CN Healthy Food Tech Group Corp.: Form 10-Q for the period ended Mar 31, 2026

Unless otherwise indicated, references to “we”, “us”, “our”, “CN Healthy” or the “Company” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are to CN Healthy Food Tech Group Corp. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included in Part I. Item 1. of this Quarterly Report, the risk factors included in Part II. Item 1A. of this Quarterly Report, and our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 31, 2026.

Overview

We operate within the health and wellness food industry, focusing on the research and development, production, and sale of natural, grain-based health foods that support preventative health and wellness. We manage our business in two operating segments: wholesale distribution and live-stream sales.

Recent Developments

The Nasdaq trading halt imposed on October 1, 2025 in connection with the CSRC’s review of our U.S. listing remained in effect as of the filing date of this Quarterly Report. As disclosed in our current report on Form 8-K filed with the SEC on April 29, 2026, on April 24, 2026, Heilongjiang Zhongneng Liangke Agricultural Technology Co., Ltd. (“Zhongneng Liangke”), a wholly-owned PRC operating subsidiary of the Company, received an Advance Notice of Administrative Penalty (the “Notice”) from the Heilongjiang Regulatory Bureau of the China Securities Regulatory Commission (the “CSRC”) in connection with the Company’s overseas listing filing process. The Notice proposes administrative fines of RMB 3,000,000 on Zhongneng Liangke and RMB 1,500,000 on Mr. Zhenjun Jiang, the Company’s Chairman and Chief Executive Officer, in his capacity as the directly responsible executive. On May 7, 2026, Zhongneng Liangke received the final Administrative Penalty Decision (the “Decision”) from the CSRC whereby the CSRC affirmed and formally imposed the fines proposed in the Notice. As of the date of this Quarterly Report, neither the Company nor Mr. Jiang has paid any fines. See Note 11 to the condensed consolidated financial statements.

As of the filing date of this Quarterly Report, the September 2025 Note Payable, the Assumed Note Payable, and the Sponsor Note Payable each remained in default of their payment obligations, and we continue to be in discussions with the respective note holders to extend their respective maturity dates. No amendments, repayments, conversions, or lender enforcement actions occurred with respect to these notes during the three months ended March 31, 2026 or subsequent to March 31, 2026 through the filing date of this Quarterly Report.

Comparability of Financial Information

Our historical results of operations for the three months ended March 31, 2025 reflect the operations of Legacy CFI, the accounting acquirer in the Business Combination, prior to the consummation of the Business Combination on September 30, 2025, and accordingly do not include the costs of operating as a U.S. public company or the effects of the Business Combination, including the amortization of shares issued for management advisory services described in Note 8 to the condensed consolidated financial statements. Our results of operations for periods following the Business Combination may not be directly comparable to our historical results of operations for periods preceding the Business Combination.

Results of Operations — Three Months Ended March 31, 2026 compared to Three Months Ended March 31, 2025

Revenue

Revenue, net for the three months ended March 31, 2026 was $5,828,544, an increase of $1,005,096, or 20.8%, compared to $4,823,448 for the three months ended March 31, 2025. The increase was driven by continued expansion of our wholesale distribution network and growing contribution from our live-stream sales segment. As described in Note 1 to the condensed consolidated financial statements, the comparative period reflects the historical operating results of Legacy CFI as the accounting acquirer in the September 30, 2025 reverse recapitalization.

Cost of Revenue

Cost of revenue for the three months ended March 31, 2026 was $1,463,696, a decrease of $1,002,406, or 40.6%, compared to $2,466,102 for the three months ended March 31, 2025. Gross profit accordingly increased $2,007,502, or 85.2%, to $4,364,848 from $2,357,346 in the prior period, and gross profit margin expanded to 74.9% from 48.9%. The improvement in gross profit margin reflects a combination of factors, the principal drivers of which include: (i) the commencement of operations of our own production base in Taikang Industrial Park, Heilongjiang Province in October 2025, with the three months ended March 31, 2026 being the first full quarter during which the Company’s core products were predominantly self-produced rather than sourced from third-party OEM partners, materially lowering per-unit production cost; (ii) a shift in revenue mix toward higher-margin live-stream platform sales of digital coupons (which carry materially lower cost of revenue than physical product sales through the wholesale distribution network); and (iii) operating leverage on relatively fixed production-related costs as the wholesale distribution network expanded.

Operating Expenses

Total operating expenses for the three months ended March 31, 2026 were $3,634,232, an increase of $2,082,084, or 134.1%, compared to $1,552,148 for the three months ended March 31, 2025. The increase was primarily attributable to $2,071,857 of amortization expense associated with 1,000,000 restricted common shares issued to officers of Iron Horse in September 2025 for management advisory services to be rendered over a six-month period ending March 30, 2026 (see Note 8 to the condensed consolidated financial statements). This amortization is recorded within general and administrative expenses and was not present in the comparative period. The six-month service period concluded on March 30, 2026 and no further amortization of these shares-issued-for-services will be recorded in subsequent periods. Excluding this non-recurring item, total operating expenses for the three months ended March 31, 2026 would have been $1,562,375, broadly consistent with the comparative period. Selling expenses decreased $579,691, or 52.3%, primarily reflecting a shift in the mix of selling and distribution activity, while research and development expenses remained relatively stable at $38,370 (March 31, 2025: $27,483).

Other Income (Expense), net

Total other income (expense), net for the three months ended March 31, 2026 was an expense of $189,076, compared to income of $93,597 for the three months ended March 31, 2025, a decrease of $282,673. The principal driver of this swing was the recognition of $206,021 of default interest expense on three promissory notes that have been in default since the fourth quarter of 2025 (see Note 6 and Note 7 to the condensed consolidated financial statements). The default interest accrues at the contractual rate of 15.0% per annum, and no portion was paid in cash during the three months ended March 31, 2026. Interest income for the three months ended March 31, 2026 was $16,564, compared to $38,777 for the comparative period, reflecting the prevailing interest rate environment on cash holdings, the substantial majority of which are held in PRC bank accounts.

Provision for Income Tax

Provision for income tax for the three months ended March 31, 2026 was $850,537, compared to $125,112 for the three months ended March 31, 2025. The Company’s effective tax rate was 157.1% for the three months ended March 31, 2026, compared to 13.9% for the three months ended March 31, 2025. The effective tax rate for the current quarter differs significantly from both the comparative period and the PRC statutory rate of 25.0% principally because (i) the $2,071,857 of amortization of shares-issued-for-services described above is a non-deductible permanent difference recorded at the U.S. parent level, (ii) default interest of $206,021 on the three U.S.-side promissory notes is also recorded at the U.S. parent level and is non-deductible, and (iii) the Company maintains a full valuation allowance against its U.S. deferred tax assets, with the result that the loss-making U.S. parent generates no offsetting tax benefit. Together, these items compressed consolidated pre-tax income to $541,540 while the underlying PRC operating entities continued to generate taxable income subject to PRC income tax. The Company expects its effective tax rate to normalize toward the PRC statutory rate in subsequent periods following the conclusion of the shares-issued-for-services amortization on March 30, 2026.

Liquidity and Capital Resources

As of March 31, 2026, our cash and cash equivalents totaled $29,690,865 and a net working capital surplus of $11,045,507. As of March 31, 2026, approximately $29,690,682 and $183 of our cash and cash equivalents were held in the PRC and United States, respectively.

We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs for our PRC operating subsidiaries over at least the next twelve months. However, three promissory notes issued in connection with the September 30, 2025 Business Combination — the September 2025 Note Payable, the Assumed Note Payable, and the Sponsor Note Payable (which together had aggregate outstanding principal of $3,473,190 as of March 31, 2026) — are obligations of CN Healthy Food Tech Group Corp., the U.S. holding company, rather than of our PRC operating subsidiaries, and each of these notes was in default of its payment obligations as of March 31, 2026. As discussed below, the substantial majority of our cash and cash equivalents is held by our PRC operating subsidiaries and is not readily available to satisfy obligations of the U.S. holding company without first being repatriated to the United States. We are currently in discussions with each of the note holders to extend the respective maturity dates and to address the defaults rather than to make immediate cash repayment, but there can be no assurance that these discussions will result in favorable terms or any agreement at all. If conversions of any of these notes were to be effected pursuant to their respective terms, such conversions could result in dilution to our existing stockholders. We may require additional capital resources in the future, the availability of which on acceptable terms cannot be assured.

Cash Flows Summary

Net cash used in operating activities for the three months ended March 31, 2026 was $3,599,863, compared to net cash used of $165,415 for the three months ended March 31, 2025. The increase in operating cash outflow was driven principally by a $6,369,184 decrease in advances from customers during the current quarter, which represents the fulfillment and recognition as revenue of customer prepayments received in prior periods, partially offset by non-cash add-backs of $2,071,857 for amortization of shares-issued-for-services and $206,021 for accrued default interest. Net cash used in investing activities for the three months ended March 31, 2026 was $1,638, reflecting minimal capital expenditure during the quarter, compared to net cash used of $75,258 in the comparative period. Net cash provided by financing activities for the three months ended March 31, 2026 was $116,000, reflecting Business Combination-related financing receipts (March 31, 2025: $nil). The effect of foreign currency exchange rate changes on cash and cash equivalents was a positive $162,617 for the current quarter (March 31, 2025: $197,515). After consideration of all activities, cash and cash equivalents decreased by $3,322,884 during the three months ended March 31, 2026, ending at $29,690,865.

Holding Company Structure

We are a Delaware holding company that conducts substantially all of our business operations through our PRC operating subsidiaries. Substantially all of our cash and cash equivalents are held in PRC bank accounts by these subsidiaries. Because substantially all of our cash and operations are held through our PRC subsidiaries, our ability to use such cash to satisfy obligations of CN Healthy Food Tech Group Corp., the U.S. holding company — including the defaulted promissory notes described above — may be subject to PRC foreign exchange controls administered by the State Administration of Foreign Exchange (“SAFE”), dividend distribution requirements, withholding tax on dividends, statutory reserve requirements, and other regulatory procedures and restrictions, all of which can affect both the timing and amount of cash that can be made available to the U.S. holding company.

As of March 31, 2026, no capital contributions have been made to our PRC subsidiaries from our intermediate holding companies, and no dividends or other distributions have been paid from our PRC subsidiaries to our intermediate holding companies located outside of mainland China. The cross-border transfer of funds from CFI HK to its PRC subsidiaries is permitted in the form of shareholder loans or capital contributions, subject to applicable PRC government registration, approval, and filing requirements. We currently do not have formal cash management policies governing the transfer of funds between our holding company and our subsidiaries.

Our PRC operating subsidiaries’ ability to distribute dividends is based upon their distributable earnings, as determined in accordance with PRC accounting standards and regulations. Under PRC law, our PRC subsidiaries are required to set aside at least 10% of their after-tax profits each year, if any, to fund a statutory reserve fund until such reserve fund reaches 50% of their respective registered capital. Distributions of dividends from our PRC subsidiaries to non-PRC enterprises are subject to a 10% withholding tax under the PRC Enterprise Income Tax Law, which may be reduced to 5% under the tax treaty between mainland China and the Hong Kong Special Administrative Region, subject to qualification and applicable approvals. To address persistent capital outflow concerns, the People’s Bank of China and SAFE have implemented capital control measures over the past several years, including stricter vetting procedures for PRC-based companies remitting foreign currency for overseas acquisitions, dividend payments, and shareholder loan repayments. There is no assurance that the PRC government will not further intervene or impose additional restrictions on the ability of our PRC subsidiaries to transfer cash out of the PRC.

Off-Balance Sheet Financing Arrangements

As of March 31, 2026, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, other than the commencement of default interest accrual on our defaulted promissory notes beginning in the first quarter of 2026 (see Note 2).

As described in Notes 6 and 7 to the condensed consolidated financial statements, the Company was in default of its payment obligations under the September 2025 Note Payable (outstanding principal of $2,018,500), the Assumed Note Payable (outstanding principal of $1,000,000), and the Sponsor Note Payable and Assumed Sponsor Note Payable (aggregate outstanding principal of $454,690) as of March 31, 2026. The Company continues to be in discussions with the respective note holders to extend the maturity dates. Default interest at 15.0% per annum has been accrued during the three months ended March 31, 2026.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2026, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were not effective at a reasonable assurance level, due to insufficient in-house U.S. GAAP/SEC reporting expertise, segregation of duties, lack of supervision and review, and limited documentation around controls. No specific remediation actions addressing the material weaknesses identified in our Annual Report on Form 10-K for the year ended December 31, 2025 were taken during the three months ended March 31, 2026. Management continues to evaluate remediation alternatives.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three months ended March 31, 2026 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other than as set forth below, there have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025.

Risks Related to the Continued Nasdaq Trading Halt

Following our listing on the Nasdaq Capital Market on October 1, 2025, Nasdaq notified us that the China Securities Regulatory Commission (the “CSRC”) had not yet completed its process of review of our U.S. listing, and Nasdaq halted trading of our common stock and warrants pending receipt of additional clarification. The trading halt remained in effect as of the filing date of this Quarterly Report. We have provided Nasdaq with additional documentation and continue to await further information. We cannot predict when, or whether, Nasdaq will lift the trading halt. Continued suspension of trading materially impairs the ability of our stockholders to buy or sell our common stock and warrants in the public market, may adversely affect our ability to access the capital markets to raise additional financing if needed, may affect our ability to retain employees compensated in part with equity awards, and could result in our common stock being delisted from Nasdaq. Any delisting could in turn cause a default or acceleration of obligations under our outstanding promissory notes and other contractual arrangements. The continued trading halt, combined with the matters described in the immediately following risk factor relating to the CSRC Administrative Penalty Notice, may also adversely affect our reputation, our relationships with customers, suppliers, and lenders, and our overall business prospects.

Risks Related to the CSRC Administrative Penalty Decision

As disclosed in our current report on Form 8-K filed with the SEC on April 29, 2026, on April 24, 2026, Zhongneng Liangke received the Notice from the CSRC in connection with the Company’s overseas listing filing process. The Notice proposes administrative fines of RMB 3,000,000 on Zhongneng Liangke and RMB 1,500,000 on Mr. Zhenjun Jiang, the Company’s Chairman and Chief Executive Officer, in his capacity as the directly responsible executive. On May 7, 2026, Zhongneng Liangke received the final Administrative Penalty Decision (the “Decision”) from the CSRC whereby the CSRC affirmed and formally imposed the fines proposed in the Notice. As of the date of this Quarterly Report, no final penalty has been paid but the Company and Mr. Jiang does not intend to appeal the Decision and intend to pay the fines proposed in the Notice in full.

We cannot predict the material adverse effect that the CSRC’s penalties may have on our reputation, our ability to conduct business in China, and our financial condition and results of operations. The aggregate fines of RMB 4,500,000 imposed on Zhongneng Liangke and Mr. Jiang represent a non-trivial cash outflow for the Company and may signal to regulators, investors, and business partners a heightened compliance risk associated with our PRC operations. The imposition of these fines could adversely affect the status of our pending regulatory matters with Nasdaq, prolong or complicate the resolution of the existing trading halt, and impair our ability to access the U.S. capital markets to raise additional financing if needed. In addition, the Decision may expose Zhongneng Liangke to additional regulatory scrutiny in China, which could result in delays or obstacles to obtaining future business licenses, permits, or governmental approvals necessary for our operations. Regulatory sanctions imposed on Mr. Jiang could restrict his ability to serve as an officer or director of a publicly-traded company in the PRC or in other capacities, which could disrupt our management structure and adversely affect our business operations. The proceedings could also result in further regulatory inquiries, restrictions on Mr. Jiang’s ability to serve in his current roles, and additional legal and professional fees, any of which could be material to our results of operations.

Risks Related to Our Defaulted Promissory Notes and Potential Dilution

Three promissory notes issued in connection with our September 30, 2025 Business Combination remained outstanding and in default of their respective payment obligations as of March 31, 2026, with aggregate outstanding principal of approximately $3,473,190 and accrued default interest of approximately $206,021. Each note accrues default interest at a rate of 15.0% per annum until the event of default is cured. Two of the three notes contain conversion provisions that, upon default, permit the respective note holder to receive shares of our common stock — in one case up to 5,000,000 shares (subject to a 4.99% beneficial ownership cap), and in another case 650,000 shares at a fixed conversion ratio. A third note (held by our Sponsor, a related party) requires us to reserve an unlimited number of shares of our common stock to satisfy the unpaid balance, also subject to a 4.99% beneficial ownership cap. If any of these note holders elect to enforce their conversion or share-delivery rights, the issuance of common stock to satisfy these obligations could cause substantial dilution to our existing stockholders. We are currently in discussions with each of the note holders to extend the maturity dates and address the defaults, but there can be no assurance that these discussions will result in favorable terms or any agreement at all. If we are unable to negotiate forbearance, extension, or repayment terms acceptable to the note holders, they may exercise their available remedies, which could have a material adverse effect on our financial condition, results of operations, and stockholders.