorporation to change our name to Cereplast, Inc.
On
February 10, 2014, the Company, filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the Southern District of Indiana (the “Bankruptcy Court “). On February 14, 2014,
the Company filed a motion in the Bankruptcy Court seeking to convert the Company’s Chapter 11 Case to a Chapter 7 bankruptcy case.
On March 27, 2014, the court granted the Company’s motion and on that date the Company’s Chapter 11 Case was converted to
a Chapter 7 case. As a result, the Company adopted liquidation basis of accounting on the discontinued operations according to ASC 205-30
“Presentation of Financial Statements – Liquidation Basis of Accounting”, accordingly the accumulated deficit generated
prior to bankruptcy proceedings remained unadjusted.
On
January 31, 2014, the Board of Directors of Cereplast, Inc. (the “Company”) approved a 1-for-50 reverse split (the “Reverse
Split) which was previously approved by the shareholders on April 5, 2013 and previously disclosed on Current Report Form 8-K filed on
April 5, 2013.
On
February 3, 2014, Cereplast, Inc. (the “Company”) filed a Certificate of Amendment to its Articles of Incorporation to effect
the reverse split (the “Reverse Split”), effective as of February 21, 2014.
On
March 22, 2019, the eight judicial District Court of Nevada appointed Custodian Ventures, LLC as custodian for Cereplast, Inc., proper
notice having been given to the officers and directors of Cereplast, Inc. There was no opposition.
On
June 04, 2019, the Company filed a certificate of revival with the state of Nevada, appointing David Lazar as, President, Secretary,
Treasurer and Director.
On
October 4, 2019, the Company issued 50,000,000 shares of common stock to Custodian Ventures, LLC at par for shares valued at $50,000
in exchange for settlement of a portion of a related party loan for amounts advanced to the Company in the amount of $20,100, and a note
receivable due to the Company in the amount of $29,900. The note bears an interest of 3% and matures in 180 days following written demand
by the holder.
On
April 14, 2020, Custodian Ventures elected to convert the total amount of the 510 shares of Series A preferred stock into 510 shares
of common stock.
On
April 15, 2020, the Board of directors of the Company approved the withdrawal of the certificate of designation of 5,000,000 shares of
Series A Preferred stock filed with the Nevada Secretary of State on August 24, 2012, as amended by the Amendment to Certificate of Designation
after issuance of Class or Series filed with the Nevada Secretary of State on April 13, 2020.
On
May 1, 2020, the Company created 5,000,000 shares of series A-1 preferred stock with par value $0.001. On May 4, 2020, the Company issued
5,000,00 shares of the Series A-1 Preferred stock valued at $5,000 to Custodian Ventures LLC as repayment funds loaned to the Company.
A
change of control of the Company was completed on November 3, 2020, control was obtained by the sale of 50,000,000 common shares and
$5,000,000 Series A-1 Preferred Shares from Custodian Ventures, LLC to Xudong Li. After November 3, 2020, the Company’s operations
are determined and structured by the new major shareholder.
On
November 18, 2020, the Company filed an amendment to its certificate of incorporation to change its name to Hong Yuan Holding Group.
The
accompanying financial statements are prepared on the basis of accounting principles generally accepted in the United States of America
(“GAAP”). The Company is a development stage enterprise devoting substantial efforts to establishing a new business, financial
planning, raising capital, and research into products which may become part of the Company’s product portfolio. The Company has
not realized significant sales since inception. A development stage company is defined as one in which all efforts are devoted substantially
to establishing a new business and, even if planned principal operations have commenced, revenues are insignificant.
The
Company is planning potential acquisitions. The management has approached several companies in China and met the management of potential
acquisition targets. The Company feels strongly that despite the challenges of cross border business, it might be able to acquire some
good growth companies and bring good values to our stockholders. Although the Company is making some progress in the Merger and Acquisition
efforts, any potential results, if any, are still not certain.
The
accompanying financial statements have been prepared assuming the continuation of the Company as a going concern. The Company has not
yet established an ongoing source of revenues sufficient to cover its operating costs and is dependent on debt and equity financing to
fund its operations. Management of the Company is making efforts to raise additional funding until a registration statement relating
to an equity funding facility is in effect. While management of the Company believes that it will be successful in its capital formation
and planned operating activities, there can be no assurance that the Company will be able to raise additional equity capital, or be successful
in the development and commercialization of the products it develops or initiates collaboration agreements thereon. The accompanying
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going
concern.
Note
2 – Summary of significant accounting policies
Unaudited
Interim Financial Information
These
unaudited interim financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations
of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote
disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion
of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations
and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the year ending December 31, 2022.
The
balance sheets and certain comparative information as of December 31, 2021 are derived from the audited financial statements and related
notes for the year ended December 31, 2021, included in the Company’s Form 10K. These unaudited interim financial statements should
be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Form 10K.
Covid
– 19
On
March 11, 2020, the World Health Organization announced that infections caused by the corona virus disease of 2019 (“COVID-19”)
had become pandemic. The Government of China has adopted various regulations and orders, including mandatory quarantines, limits on the
number of people that may gather in one location, closing non-essential businesses and travel bans to limit the spread of the disease.
Many of these measures have been relaxed due to the decrease in the prevalence of Covid-19 in China. The Company’s efforts to establishing
a new business, financial planning, raising capital, and research into products for the Company’s product portfolio has somewhat
impacted by COVID-19.
Cash
and Cash Equivalents
For
purposes of reporting within the statements of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash
equivalents.
Employee
Stock-Based Compensation
The
Company accounts for stock-based compensation in accordance with ASC 718 Compensation - Stock Compensation (“ASC 718”). ASC
718 addresses all forms of share-based payment (“SBP”) awards including shares issued under employee stock purchase plans
and stock incentive shares. Under ASC 718 awards result in a cost that is measured at fair value on the awards’ grant date, based
on the estimated number of awards that are expected to vest and will result in a charge to operations.
Loss
per Share
Basic
earnings (loss) per share are computed by dividing income available to common shareholders by the weighted-average number of common shares
available. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased
to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for
the nine months ended September 30, 2022 and 2021, as there are no potential shares outstanding that would have a dilutive effect.
Income
Taxes
Income
tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences
of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded
to reduce deferred tax assets to the amount that will more likely than not be realized. The Company recorded a valuation allowance against
its deferred tax assets as of September 30, 2022 and December 31, 2021.
The
Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more
likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The
Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt)
of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.
Note
3- Going Concern
The
accompanying financial statements have been prepared assuming the continuation of the Company as a going concern. The Company has not
yet established an ongoing source of revenues sufficient to cover its operating costs and is dependent on debt and equity financing to
fund its operations. Management of the Company is making efforts to raise additional funding until a registration statement relating
to an equity funding facility is in effect. While management of the Company believes that it will be successful in its capital formation
and planned operating activities, there can be no assurance that the Company will be able to raise additional equity capital or be successful
in the development and commercialization of the products it develops or initiates collaboration agreements thereon. The accompanying
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going
concern.
Note
4 – Related party transaction
During
the nine months ended September 30, 2022, the Company’s current majority shareholder advanced $35,135 to the Company as working
capital. As of September 30, 2022 and December 31, 2021, the Company owed its current majority shareholders of $88,311 and $53,176, respectively.
The advances are non-interest bearing and are due on demand.
Note
5 – Common stock
On
October 4, 2019, the Company issued 50,000,000 shares of common stock to Custodian Ventures, LLC, the former major shareholder, at par
for shares valued at $50,000 in exchange for settlement of a portion of a related party loan for amounts advanced to the Company in the
amount of $20,100, and a note receivable due to the Company in the amount of $29,900. The note bears an interest of 3% and matures in
180 days following written demand by the holder. At December 31, 2020, the note receivable with a balance of $31,383 was written off
because the collectability of the note is unlikely after the change of control.
On
April 14, 2020, Custodian Ventures elected to convert the total amount of the 510 shares of Series A preferred stock into 510 shares
of common stock.
On
May 27, 2021, the 510 shares of common stock issued to Custodian Ventures were cancelled.
At
September 30, 2022, the Company is authorized to issue 250,000,000 shares of $0.001 par value common stock.
As
of September 30, 2022, a total of 74,640,766 shares of common stock with par value $0.001 remain outstanding.
Note
6 – Preferred stock
As
of September 30, 2022, a total of 5,000,000 shares of Series A-1 preferred stock with par value $0.001 is authorized and remain outstanding.
Note
7 – Income Taxes
Deferred
taxes represent the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes. Temporary differences result primarily from the recording of tax benefits of net operating loss carry forwards.
As
of September 30, 2022, the Company has an insufficient history to support the likelihood of ultimate realization of the benefit associated
with the deferred tax asset. Accordingly, a valuation allowance has been established for the full amount of the net deferred tax asset.
Uncertain
Tax Positions
Interest
associated with unrecognized tax benefits are classified as income tax, and penalties are classified in selling, general and administrative
expenses in the statements of operations. For the nine months ended September 30, 2022 and 2021, the Company had no unrecognized tax
benefits and related interest and penalties expenses. Currently, the Company is not subject to examination by major tax jurisdictions.
Note
8 – Subsequent Event
In
accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial
statements were available to be issued, and has determined that it does not have any material subsequent events to disclose in these
financial statements.