Hongli Group Inc 6-K, filed Sep 30, 2025
Hongli Group Inc. (HLP)
About this 6-K
Hongli Group Inc filed this 6-K on September 30, 2025.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of September
(Exact name of registrant as specified in its charter)
No. 777, Daiyi Road,
Changle County, Weifang City,
Shandong Province, China, 262400
(Address of Principal Executive Office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
EXPLANATORY NOTE
Hongli Group Inc., a Cayman Islands exempted company (the “Company”) is furnishing this Form 6-K to provide its unaudited condensed consolidated financial statements as of June 30, 2025 and for the six months ended June 30, 2025 and 2024, and incorporate such financial statements into the Company’s registration statement referenced below.
This report of foreign private issuer on Form 6-K is hereby incorporated by reference into the registration statement on Form F-3 of the Company (File Number 333-289457), as amended, and into the prospectus outstanding under the foregoing registration statement, to the extent not superseded by documents or reports subsequently filed or furnished by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
Financial Statements and Exhibits.
Exhibits:
| Exhibit No. | Description | |
| 99.1 | Unaudited Condensed Consolidated Financial Statements as of June 30, 2025 and for the Six Months Ended June 30, 2025 and 2024. | |
| 99.2 | Notes to the Unaudited Condensed Consolidated Financial Statements as of June 30, 2025 and for the Six Months Ended June 30, 2025 and 2024. | |
| 99.3 | Operating and Financial Review and Prospects in Connection with the Unaudited Condensed Consolidated Financial Statements for the Six Months Ended June 30, 2025 and 2024. | |
| 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). |
1
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Hongli Group Inc. | ||
| Date: September 30, 2025 | By: | /s/ Jie Liu |
| Jie Liu | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Xiangmei Zeng | |
| Xiangmei Zeng | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
2
Exhibit 99.1
HONGLI GROUP INC.
CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalent | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for expected credit losses of $ | ||||||||
| Notes receivable | ||||||||
| Inventories, net | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Prepayment for purchase of Yingxuan Assets | ||||||||
| Intangible assets, net | ||||||||
| Deposit for Investment in Joint Venture | ||||||||
| Deferred tax assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Short-term loans | $ | $ | ||||||
| Accounts payable | ||||||||
| Due to related parties | ||||||||
| Short-term loans - related party | ||||||||
| Income tax payable | ||||||||
| Accrued expenses and other payables | ||||||||
| Total current liabilities | ||||||||
| Long-term loans | ||||||||
| Long-term loans - related party | ||||||||
| TOTAL LIABILITIES | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Ordinary shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
HONGLI GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenues, net | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross Profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Other income (expense) | ||||||||
| Other income | ||||||||
| Interest and financing expenses, net | ( | ) | ( | ) | ||||
| Other expenses | ( | ) | ( | ) | ||||
| Total other income (loss), net | ( | ) | ( | ) | ||||
| Income (loss) before income taxes | ( | ) | ||||||
| Income tax expense | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Comprehensive income (loss) | ||||||||
| Net income | $ | $ | ( | ) | ||||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Comprehensive income (loss) | $ | $ | ( | ) | ||||
| Earnings (loss) per share | ||||||||
| Basic and diluted | $ | $ | ( | ) | ||||
| Weighted average common shares outstanding | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
HONGLI GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2025 AND 2024
| Ordinary Shares | Additional | Accumulated other | Total | |||||||||||||||||||
| Number of shares | Amount | paid-in capital | Statutory reserve | Retained earnings | comprehensive income (loss) | shareholders’ equity | ||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income for the six months | - | |||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Ordinary Shares | Additional | Accumulated other | Total | |||||||||||||||||||
| Number of shares | Amount | paid-in capital | Statutory reserve | Retained earnings | comprehensive income (loss) | shareholders’ equity | ||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share-based compensation | ||||||||||||||||||||||
| Net income for the six months | - | ( | ) | ( | ) | |||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
3
HONGLI GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Amortization of intangible assets - land use rights | ||||||||
| Allowance for current expected credit losses | ||||||||
| (Gain) loss on disposals of property and equipment | ( | ) | ||||||
| Share-based compensation | ||||||||
| Write off of construction costs | ||||||||
| Change in inventory reserve | ||||||||
| Deferred tax provision (benefit) | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Notes receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expense and other current assets | ||||||||
| Due to related parties | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other payables | ( | ) | ( | ) | ||||
| Income tax payable | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Prepayments for purchase of Yingxuan Assets | ( | ) | ||||||
| Proceeds from sale of property and equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Payments for financing liabilities | ( | ) | ||||||
| Payments for finance leases | ( | ) | ||||||
| Proceeds from related party loans | ||||||||
| Repayments to related party loans | ( | ) | ( | ) | ||||
| Borrowings from short-term loans | ||||||||
| Repayments of short-term loans | ( | ) | ( | ) | ||||
| Borrowings from long-term loans | ||||||||
| Repayments of long-term loans | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ||||||
| Net change in cash, cash equivalents and restricted cash | ||||||||
| Cash, cash equivalents and restricted cash, beginning of the period | ||||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash, beginning of the period | ||||||||
| Cash, cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash, cash equivalents and restricted cash, beginning of the period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash, end of the period | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Property, plant and equipment transferred from construction in progress | $ | $ | ||||||
| Property, plant and equipment acquired in exchange of notes receivable | $ | $ | ||||||
| Right-of-use assets transferred to property and equipment upon exercise of purchase option | $ | $ | ||||||
| Prepayments applied to property and equipment acquired | $ | $ | ||||||
| Property and equipment acquired on credit as liabilities | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Exhibit 99.2
HONGLI GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT
NOTE 1 — ORGANIZATION AND NATURE OF OPERATIONS
Hongli Group Inc. (“Hongli Cayman”) was incorporated in Cayman Islands as an exempted company with limited liability on February 9, 2021. Hongli Cayman serves as a holding company and conducts its businesses through its subsidiaries and the consolidated variable interest entity (the “VIE”) and the subsidiaries of the VIE. Hongli Cayman, its subsidiaries, the VIE and the subsidiaries of the VIE are collectively referred to herein as the “Company”, “we”, “our”, “us” or “Hongli Group”, unless specific reference is made to an entity. The Company is engaged in a business in providing solutions, including the manufacturing and selling of customized metal profiles in the People’s Republic of China (“PRC” or “China”). The Company’s on-going research and development, customer support and continuous quality control help its customers remain competitive.
The Company includes the following subsidiaries and the consolidated VIE and the subsidiaries of the VIE in the unaudited condensed consolidated financial statements as if the current corporate structure (“restructuring” or “reorganization”) had been in existence throughout the periods presented (see “Reorganization under common control through VIE structure” below):
| Name | Date of Organization | Place of Organization | ||
| Subsidiaries | ||||
| Hongli Hong Kong Limited (“Hongli HK”) | ||||
| Shandong Xiangfeng Heavy Industry Co., Ltd. (“WFOE”) | ||||
| VIE and Its Subsidiaries | ||||
| Shandong Hongli Special Section Tube Co., Ltd., (“Hongli Shandong”) | ||||
| Shandong Maituo Heavy Industry Co., Ltd. (“Maituo”) (1) | ||||
| Shandong Haozhen Heavy Industry Co., Ltd. (“Haozhen Shandong”) (2) | ||||
| Beijing Haozhen Heavy Industry Technology Company Limited (“Haozhen Beijing”) (3) |
| (1) |
| (2) |
| (3) |
Reorganization under common control through VIE structure
The Company does not conduct any substantive operations of its own, rather, it conducts its primary business operations through its WFOE, which in turn, conducts its business substantially through Hongli Shandong. Effective power to direct activities of Hongli Shandong was transferred to the Company through the series of contractual arrangements without transferring legal ownership in Hongli Shandong (“restructuring” or “reorganization”). Neither the Company nor any of its subsidiaries have any equity ownership in the VIE and the subsidiaries of VIE. As a result of these contractual arrangements and for accounting reporting purposes, the Company is able to consolidate the financial results of Hongli Shandong and its subsidiaries through its WFOE, as the primary beneficiary in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Under the laws and regulations of the PRC, foreign persons and foreign companies are restricted from investing directly in certain businesses within the PRC. Though the business of the PRC operating entities is not within any sensitive sector that PRC law prohibits direct foreign investment in, to avoid the substantial costs and time for regulatory approval to convert the PRC operating entities into wholly foreign owned entities, on April 12, 2021, Hongli Shandong and its shareholders entered into a series of contractual arrangements with the WFOE which allows the WFOE, the primary beneficiary of the VIE for accounting reporting purposes in accordance with U.S. GAAP, to consolidate the financial results of Hongli Shandong and its subsidiaries.
Agreements that Consolidate the Financial Results of the VIE
Hongli Shandong entered into an exclusive business cooperation and management agreement with the WFOE, pursuant to which the WFOE will provide a series of consulting and technical support services to Hongli Shandong and are entitled to consolidate the financial results of Hongli Shandong. The service fee is paid annually. The term of this agreement shall be continuously effective unless mutually terminated by both parties in writing. Hongli Shandong shall not accept any similar consultations and/or services provided by any third party and shall not establish similar corporation relationship with any third party regarding the matters contemplated in the agreement without a written consent from the WFOE.
Agreements that Provide Effective Power to Direct Activities of VIE
The WFOE entered into an equity interest pledge agreement with Hongli Shandong’s shareholders, who pledged all their equity interests in these entities to the WFOE. The equity interest pledge agreement, which was entered into by Hongli Shandong’s shareholders, pledged their equity interests in the WFOE as a guarantee for the payment and performance under the exclusive business cooperation and management agreement by Hongli Shandong. The WFOE is entitled to certain rights, including the right to sell the pledged equity interests. Pursuant to the equity interest pledge agreement, the shareholders of Hongli Shandong cannot transfer, sell, pledge, dispose of or otherwise create any new encumbrance on their respective equity interest in Hongli Shandong without the prior written consent from the WFOE. The equity pledge right will expire upon the termination of the exclusive business cooperation and management agreement between the WFOE and Hongli Shandong and a full settlement of service fees related therewith. The equity pledges of Hongli Shandong have been registered with the relevant local branch of the State Administration for Industry and Commerce, or SAIC.
The WFOE also entered into an exclusive option purchase agreement with Hongli Shandong’s shareholders. Pursuant to the agreement, the shareholders have granted an irrevocable and unconditional option to the WFOE their designees to acquire all or part of such shareholders’ equity interests in Hongli Shandong at its sole discretion, to the extent as permitted by PRC laws and regulations then in effect. The consideration for such acquisition will be equal to the registered capital of Hongli Shandong, and if PRC law requires the consideration to be greater than the registered capital, the consideration will be the minimum amount as permitted by PRC law. The term of this agreement is valid for ten years upon execution of the agreement and may be extended for an additional ten years at the WFOE’s election.
Risks in relation to the VIE structure
The Company believes that the contractual arrangements between the WFOE and Hongli Shandong are in compliance with the PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements and the interests of the shareholders of Hongli Shandong may diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms, for example by influencing Hongli Shandong not to pay the service fees when required to do so.
Hongli Cayman’s ability to direct the activities of Hongli Shandong also depends on the power of attorney the WFOE has to vote on all matters requiring shareholders’ approval in Hongli Shandong. As noted above, the Company believes this power of attorney is legally enforceable but may not be as effective as direct equity ownership.
In addition, if the legal structure and contractual arrangements were found to be in violation of any existing PRC laws and regulations, the Company may be subject to fines or other actions. The Company does not believe such actions would result in the liquidation or dissolution of the Company, the WFOE or Hongli Shandong.
Hongli Cayman, through its subsidiaries, its WFOE and through the contractual arrangements, has (1) the power to direct the activities of Hongli Shandong and its subsidiaries that most significantly affect the VIE and its subsidiaries’ economic performance, and (2) the obligation to absorb losses, or the right to receive benefits from Hongli Shandong and its subsidiaries that could be significant to the VIE and subsidiaries. Accordingly, the Company, through the WFOE in which is the primary beneficiary of Hongli Shandong and its subsidiaries for accounting reporting purposes, and has consolidated the financial results of Hongli Shandong and its subsidiaries in accordance with U.S. GAAP.
2
The
accompanying unaudited condensed consolidated financial statements present the historical financial position, results of operations and
cash flows of Hongli Shandong and its subsidiaries and adjusted for the effects of the corporate restructure as disclosed per above.
Accordingly, the accompanying unaudited condensed consolidated financial statements have been prepared as if the reorganization had been
in existence throughout the periods presented (see Note 16 for the
The following information of the VIE and VIE’s subsidiaries as a whole as of June 30, 2025 and December 31, 2024 were included in the accompanying unaudited condensed consolidated financial statements of the Company. Transactions between VIE and VIE’s subsidiaries are eliminated in the financial information presented below:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for expected credit losses of $ | ||||||||
| Notes receivable | ||||||||
| Inventories, net | ||||||||
| Due from parent company | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Prepayment for purchase of Yingxuan Assets | ||||||||
| Intangible assets, net | ||||||||
| Deferred tax assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Short-term loans | $ | $ | ||||||
| Accounts payable | ||||||||
| Due to related parties | ||||||||
| Short-term loans - related parties | ||||||||
| Income tax payable | ||||||||
| Accrued expenses and other payables | ||||||||
| Total current liabilities | ||||||||
| Long-term loans | ||||||||
| Long-term loans - related parties | ||||||||
| Total Liabilities | $ | $ | ||||||
| Net Assets | $ | $ | ||||||
3
| Six Months Ending June 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenue, net | $ | $ | ||||||
| Gross profit | $ | $ | ||||||
| Income from operations | $ | $ | ||||||
| Net income | $ | $ | ||||||
The
revenue-producing assets held by the VIE and its subsidiaries comprise
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These interim condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments consisting of normal recurring accruals and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year.
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 20-F for the year ended December 31, 2024, filed with the SEC on May 12, 2025. The condensed consolidated balance sheet as of December 31, 2024, included herein has been derived from the audited consolidated financial statements as of December 31, 2024, but does not include all disclosures required by the U.S. GAAP.
The accompanying condensed consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIE. All significant inter-company accounts and transactions have been eliminated on consolidation.
4
Noncontrolling Interest
Haozhen
Shandong was jointly established by Hongli Shandong, the Company’s VIE, which holds a
Haozhen
Beijing was jointly established by Hongli Shandong and an individual, who holding a
Use of Estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for doubtful accounts, inventory write-down, useful lives of property, plant and equipment, intangible assets, valuation allowance of deferred tax assets and share-based compensations. Actual results could differ from those estimates.
Related Parties Transactions
A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. The Company conducts business with its related parties in the ordinary course of business. Related parties may be individuals or corporate entities.
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.
Foreign Currency Translation
The
Company’s principal country of operations is the PRC. The financial position and results of its operations are determined using
RMB, the local currency, as the functional currency. The unaudited condensed consolidated financial statements are reported using U.S.
Dollars. The results of operations and the statement of cash flows denominated in foreign currency are translated at the average rate
of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated
at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical
rate of exchange at the time of capital contribution. As a result, amounts related to assets and liabilities reported on the consolidated
statements of cash flows may not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation
adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated
other comprehensive income (loss) included in consolidated balance sheets and unaudited condensed consolidated statements of changes
in shareholders’ equity. Transactions denominated in foreign currencies are translated into the functional currency at the exchange
rates prevailing on the transaction dates with any transaction gain and or losses are included in the results of operations as incurred.
Gain (loss) from foreign currency transactions recognized and included in the unaudited condensed consolidated statements of operations
and comprehensive income (loss) for the six months ended June 30, 2025 and 2024 amounted to ($
5
The
value of RMB against U.S. Dollar may fluctuate and is affected by, among other things, changes in the PRC’s political and economic
conditions. Any significant revaluation of RMB may materially affect the Company’s consolidated financial condition in terms of
reporting.
| June 30, | June 30, | December 31, | ||||||||||
| 1 US$ = RMB | 2025 | 2024 | 2024 | |||||||||
| Spot rate | ||||||||||||
| Average rate | ||||||||||||
Fair Value Measurement
The fair value of a financial instrument is defined as the exchange price that would be received from an asset or paid to transfer a liability (as exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, time deposits, accounts receivable, and other current assets, accounts payable, short-term bank borrowings and other current liabilities, approximate their fair values because of the short maturity of these instruments and market rates of interest.
ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 — Quoted prices in active markets for identical assets and liabilities. |
| ● | Level 2 — Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
The Company considers the carrying amounts of its financial assets and liabilities, which primarily include cash and cash equivalents, restricted cash, notes receivable, accounts receivable, net, inventories, net, prepaid expense and other current assets, accounts payables, income tax payable, accrued expenses and other current payables, short-term loans, and current portion of finance lease obligation, to approximate their fair values as of June 30, 2025 and December 31, 2024, due to their short-term maturities or because they are recorded at present value.
Earnings (Loss) per Share
Under
the provisions of ASC 260, “Earnings Per Share”, basic earnings (loss) per share is computed by dividing net income (loss)
attributable to common shareholders by the weighted average number of ordinary shares outstanding for the periods presented.
| June 30, 2025 | June 30, 2024 | |||||||
| Numerator for earnings (loss) per share: | ||||||||
| Net income (loss) attributable to the Company’s ordinary shareholders | $ | $ | ( | ) | ||||
| Denominator for basic and diluted earnings per share: | ||||||||
| Basic and weighted average ordinary shares | ||||||||
| Per share amount | ||||||||
| Per share - basic and diluted | $ | $ | ( | ) | ||||
6
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash accounts, interest-bearing savings accounts and time certificates of deposit with a maturity of three months or less when purchased. The Company considers all highly liquid investment instruments with an original maturity of three months or less from the date of purchase to be cash equivalents. The Company maintains most of the bank accounts in the PRC.
Restricted Cash
Restricted cash consists of cash deposited with the PRC bank and used as collateral to secure the Company’s note receivable payments.
Accounts Receivable, Net
Accounts
receivable are recognized and carried at original invoiced amount less an estimated allowance expected credit losses. ASU No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which
requires the measurement and recognition of expected credit losses to all financial assets held at amortized cost. CECL model requires
measurement of the expected credit loss even if that risk of loss is remote. The management believes that historical collection information
is a reasonable base on which to determine expected credit losses because the composition of the accounts receivables at the reporting
date is consistent with that used in developing the historical credit-loss percentages. That is, the similar risk characteristics of
the customers and its payment practices have not changed significantly over time. However, the foreseeable economic conditions will have
a significant impact on our collectability of the accounts receivable. The Management believes that the loan prime rate (LPR) is a useful
indicator to reflect the future cost of the credit and the trend of economic at the time of reporting. The Company combined treasury
bill rate and our historical loss rate to determine the rates of expected estimated credit losses. The accounts receivable sharing similar
risk characteristics be pooled when the CECL is calculated. The allowance for credit losses was approximately $
Inventories, Net
Inventories are stated at the lower of cost or net realizable value. Cost is determined on the weighted average basis. Work-in- progress inventories consist of raw materials, direct labor and overhead associated with the manufacturing process. Finished goods included inventory finished in the Company’s own warehouse and goods in transit, which has not met the criteria of revenue recognition. The Company periodically assesses the recoverability of all inventories to determine whether adjustments are required to record inventories at the lower of cost or net realizable value. Inventories that the Company determines to be obsolete or in excess of forecasted usage are reduced to its estimated realizable value based on assumptions about future demand and market conditions. A write down of potentially obsolete or slow-moving inventory is recorded based on management’s analysis of inventory levels.
Property, Plant and Equipment, Net
Property,
plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets with a
| Estimated Useful Life | ||
| Buildings | ||
| Ancillary facilities of buildings | ||
| Machinery equipment | ||
| Vehicles | ||
| Office equipment | ||
| Tools | ||
| Electronic devices |
The cost and related accumulated depreciation and amortization of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the unaudited condensed consolidated statements of operations and comprehensive income (loss). Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances indicate a change in estimates of useful lives.
7
Intangible Assets, Net
Intangible
assets are stated at cost, less accumulated amortization. Amortization expense is recognized on the straight-line basis over the estimated
useful lives of the assets. All land in the PRC is owned by the government; however, the government grants “land use rights.”
The Company has obtained rights to use various parcels of land for 46 to
Impairment for Long-Lived Assets
Long-lived
assets, including property, plant and equipment and intangible with finite lives are reviewed 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 value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted
future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows
expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying
value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value
based on a discounted cash flows approach or, when available and appropriate, to comparable market values. There was
Lease Commitments
The Company has adopted the new lease standard, ASC 842, Leases (Topic 842) for all periods presented. The Company elected the package of practical expedients permitted under the transition guidance within ASC Topic 842, which among other things, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. The Company elected not to record assets and liabilities on its consolidated balance sheets for any new or existing lease arrangements with lease terms of twelve months or less. The Company recognizes lease expenses for such leases on a straight-line basis over the lease term. In addition, the Company elected the land easement transition practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease. The Company elected the transition method which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The initial lease liability is equal to the future fixed minimum lease payments discounted using the Company’s incremental borrowing rate, on a secured basis. The lease term includes optional renewal periods and early termination payments when it is reasonably certain that the Company will exercise those rights. The initial measurement of the ROU asset is equal to the initial lease liability plus any initial direct costs and prepayments, less any lease incentives.
In cases of sale and leaseback transactions, if the transfer of the asset to the lessor does not qualify as a sale, then the transaction constitutes a failed sale and leaseback and is accounted for as a financing transaction. For a sale to have occurred, the control of the asset would need to be transferred to the lessor, and the lessor would need to obtain substantially all the benefits from the use of the asset. The Company has entered into a sale and leaseback transaction which qualified as failed sale and leaseback transaction as the Company has a purchase obligation to acquire the machinery at the end of the lease term. The asset has been included in the property, plant and equipment, and the amortization is computed based on the shorter of the financing terms or the estimated useful life.
Revenue Recognition
The Company has adopted the new revenue standard, ASC 606, Revenue from Contracts with Customers (Topic 606) for all periods presented. Under ASC 606, the Company recognizes revenue when a customer obtains control of promised goods, in an amount that reflects the consideration which the Company expects to receive in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. The Company applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to the customer. Revenue is recognized net of value-added tax.
8
The Company’s revenue is principally derived from sales of products in domestic and overseas markets. Revenue is recognized at the point in time when the performance obligation has been satisfied and control of the products have been transferred to the customers, which generally occurs upon shipment for overseas customers and acceptance for domestic customers based on the terms of the sales contracts.
Revenue is measured by the transaction price, which is defined as the amount of consideration the Company expects to receive in exchange for selling products to customers. The Company does not offer or agree on terms that result in variable consideration during the periods presented. Amounts billed and due from customers are short term in nature and are classified as receivables since payments are unconditional and only the passage of time is required before payments are due. The Company does not grant payment terms greater than one year. Additionally, the Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers.
The
Company does not have any contract assets. Contract liabilities are recorded when consideration is received from a customer prior to
transferring the control of goods to the customer or other conditions under the terms of a sales contract. As of June 30, 2025 and December
31, 2024, the Company recorded contract liabilities of $
The Company’s net revenue segregated by geographic regions is as follows:
| For the Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| PRC | $ | $ | ||||||
| Overseas | ||||||||
| Total | $ | $ | ||||||
Value Added Tax
Hongli
Shandong and its subsidiaries are subject to a VAT of
Cost of Revenues
Amounts recorded as cost of revenue relate to direct expenses incurred in order to generate revenue. Such costs are recorded as incurred. Cost of revenues consists of product costs, including costs of raw material, contract manufacturers for production, shipping and handling costs, manufacturing and tooling equipment depreciation.
Research and Development Expenses
Research
and development expenses consist primarily of salary and welfare for research and development personnel, consulting and contractor expenses,
testing and tooling materials and other expenses associated with research and development personnel. The Company recognizes research
and development expenses as expenses when incurred. Research and development expenses were $
9
Sales and Marketing Expenses
Sales
and marketing expenses consist primarily of salary and welfare for sales and marketing personnel, promotion and marketing expenses and
other expenses associated with sales and marketing personnel. The Company recognized $
Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with ASC 740 (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence; it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in the tax rate.
The Company accounted for uncertainties in income taxes in accordance with ASC 740. Interest and penalties related to unrecognized tax benefit recognized in accordance with ASC 740 are classified in the consolidated statements of operations and comprehensive income as income tax expense. No such expenses incurred during the six months ended June 30, 2025 and 2024.
Government Subsidy
Government
grants include cash subsidies as well as other subsidies received from various government agencies by the subsidiaries of the Company.
Such subsidies are generally provided as incentives from the local government to encourage the expansion of local business. The government
grant is recognized in the unaudited condensed consolidated statements of income and comprehensive income (loss) when the relevant performance
criteria specified in the grant are met, for instance, locating contact centers in their jurisdictions or helping local employment needs.
The government subsidy granted to the Company was $
Statutory Reserves
The Company’s PRC subsidiaries are required to make appropriations to certain non-distributable reserve funds.
In
accordance with China’s Company Laws, the Company’s PRC subsidiary that are Chinese companies, must make appropriations from
their after-tax profit (as determined under the Accounting Standards for Business Enterprises as promulgated by the Ministry of Finance
of the People’s Republic of China (“PRC GAAP”)) to non-distributable reserve funds including (i) statutory surplus
fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be at least
Pursuant
to the laws applicable to China’s Foreign Investment Enterprises, the Company’s subsidiaries that are foreign investment
enterprises in China have to make appropriations from their after-tax profit (as determined under PRC GAAP) to reserve funds including
(i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve
fund must be at least
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and all changes to the statements of shareholders’ equity, except those due to investments by shareholders, changes in paid-in capital and distributions to shareholders. For the Company, comprehensive income (loss) for the six months ended June 30, 2025 and 2024 consisted of net income (loss) and unrealized gain (loss) from foreign currency translation adjustment.
10
Segment Reporting
The Company follows the ‘management approach’ in determining its reportable operating segments, as prescribed by ASC 280. Under this approach, the Company’s chief operating decision maker (“CODM”)—identified as the Chief Executive Officer—uses internal financial information to make operating decisions and assess performance.
The CODM reviews revenue information analyzed by customer; however, this information is presented only at the revenue level, without allocation of associated costs or resources. As such, these customer-level views do not constitute separate operating segments under U.S. GAAP. Accordingly, the Company has determined that it operates as a single operating and reportable segment.
Recently Adopted Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures: This guidance is intended to enhance the transparency and decision usefulness of income tax disclosures through improvements to disclosures primarily related to the rate reconciliation and income taxes paid information. The new guidance is effective for public business entities for annual reporting periods beginning after December 15, 2024 on a prospective basis. Retrospective application is permitted. The Company adopted ASU 2023-09, effective January 1, 2025. The adoption of this standard had no material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires public entities to disclose significant segment expense categories and other information used by the Chief Operating Decision Maker (CODM) in assessing segment performance, even if the entity has only one reportable segment. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024 and for its interim periods beginning January 1, 2025. The Company adopted ASU 2023-07 on January 1, 2024. Adoption of the ASU did not affect the determination of the Company’s operating or reportable segments. However, it resulted in expanded disclosures regarding significant expense categories regularly reviewed by the CODM.
Recently Issued Accounting Pronouncements
The Company considers the applicability and impact of all ASUs. The ASUs not listed below were assessed and determined to be either not applicable or are expected to have a minimal impact on the Company’s consolidated financial position and/or results of operations. Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its unaudited condensed consolidated financial condition, results of operations, cash flows, or disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). ASU 2024-03, as amended by ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): clarifying the Effective Date, will require additional disclosures and disaggregation of certain costs and expenses presented on the face of the income statement. The new guidance is effective for public business entities for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this ASU may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the impact of adoption of this standard on its unaudited condensed consolidated financial statements.
The Company does not believe other recently issued but not yet effective accounting standards would have a material effect on its consolidated financial position, statements of operations and cash flows.
11
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accounts receivable, gross | $ | $ | ||||||
| Less: allowance for current expected credit loss | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Movement of allowance for current expected credit losses:
| June 30, 2025 | December 31, 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for credit losses | ||||||||
| Exchange rate effect | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
The
allowance for credit losses was approximately $
The following CECL rates were used to determine the allowance for current expected credit losses for the six months ended June 30, 2025.
| Age of accounts receivable | Current | 31-60 days | 61-90 days | 91-120 days | 121-180 days | 181-270 days | 271-360 days | Over 360 days | ||||||||||||||||||||||||
| Historical loss rate | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Adjustment | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| CECL rate | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
As
of June 30, 2025, accounts receivable of approximately $
On
May 29, 2025, the Company entered into two recourse factoring agreements with XCMG Group Commercial Factoring (Xuzhou) Co., Ltd. (also
known as XuGong Group Commercial Factoring), under which it received advances against trade receivables in the aggregate principal amount
of $
The following CECL rates were used to determine the allowance for current expected credit losses for the year ended December 31, 2024.
| Age of accounts receivable | Current | 31-60 days | 61-90 days | 91-120 days | 121-180 days | 181-270 days | 271-360 days | Over 360 days | ||||||||||||||||||||||||
| Historical loss rate | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Adjustment | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| CECL rate | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
As
of December 31, 2024, accounts receivable totaling $
12
NOTE 4 — NOTES RECEIVABLES
Notes receivable consisted of the following:
| June 30, | December 31, | |||||||
| Maturity Date | 2025 | 2024 | ||||||
| Within the first quarter of 2025 | $ | $ | ||||||
| Within the second quarter of 2025 | ||||||||
| Within the third quarter of 2025 | ||||||||
| Within the fourth quarter of 2025 | ||||||||
| Total | $ | $ | ||||||
Notes receivable consists of bank acceptance notes received from customers in connection with the sale of the Company’s products. These notes are issued by financial institutions and represent an unconditional obligation of the issuing bank to pay the full-face value at maturity. The notes are non-interest bearing and generally mature within six to twelve months from the date of issuance.
NOTE 5 — INVENTORIES, NET
Inventories are stated at the lower of cost or net realizable value. Cost is determined by using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Inventories consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Subtotal | ||||||||
| Reserve for obsolete inventory | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
The
Company evaluates inventories for excess and obsolescence on a regular basis, based on management’s assessment of product life
cycles, historical and forecasted demand, and market conditions. A write-down is recognized when the carrying amount of inventory exceeds
its estimated net realizable value. The Company established inventory valuation allowances of $
NOTE 6 — PREPAID EXPENSE AND OTHER CURRENT ASSETS
The prepaid expense and other current assets consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Prepaid operating cost | $ | $ | ||||||
| Prepaid service cost | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
13
NOTE 7 — PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Buildings | $ | $ | ||||||
| Machinery equipment and tools | ||||||||
| Electronic devices | ||||||||
| Office equipment | ||||||||
| Vehicles | ||||||||
| Construction in progress | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation
expenses for the six months ended June 30, 2025 and 2024 amounted to $
During
the six months ended June 30, 2025, the Company disposed of a vehicle and received cash proceeds of $
During
the six months ended June 30, 2024, the Company disposed of portions of its manufacturing buildings, resulting in cash proceeds of $
As of June 30, 2025 and December 31, 2024, certain properties and land use rights, which were recorded as intangible assets, were pledged as collaterals to secure the Company’s bank loans (see Note 10 and 15).
During the six months ended June 30, 2025 and 2024, the Company did not recognize any losses of impaired on its property, plant and equipment.
NOTE 8 — INTANGIBLE ASSETS, NET
Intangible assets consisted of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Land use rights | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense of intangible assets for the six months ended June 30, 2025 and 2024 amounted to $
As of June 30, 2025 and December 31, 2024, certain land use rights were pledged as collaterals to secure the Company’s bank loans (see Note 10).
During the six months ended June 30, 2025 and 2024, the Company did not recognize any impairment losses on its intangible assets.
14
Amortization of intangible assets attributable to future periods as of June 30, 2025 is as follows:
| Twelve months ended June 30, | Amortization Amount | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 9 – DEPOSIT FOR INVESTMENT IN JOINT VENTURE
On
March 10, 2025, WFOE entered into an Investment Framework Agreement (the “Agreement”) with Zhongke Hongyuan (Beijing) Holdings
Co., Ltd. (“Zhongke”). Pursuant to the Agreement, WFOE and Zhongke agreed to establish a joint venture entity named Jinan
Langchi Heavy Industry Co., Ltd. (“Langchi”). Zhongke will hold a
As of the reporting date, Zhongke had not made its capital contribution. Langchi have no reportable transactions during six months ended June 30, 2025. Langchi is in discussions with the relevant government agency regarding the land acquisition agreement. Negotiations have commenced but have not yet been formally concluded, and the agreement with the government remains under discussion. Both the land acquisition agreement and Zhongke’s capital contribution are expected to be finalized by the end of 2025. Accordingly, there have been no changes in the status of the deposit for investment in joint venture as of June 30, 2025.
NOTE 10 — LOANS
Loans represent amounts payable to various banks and financial institutions in accordance with the scheduled payment terms outlined in the respective loan agreements. These loans are secured by collateral or guarantees and are classified as either short-term or long-term based on their respective maturities. Certain loan balances that were classified as long-term at December 31, 2024, became payable within twelve months of the reporting date and were accordingly reclassified as short-term as of June 30, 2025. As a result, the Company had no long-term loans outstanding as of June 30, 2025.
Short-term loans
Short-term loans consisted of the following:
| Financial Institutions | Current Interest Rate | Maturity Date | June 30, 2025 | December 31, 2024 | ||||||||||||
| (1) | Rural Commercial Bank of Shandong | % | $ | $ | ||||||||||||
| (2) | Postal Savings Bank of China | % | ||||||||||||||
| (3) | Industrial and Commercial Bank of China | % | ||||||||||||||
| (4) | Bank of Beijing | % | ||||||||||||||
| (5) | Bank of Rizhao | % | ||||||||||||||
| Bank of Rizhao | % | |||||||||||||||
| (6) | Industrial Bank | % | ||||||||||||||
| (7) | Agricultural Bank of China | % | ||||||||||||||
| (8) | China Minsheng Bank | % | ||||||||||||||
| China Minsheng Bank | % | |||||||||||||||
| China Minsheng Bank | % | |||||||||||||||
| (9) | Weihai City Commercial Bank | % | ||||||||||||||
| (10) | XCMG Group Commercial Factoring (Xuzhou) Co., Ltd. | % | ||||||||||||||
| XCMG Group Commercial Factoring (Xuzhou) Co., Ltd. | % | |||||||||||||||
| (11) | Bank of Weifang | % | ||||||||||||||
| Bank of Weifang | % | |||||||||||||||
| (12) | Rural Commercial Bank of Shandong | % | ||||||||||||||
| (13) | Shenzhen Qianhai WeBank Co., Ltd. | % | ||||||||||||||
| Short-term loans | ||||||||||||||||
| Add: current portion of long-term loans | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
15
For the six months ended June 30, 2025 and the
year ended December 31, 2024, the Company entered into various credit line and loan agreements with the aforementioned banks and financial
institutions. The aggregate outstanding short-term borrowings, including the current portion of long-term loans, were approximately $
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
16
| (7) |
| (8) | On
August 30, 2024, the Company obtained a short-term loan of $ |
On
February 11, 2025, the Company obtained a loan of $
| (9) |
| (10) |
| (11) | On
April 23, 2023, the Company entered into a loan agreement with the Bank of Weifang for approximately $ |
On
May 10, 2023, the Company entered into a loan agreement with the Bank of Weifang for approximately $
17
| (12) |
| (13) |
Interest
expense pertaining to the above short-term loans for the six months ended June 30, 2025 and 2024 amounted to approximately $
Long-term loans
| Financial Institutions | Current Interest Rate | Maturity Date | June 30, 2025 | December 31, 2024 | ||||||||||||
| (1) | Bank of Weifang | % | ||||||||||||||
| (2) | Bank of Weifang | % | ||||||||||||||
| (3) | Rural Commercial Bank of Shandong | % | ||||||||||||||
| (4) | Shenzhen Qianhai WeBank Co., Ltd. | % | ||||||||||||||
| Long-term loans | ||||||||||||||||
| Less: current portion of long-term loans | ( | ) | ||||||||||||||
| Total | $ | $ | ||||||||||||||
| (1) |
| (2) |
18
| (3) |
| (4) |
Interest
expense pertaining to the above loan for the six months ended June 30, 2025 and 2024 amounted to approximately $
NOTE 11 — ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consisted of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Salary and welfare payable | $ | $ | ||||||
| VAT and other taxes payables | ||||||||
| Interest payable | ||||||||
| Deferred revenue | ||||||||
| Other accrued expenses | ||||||||
| Total | $ | $ | ||||||
NOTE 12 — LEASES
The
Company entered into several lease agreements to lease machinery to facilitate its manufacturing. The original lease terms range from
For
the years ended December 31, 2024, right-of-use assets of $
The Components of lease expenses were as follows:
| For the Six months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Finance Lease Cost: | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total finance lease cost | $ | $ | ||||||
19
NOTE 13 — INCOME TAXES
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
Hong Kong
Hongli
HK is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial
statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is
United States
The Company and its Subsidiaries have no presence in the United States and does not conduct business in the United States, accordingly no United States Income Tax should be imposed upon the Company and its Subsidiaries.
PRC
Income Tax
On
March 16, 2007, the National People’s Congress of the PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which
Foreign Investment Enterprises (“FIEs”) and domestic companies would be subject to EIT at a uniform rate of
The
Company’s operating subsidiaries are all incorporated in the PRC and are subject to PRC income tax, which is computed according
to the relevant laws and regulations in the PRC. Under the Corporate Income Tax Law of PRC, the current corporate income tax rate of
Hongli
Shandong obtained its High and New Technology Enterprises (“HNTE”) certificate with a valid period of three years in 2017.
Therefore, Hongli Shandong is eligible to enjoy a preferential tax rate of
The current and deferred portions of income tax expense included in the unaudited condensed consolidated statements of operations and comprehensive income (loss) were as follows:
| For the Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Current tax provision | $ | $ | ||||||
| Deferred tax provision (benefit) | ( | ) | ||||||
| Income tax expense | $ | $ | ||||||
20
The following table reconciles the statutory rates to the Company’s effective tax rate in the PRC:
| For the Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| PRC statutory income tax rate | % | % | ||||||
| Effect of income tax exemptions and reliefs | ( | )% | ( | )% | ||||
| Effect of additional deduction allowed for tax purposes | ( | )% | ( | )% | ||||
| Effective tax rate | % | ( | )% | |||||
The tax effects of temporary differences that give rise to the deferred assets were as follows:
| June 30, 2025 | December 31, 2024 | |||||||
| Deferred Tax Assets | ||||||||
| Depreciation and amortization | $ | $ | ||||||
| Allowance for CECL | ||||||||
| Inventory reserve | ||||||||
| Loss carried forward | ||||||||
| Valuation allowance | ( | ) | ||||||
| Deferred tax assets | $ | $ | ||||||
Aggregate undistributed earnings of the Company’s subsidiary, VIE and VIE’s subsidiaries located in the PRC that are available for distribution at June 30, 2025 and December 31, 2024 are considered to be indefinitely reinvested and accordingly, no provision has been made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to any entity within the Company that is outside of the PRC.
The Company does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future. It intends to retain most of its available funds and any future earnings for use in the operation and expansion of its business. As of June 30, 2025 and December 31, 2024, the Company has not declared any dividends.
As of June 30, 2025 and 2024, the Company had no significant uncertain tax positions that qualify for either recognition or disclosure in the financial statements. As of June 30, 2025, income tax returns for the tax years ended December 31, 2020 through December 31, 2024 remain open for statutory examination by PRC tax authorities.
The uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. Based on the outcome of any future examinations, or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits for tax positions taken regarding previously filed tax returns, might materially change from those recorded as liabilities for uncertain tax positions in the Company’s unaudited condensed consolidated financial statements as of June 30, 2025 and December 31, 2024. In addition, the outcome of these examinations may impact on the valuation of certain deferred tax assets (such as net operating losses) in future periods. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits, if any, as a component of income tax expense. The Company does not anticipate any significant increases or decreases to its liability for unrecognized tax benefit within the next twelve months.
According
to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of income taxes is due
to computational errors made by the taxpayer. The statute of limitations will be extended to five years under special circumstances,
which are not clearly defined, but an underpayment of income tax liability exceeding $
21
Accounting for Uncertainty in Income Taxes
The tax authority of the PRC Government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises have completed their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subject to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’ tax filings, which may lead to additional tax liabilities.
ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The Company’s management has evaluated the Company’s tax positions and concluded that provision for uncertainty in income taxes was not necessary as of June 30, 2025 and December 31, 2024.
NOTE 14 — CONCENTRATIONS
Customer concentration risk
For
the six months ended June 30, 2025 and 2024, revenue from the Company’s top three customers accounted for
Vendor concentration risk
For
the six months ended June 30, 2025 and 2024, purchases from the Company’s largest supplier accounted for
Exchange Rate Risks
The
Company’s PRC subsidiaries may be exposed to significant foreign currency risks from fluctuations and the degree of volatility
of foreign exchange rates between the U.S. Dollar and the RMB. As of June 30, 2025 and December 31, 2024, the RMB denominated cash and
cash equivalents amounted to $
Concentration of Credit Risks
The Company’s operations are conducted in the People’s Republic of China (“PRC”). As such, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environment in the PRC, as well as by the overall state of the PRC economy. The Company’s operations are subject to specific considerations and significant risks not typically associated with companies operating in North America. These risks include changes in governmental policies regarding laws and regulations, anti-inflationary measures, currency conversion and remittance restrictions, and tax rates and methods, among other factors. Such changes could have a material adverse effect on the Company’s results of operations and financial condition.
Financial
instruments that potentially subject the Company to concentrations of credit risk include cash and accounts receivable arising from its
normal business activities. The Company places its cash with financial institutions it believes to be creditworthy. All cash is maintained
with state-owned banks in the PRC. Under PRC regulations, the maximum insured amount per financial institution per entity is approximately
$
The Company routinely evaluates the financial condition of its customers and establishes an allowance for doubtful accounts based on expected credit losses and other relevant risk factors. As a result, the Company believes its exposure to credit risk on accounts receivable, beyond the recorded allowance, is not significant.
22
NOTE 15 — RELATED PARTY
The related parties had transactions for the years ended June 30, 2025 and December 31, 2024 consist of the following:
| Name of the related parties | Nature of the relationship | |
Amount due from (due to) related parties:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Jie Liu | $ | ( | ) | $ | ( | ) | ||
| Xiangmei Zeng | ( | ) | ||||||
| Jian Liu | ( | ) | ||||||
| Hongyu Hao | ( | ) | ||||||
| Yongqing Dong | ( | ) | ( | ) | ||||
| Due from (due to) related parties, net | $ | ( | ) | $ | ( | ) | ||
As of June 30, 2025, the Company had short-term
loans owed to a related party totaling $
On February 21, 2025, the Company entered into
a loan arrangement with its CEO, pursuant to which the Company received proceeds of $
In April 2025, the Company purchased a vehicle
for $
As of June 30, 2025, the outstanding balance
of this loan due to the CEO was $
Balances of loans owed to a related party primarily
represent monetary advances and repayments made in the normal course of business. The total loans advanced from and repaid to related
parties for the six months ended June 30, 2025 and 2024, were $
23
NOTE 16 — SHAREHOLDERS’ EQUITY
The shareholders’ equity structures as of June 30, 2025 and December 31, 2024 were presented after giving retroactive effect to the reorganization of the Company that was completed on April 12, 2021. Immediately before and after the reorganization, the shareholders of Hongli Shandong controlled Hongli Group or the Company. Therefore, for accounting purposes, the reorganization is accounted for as a transaction of entities under common control.
Ordinary shares
On
February 9, 2021, Hongli Cayman was incorporated in the Cayman Islands. Hongli Cayman issued
On
March 28, 2022, the Company’s shareholders approved an issuance of
On
September 13, 2022, the current existing shareholders of the Company surrendered
Initial Public Offering
On
March 31, 2023, the Company closed its Offering of
Share Based Compensation
On
May 7, 2024, the Company issued
24
Private Placement
On
November 13, 2024, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain
non-U.S. investors (the “Purchasers”) for a private placement offering, pursuant to which the Company agreed to sell and
issue
NOTE 17 — SURPLUS RESERVE
The
surplus reserves in the consolidated balance sheets mainly include the Company’s statutory reserve. In accordance with the relevant
laws and regulations of the PRC, the Company is required to set aside at least
NOTE 18 — COMMITMENT AND CONTINGENCIES
Yingxuan Acquisition
In
November 2020, Hongli Shandong signed a letter of intent with Yingxuan Heavy Industry Co., Ltd. (“Yingxuan”) regarding a
planned purchase of all of Yingxuan’s assets located in an industrial area, including its use rights of three parcels of industrial
land, buildings, facilities and infrastructure (collectively, the “Yingxuan Assets”) for a total consideration of approximately
$
Following
the signing of the letter of intent, in January 2021, Hongli Shandong signed asset transfer agreements with Yingxuan regarding the acquisition
of the Yingxuan Assets. Pursuant to the asset transfer agreements, Hongli Shandong agreed to pay for the acquisition price in installments
for approximately $
On
May 5, 2023, Hongli Shandong entered into a supplementary agreement with Yingxuan. Based on the mutual agreement between the Hongli Shandong
and Yingxuan, the annual interest of
25
The
Company made a payment of approximately $
On May 10, 2025, the Company entered into a supplementary agreement stipulating that payment for the acquisition of land would not be made until the Company receives the land use right certificate.
Following are summary of transactions as of June 30, 2025:
| RMB | US$ | |||||||
| Total consideration for purchase of Yingxuan Assets | ¥ | $ | ||||||
| Total amount paid | ||||||||
| Balance due | ¥ | $ | ||||||
| Assets title transferred to the Company | ¥ | $ | ||||||
| Title to be transferred to the Company | ¥ | $ | ||||||
| Prepayment for purchase of Yingxuan Assets | ¥ | $ | ||||||
As
of June 30, 2025, the Company had made cumulative payments of approximately $
Management is actively working with Yingxuan and relevant government authorities to facilitate the completion of the legal title transfer. The Company expects the transfer to be finalized, but the timing may be impacted by legal or administrative delays. The Company continues to monitor developments and evaluate any potential financial or operational impact.
On
July 22, 2025, the Company made an additional payment of approximately $
Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not currently a party to any legal proceedings that in the opinion of the management, if determined adversely to us, would have a material adverse effect on our business, financial condition, operating results or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
NOTE 19 – SEGMENT REPORTING
Operating segments as defined in ASC 280, “Segment Reporting”, are components of public entities that engage in business activities from which they may earn revenues and incur expenses for which separate financial information is available and which is evaluated regularly by the Company’s chief operating decision maker in deciding how to assess performance and allocate resources.
The measures of segment profit or loss and total
assets used by the chief operating decision maker to assess performance for the
26
For the six months ended June 30, 2025 and 2024,
approximately
| Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenues from domestic sales | $ | $ | ||||||
| Revenues from export | ||||||||
| Segment revenues, net | ||||||||
| Operating expenses: | ||||||||
| Cost of goods sold | ||||||||
| Selling expenses | ||||||||
| Professional services | ||||||||
| Research and development | ||||||||
| Other operating expenses | ||||||||
| Total operating expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Other income | ||||||||
| Interest and financing expenses, net | ( | ) | ( | ) | ||||
| Other expenses | ( | ) | ( | ) | ||||
| Total other expenses | ( | ) | ( | ) | ||||
| Income (loss) before income taxes | ( | ) | ||||||
| Income tax expense | ||||||||
| Segment net income (loss) | $ | $ | ( | ) | ||||
NOTE 20 — SUBSEQUENT EVENTS
On
August 25, 2025, the Company repaid a short-term loan of $
On
August 27, 2025, the Company repaid a short-term loan of $
On
September 3, 2025, the Company obtained a new short-term loan of $
The
loan bears interest at an annual rate of
On September 23, the Company fully repaid a short-term
loan of $
On September 29, 2025, the Company obtained a
new short-term loan of $
27
The
Company made monthly payments of $
On
July 22, 2025, the Company made a payment of approximately $
On September 27, 2025, the Company repaid $
On
July 10, 2025, the Company received a deficiency letter (the “Notice”) from the Nasdaq Listing Qualifications Department
(the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”). The Notice informed the Company that, based upon the
closing bid price of the Company’s ordinary shares (“Ordinary Shares”) over the 30 consecutive business day period
between May 27, 2025 and July 9, 2025, the Company is not in compliance with the requirement to maintain a minimum bid price of $
The Notice has no immediate effect on the continued listing status of the Ordinary Shares on The Nasdaq Capital Market. The Company has been provided a compliance period of 180 calendar days from the date of the Notice, or until January 6, 2026, to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before January 6, 2026, the closing bid price of the Ordinary Shares reaches or exceeds $1.00 per share for a minimum of 10 consecutive business days, the Staff will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement, and the matter would be resolved. If the Company chooses to implement a reverse stock split, it must complete the split no later than ten business days prior to January 6, 2026, in order to regain compliance.
If the Company does not regain compliance with the Minimum Bid Price Requirement during the initial 180 calendar day period, the Company may be eligible for additional time for compliance. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If the Company meets these requirements, Nasdaq will inform the Company that it has been granted an additional 180 calendar days. However, if it appears to Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that its securities will be subject to delisting.
The Company intends to actively monitor the closing bid price of the Ordinary Shares and will evaluate available options to regain compliance with the Minimum Bid Price Requirement. However, there can be no assurance that the Company will regain compliance during the initial 180-day compliance period, secure a second compliance period or maintain compliance with the other Nasdaq Listing Rules.
28
Exhibit 99.3
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
This Report on Form 6-K furnished by Hongli Group Inc. (together with our subsidiaries, unless the context indicates otherwise, “we,” “us,” “our,” or the “Company”), contains forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or the Company’s future financial performance. The Company has attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions, uncertainties and other factors may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. The information in this Report on Form 6-K is not intended to project future performance of the Company. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company does not guarantee future results, levels of activity, performance or achievements. The Company’s expectations are as of the date this Form 6-K is furnished, and the Company does not intend to update any of the forward-looking statements after the date this Report on Form 6-K is furnished to confirm these statements to actual results, unless required by law.
Overview
Hongli Group Inc. (“Hongli Cayman” or the “Company”) is an offshore holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, we consolidate the financial results of Shandong Hongli Special Section Tube Co., Ltd., (“Hongli Shandong”) which is a variable interest entity (the “VIE”), and its subsidiaries (together with the VIE, collectively, “the PRC operating entities”), through the contractual arrangements (the “Contractual Arrangements”). Neither Hongli Cayman nor its subsidiaries own any equity interests in the PRC operating entities.
The PRC operating entities are one of the leading cold roll formed steel profile manufacturers in China with respect to functional innovation, performance improvement, and customized manufacturing of their products, according to China Sub-Association for Cold Formed Steel Industries, a professional industrial association. The PRC operating entities’ main business operation focuses on the design, production, deep processing, and sales of custom-made profile for machinery and equipment in a variety of sectors including but not limited in mining and excavation, construction, agriculture, and transportation industries.
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management and financial resources and other factors.
On July 10, 2025, the Company received a deficiency letter (the “Notice”) from the Nasdaq Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”). The Notice informed the Company that, based upon the closing bid price of the Company’s ordinary shares (“Ordinary Shares”) over the 30 consecutive business day period between May 27, 2025 and July 9, 2025, the Company is not in compliance with the requirement to maintain a minimum bid price of $1.00 per share of its Ordinary Shares for continued listing on The Nasdaq Capital Market.
The Notice has no immediate effect on the continued listing status of the Ordinary Shares on The Nasdaq Capital Market. The Company has been provided a compliance period of 180 calendar days from the date of the Notice, or until January 6, 2026, to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before January 6, 2026, the closing bid price of the Ordinary Shares reaches or exceeds $1.00 per share for a minimum of 10 consecutive business days, the Staff will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement, and the matter would be resolved. If the Company chooses to implement a reverse stock split, it must complete the split no later than ten business days prior to January 6, 2026, in order to regain compliance.
If the Company does not regain compliance with the Minimum Bid Price Requirement during the initial 180 calendar day period, the Company may be eligible for additional time for compliance. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If the Company meets these requirements, Nasdaq will inform the Company that it has been granted an additional 180 calendar days. However, if it appears to Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that its securities will be subject to delisting.
The Company intends to actively monitor the closing bid price of the Ordinary Shares and will evaluate available options to regain compliance with the Minimum Bid Price Requirement. However, there can be no assurance that the Company will regain compliance during the initial 180-day compliance period, secure a second compliance period or maintain compliance with the other Nasdaq Listing Rules.
Results of Operations
The following table summarizes the results of our operations for the six months ended June 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| Results of Operations | Six Months Ended June 30, | Changes | Changes | |||||||||||||
| 2025 | 2024 | in $ | in % | |||||||||||||
| Revenues, net | $ | 9,587,978 | $ | 6,962,241 | $ | 2,625,737 | 37.7 | % | ||||||||
| Cost of revenues | 6,298,249 | 4,659,769 | 1,638,480 | 35.2 | % | |||||||||||
| Gross profit | 3,289,729 | 2,302,472 | 987,257 | 42.9 | % | |||||||||||
| Gross margin rate | 34.3 | % | 33.1 | % | 1.2 | % | 3.7 | % | ||||||||
| Total operating expenses | 2,005,687 | 3,996,714 | (1,991,027 | ) | -49.8 | % | ||||||||||
| Income (loss) from operations | 1,284,042 | (1,694,242 | ) | 2,978,284 | -175.8 | % | ||||||||||
| Total other income (expenses) | (125,109 | ) | (196,584 | ) | 71,475 | -36.4 | % | |||||||||
| Income (loss) before income taxes | 1,158,933 | (1,890,826 | ) | 3,049,759 | -161.3 | % | ||||||||||
| Income tax expense | 168,884 | 11,522 | 157,362 | 1365.8 | % | |||||||||||
| Net income (loss) | $ | 990,049 | $ | (1,902,348 | ) | $ | 2,892,397 | -152.0 | % | |||||||
Revenues, net
We derive revenues from sales of products in the domestic and overseas markets. The following table presents our revenues by geographical regions.
| Six Months Ended June 30, | Changes | Changes | ||||||||||||||
| 2025 | 2024 | in $ | in % | |||||||||||||
| Revenues from domestic sales | $ | 8,099,186 | $ | 6,026,009 | $ | 2,073,177 | 34.4 | % | ||||||||
| Revenue from export business | 1,488,792 | 936,232 | 552,560 | 59.0 | % | |||||||||||
| Revenues, net | $ | 9,587,978 | $ | 6,962,241 | $ | 2,625,737 | 37.7 | % | ||||||||
Demand in the construction machinery market increased in 2025. To meet customer needs, major clients introduced customized new products and expanded supply, which drove varying degrees of sales order growth among the top ten clients. As a result, our total revenue increased by approximately $2.63 million, or 37.7%, to $9.59 million for the six months ended June 30, 2025, compared to $6.96 million for the six months ended June 30, 2024. Domestic revenue rose by $2.07 million, or 34.4%, to $8.10 million, compared to $6.03 million in the same period of 2024, while export revenue grew by $0.55 million, or 59.0%, to $1.49 million, compared to $0.94 million in the same period of 2024.
Cost of revenues
Our cost of revenues primarily consists of expenses related to manufacturing our products, including raw materials, direct labor, and depreciation of production machinery and equipment. For the six months ended June 30, 2025, cost of revenues was $6.30 million, an increase of $1.64 million, or 35.2%, compared to $4.66 million for the six months ended June 30, 2024. The increase was generally consistent with the growth in revenue.
2
Gross profit
Our gross profit increased by approximately $0.99 million, or 42.9%, to $3.29 million for the six months ended June 30, 2025, compared to $2.30 million for the six months ended June 30, 2024. During this period, our gross margin improved to 34.3%, up 1.2 percentage points from 33.1% in the corresponding period of 2024. This improvement was primarily driven by higher sales, enhanced management of raw material procurement costs, and better control of labor costs, which collectively contributed to the increase in gross profit.
Selling, general and administrative (“SG&A”) expenses
SG&A expenses primarily consisted of sales and marketing expenses, general and administrative expenses and research and development expenses.
| Six Months Ended June 30, | Changes | Changes | ||||||||||||||
| 2025 | 2024 | in $ | in % | |||||||||||||
| Sales and marketing expenses | $ | 303,949 | $ | 258,856 | $ | 45,093 | 17.4 | % | ||||||||
| General and administrative expenses | 1,219,269 | 1,335,171 | (115,902 | ) | -8.7 | % | ||||||||||
| Research and development (“R&D”) expenses | 482,469 | 434,687 | 47,782 | 11.0 | % | |||||||||||
| Share-based compensation | - | 1,968,000 | (1,968,000 | ) | -100.0 | % | ||||||||||
| Total SG&A | $ | 2,005,687 | $ | 3,996,714 | $ | (1,991,027 | ) | -49.8 | % | |||||||
Selling, general and administrative (“SG&A”) expenses decreased by approximately $1.99 million, or 49.8%, to $2.01 million for the six months ended June 30, 2025, compared to $4.00 million for the six months ended June 30, 2024. The decrease was primarily attributable to a $1.97 million share-based compensation expense recognized in 2024. On May 6, 2024, the Company issued 1,200,000 ordinary shares to three members of management for services rendered during that period. The shares were valued at $1.64 per share, based on the closing market price on the grant date.
Sales and marketing expenses
Our sales and marketing expenses primarily consist of salaries and related employee benefits for sales and marketing personnel, as well as costs associated with shipping and handling, port and customs clearance, storage, promotion, and other sales-related activities. For the six months ended June 30, 2025, sales and marketing expenses increased by approximately $0.04 million, or 17.4%, to $0.30 million, compared to $0.26 million for the six months ended June 30, 2024. The increase was mainly attributable to higher freight, storage, and transportation costs.
General and administrative expenses
Our general and administrative expenses primarily consist of salaries and related employee benefits, repair and maintenance costs, professional service fees, depreciation and amortization, travel and entertainment expenses, office supplies, and other related expenditures. For the six months ended June 30, 2025, general and administrative expenses were approximately $1.22 million, a decrease of $0.12 million, or 8.7%, compared to $1.34 million for the six months ended June 30, 2024. The decrease was primarily attributable to lower consulting expenses of $67,023, a reduction in the allowance for current expected credit losses (“CECL”) of $43,634, and lower repair and maintenance expenses of $32,174, partially offset by other fluctuations.
Research and development (“R&D”) expenses
Substantially all research and development (“R&D”) costs reflect the Company’s investment in product development activities. For the six months ended June 30, 2025, R&D expenses were approximately $0.48 million, an increase of $0.05 million, or 11.0%, compared to $0.43 million for the six months ended June 30, 2024. The increase was primarily attributable to higher production output.
3
Other income (expenses)
| Six Months Ended June 30, | Changes | Changes | ||||||||||||||
| 2025 | 2024 | in $ | in % | |||||||||||||
| Other income | $ | 86,459 | $ | 127,373 | $ | (40,914 | ) | -32.1 | % | |||||||
| Interest and financing expenses, net | (198,778 | ) | (216,131 | ) | 17,353 | -8.0 | % | |||||||||
| Other expenses | (12,790 | ) | (107,826 | ) | 95,036 | -88.1 | % | |||||||||
| Total other income (expenses) | $ | (125,109 | ) | $ | (196,584 | ) | $ | 71,475 | -36.4 | % | ||||||
Other income primarily consists of income from the sale of scrapped materials, government subsidies, foreign currency transaction gains (losses), gains (losses) on the disposal of assets, and other miscellaneous items. For the six months ended June 30, 2025, other income was $86,459, compared to $127,373 in the same period of 2024, representing a decrease of $40,914, or 32.1%. The 2025 balance included other income of $89,402, VAT exemption of $1,966, and a foreign currency transaction loss of $4,909. The year-over-year decrease was primarily attributable to a $91,925 reduction in government subsidy, partially offset by other fluctuations.
Interest and financial expenses, net primarily consist of interest incurred on loans, finance leases, and financial liabilities, as well as interest expenses related to discounting notes receivable prior to maturity, net of interest income and other financing expenses. For the six months ended June 30, 2025, financial expenses decreased by $17,353, or 8.0%, to $198,778, compared to $216,131 for the six months ended June 30, 2024. The 2025 balance included interest income of $565, interest expense of $196,083, and financing expenses of $3,260. The decrease was mainly attributable to a $28,203 reduction in interest expense, partially offset by other fluctuations. The reduction in interest expense was primarily due to lower interest rates in China and the refinancing of certain loans at more favorable terms. The weighted average interest rate for short-term loans was 3.89% for the six months ended June 30, 2025, compared to 4.24% in the same period of 2024.
Other expenses primarily consist of non-operating expenses and gains (losses) on the disposal of assets. For the six months ended June 30, 2025, net other expenses were $12,790, representing a decrease of $95,036, or 88.1%, compared to $107,826 in the same period of 2024. The reduction was primarily attributable to a $105,668 loss on the disposal of outdated equipment recognized in 2024, partially offset by other fluctuations.
Income (loss) before income taxes
Our net income before income taxes was approximately $1.16 million for the six months ended June 30, 2025, compared to a net loss of $1.89 million in the same period of 2024, representing an improvement of $3.05 million. The increase was primarily attributable to higher revenues, as discussed above.
Income tax expense
Our income tax expense was $168,884 for the six months ended June 30, 2025, compared to $11,522 for the same period of 2024, an increase of $157,362. The increase was primarily attributable to higher revenues, as discussed above.
Net Income (Loss)
As a result of the factors discussed above, our net income for the six months ended June 30, 2025, was approximately $0.99 million, compared to a net loss of approximately $1.90 million for the same period of 2024, representing an improvement of approximately $2.89 million. Basic and diluted earnings per share were $0.01 for the six months ended June 30, 2025, compared to a basic and diluted loss per share of $0.15 for the six months ended June 30, 2024.
4
Foreign Currency Translation
The Company’s principal country of operations is the PRC. The financial position and results of its operations are determined using RMB, the local currency, as the functional currency. The unaudited condensed consolidated financial statements are reported using U.S. Dollars. The results of operations and the statement of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows may not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated balance sheets and statements of changes in shareholders’ equity. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates with any transaction gain and or losses are included in the results of operations as incurred. Gain (loss) from foreign currency transactions recognized and included in the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the six months ended June 30, 2025 and 2024 amounted to ($4,909), and $7,524, respectively.
The value of RMB against U.S. Dollar may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s consolidated financial condition in terms of reporting. The following table outlines the currency exchange rates that were used in the unaudited condensed consolidated financial statements:
| June 30, | June 30, | December 31, | ||||||||||
| 1 US$ = RMB | 2025 | 2024 | 2024 | |||||||||
| Spot rate | 7.1636 | 7.2672 | 7.2993 | |||||||||
| Average rate | 7.2520 | 7.2151 | 7.1957 | |||||||||
Liquidity and Capital Resources
Our principal sources of liquidity have been cash and cash equivalents generated from our operations, external financing, advances from related parties and the recent initial public offering closed on March 31, 2023. As of June 30, 2025, our liquidity position remains strong, supported by a combination of cash on hand, cash and cash equivalents, and available credit facilities. We continue to manage our liquidity to meet both our short-term and long-term obligations while maintaining sufficient flexibility to take advantage of growth opportunities.
As of June 30, 2025, and December 31, 2024, the Company had cash, cash equivalents, and restricted cash totaling approximately $924,884 and $924,786, respectively. Total bank debt was approximately $9.4 million as of both June 30, 2025, and December 31, 2024. In addition, as of June 30, 2025, the Company had outstanding loans owed to a related party of approximately $0.5 million.
Our working capital as of June 30, 2025, was approximately $1.8 million, a decrease of $1.9 million, or 52%, compared to approximately $3.7 million as of December 31, 2024. The decrease was primarily due to the reclassification of a $3.3 million loan that was classified as long-term at year-end 2024 but became payable within twelve months of the reporting date and was therefore reclassified as a short-term loan as of June 30, 2025. Management expects to renew these long-term loans upon maturity.
We expect cash and cash equivalents from our operations to continue to be our primary sources of liquidity, with our credit facilities serving as a supplement. We believe that our current cash, cash equivalents, and cash and cash equivalents to be generated from our operations and our ability to access the capital markets will be sufficient to meet our working capital needs for at least the next twelve months. While we anticipate meeting all foreseeable financial obligations, including debt service requirements and planned capital expenditures, we will continue to monitor market conditions closely. In the event of a significant economic downturn or unexpected cash outflows, we are confident in our ability to access additional liquidity through our existing facilities or the capital markets.
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Cash Flow Summary
The following table summarizes our cash flows for the six months ended June 30, 2025, and 2024.
| Six Months Ended June 30, | Changes | Changes | ||||||||||||||
| 2025 | 2024 | in $ | in % | |||||||||||||
| Net cash used in operating activities | $ | (276,206 | ) | $ | (1,218,353 | ) | $ | 942,147 | -77.3 | % | ||||||
| Net cash used in investing activities | (58,825 | ) | (383,749 | ) | 324,924 | -84.7 | % | |||||||||
| Net cash provided by financing activities | 317,944 | 1,736,444 | (1,418,500 | ) | -81.7 | % | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 17,185 | (19,592 | ) | 36,777 | -187.7 | % | ||||||||||
| Net change in cash, cash equivalents and restricted cash | 98 | 114,750 | (114,652 | ) | -99.9 | % | ||||||||||
| Cash, cash equivalents and restricted cash, beginning of the period | 924,786 | 815,669 | 109,117 | 13.4 | % | |||||||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | 924,884 | $ | 930,419 | $ | (5,535 | ) | -0.6 | % | |||||||
Operating Activities
Net cash used in operating activities was approximately $0.27 million for the six months ended June 30, 2025. This amount reflects net income of approximately $0.99 million, adjusted for non-cash items of approximately $0.44 million, and net negative changes in operating assets and liabilities of approximately $1.7 million. The negative changes were mainly attributable to an increase in accounts receivable of approximately $3.10 million, an increase in notes receivable of approximately $0.31 million, a decrease in accrued expenses and other payables of approximately $0.12 million, and a decrease in deferred revenue of approximately $0.05 million. These factors were partially offset by a reduction in inventories of approximately $0.84 million, a reduction in prepaid expenses and other current assets of approximately $0.60 million, a net increase in due to related parties of approximately $0.06 million, an increase in accounts payable of approximately $0.25 million, and an increase in income tax payable of approximately $0.13 million.
Net cash used in operating activities was approximately $1.2 million for the six months ended June 30, 2024. This includes a net loss of approximately $1.9 million, adjusted for non-cash items of approximately $2.6 million, and net negative changes in operating assets and liabilities of approximately $1.9 million. The negative changes in operating assets and liabilities mainly included an increase in notes receivable of $1.7 million, an increase in accounts receivable of $0.6 million, an increase in inventory of $0.02 million, a $0.03 million primarily decrease in due from related parties, and a $0.1 million decrease in accounts payable, accrued expenses, and income tax payable. These negative changes were partially offset by positive changes of $0.5 million, mainly including a decrease in prepaid expenses.
Investing Activities
Net cash used in investing activities was approximately $0.06 million for the six months ended June 30, 2025, primarily reflecting payments of approximately $0.10 million for the acquisition of property and equipment, partially offset by proceeds of approximately $0.04 million from the sale of a vehicle.
Net cash used in investing activities was approximately $0.4 million for the six months ended June 30, 2024, which was the result of payments made for the acquisition of property and equipment totaling approximately $0.1 million and prepayments of approximately $0.3 million for the purchase of Yingxuan Assets.
Financing Activities
Net cash provided by financing activities was approximately $0.32 million for the six months ended June 30, 2025. This primarily reflected total borrowings of approximately $2.21 million from short-term loans, partially offset by repayments of approximately $2.37 million on short-term borrowings. In addition, the Company received advances from a related party of approximately $1.06 million and repaid approximately $0.58 million during the period.
Net cash provided by financing activities was approximately $1.7 million for the six months ended June 30, 2024. This was to the result of a total borrowings of approximately $2.8 million from short-term loans and $0.4 million from long-term loans. These inflows were partially offset by repayments of short-term and long term loans totaling approximately $1.7 million and payments of approximately $0.1 million for financing liabilities and finance lease liabilities. Additionally, the Company received approximately $1.4 million advances from related parties and repaid approximately $1.0 million during the six months ended June 30, 2024.
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Loans, Guarantees and Pledges
Loans represent amounts payable to various banks and financial institutions in accordance with the scheduled payment terms outlined in the respective loan agreements. These loans are secured by collateral or guarantees and are classified as either short-term or long-term based on their respective maturities. Certain loan balances that were classified as long-term at December 31, 2024, became payable within twelve months of the reporting date and were accordingly reclassified as short-term as of June 30, 2025. As a result, the Company had no long-term loans outstanding as of June 30, 2025.
Short-term loans consisted of the following:
| Financial Institutions | Current Interest Rate | Maturity Date | June 30, 2025 | December 31, 2024 | ||||||||||||
| (1) | Rural Commercial Bank of Shandong | 4.35 | % | November 26, 2025 | $ | 697,973 | $ | 684,997 | ||||||||
| (2) | Postal Savings Bank of China | 5.00 | % | November 29, 2024 | - | - | ||||||||||
| (3) | Industrial and Commercial Bank of China | 4.35 | % | March 8, 2024 | - | - | ||||||||||
| (4) | Bank of Beijing | 3.10 | % | December 25, 2025 | 977,162 | 958,996 | ||||||||||
| (5) | Bank of Rizhao | 3.70 | % | April 10, 2025 | - | 1,095,996 | ||||||||||
| Bank of Rizhao | 3.50 | % | April 10, 2026 | 697,973 | - | |||||||||||
| (6) | Industrial Bank | 4.35 | % | August 13, 2024 | - | - | ||||||||||
| (7) | Agricultural Bank of China | 3.90 | % | September 28, 2025 | 1,340,108 | 1,315,195 | ||||||||||
| (8) | China Minsheng Bank | 4.00 | % | August 30, 2025 | 697,973 | 684,997 | ||||||||||
| China Minsheng Bank | 3.30 | % | June 30, 2026 | 418,784 | - | |||||||||||
| China Minsheng Bank | 3.30 | % | February 11, 2026 | 279,189 | - | |||||||||||
| (9) | Weihai City Commercial Bank | 3.75 | % | February 25, 2025 | - | 1,095,996 | ||||||||||
| (10) | XCMG Group Commercial Factoring (Xuzhou) Co., Ltd. | 3.50 | % | November 25, 2025 | 139,595 | - | ||||||||||
| XCMG Group Commercial Factoring (Xuzhou) Co., Ltd. | 3.50 | % | November 25, 2025 | 697,973 | - | |||||||||||
| (11) | Bank of Weifang | 4.00 | % | April 22, 2026 | 97,716 | - | ||||||||||
| Bank of Weifang | 4.00 | % | April 22, 2026 | 1,245,184 | - | |||||||||||
| (12) | Rural Commercial Bank of Shandong | 4.10 | % | April 27, 2026 | 1,947,345 | - | ||||||||||
| (13) | Shenzhen Qianhai WeBank Co., Ltd. | 6.29 | % | February 1, 2026 | 159,538 | - | ||||||||||
| Short-term loans | 9,396,513 | 5,836,177 | ||||||||||||||
| Add: current portion of long-term loans | - | 243,075 | ||||||||||||||
| Total | $ | 9,396,513 | $ | 6,079,252 | ||||||||||||
For the six months ended June 30, 2025 and the year ended December 31, 2024, the Company entered into various credit line and loan agreements with the aforementioned banks and financial institutions. The aggregate outstanding short-term borrowings, including the current portion of long-term loans, were approximately $9.4 million and $6.1 million as of June 30, 2025 and December 31, 2024, respectively. The loans bear interest at rates ranging from 3.10% to 6.29% per annum. Substantially all outstanding short-term borrowings are guaranteed by the Company’s Chief Executive Officer, certain family members of the Chief Executive Officer, and entity owned by those family members.
| (1) | On November 22, 2023, the Company obtained a short-term loan of approximately $704,235 (RMB 5,000,000) from the Rural Commercial Bank of Shandong (“RCBS”). The loan bore interest at 4.35% per annum, was secured by patents valued at approximately $2.2 million (RMB 16,000,000), and was guaranteed by the Chief Executive Officer and three of the CEO’s family members. The loan was repaid in full at maturity on November 21, 2024 and subsequently renewed on November 27, 2024 under substantially similar terms. The renewed loan amounted to approximately $697,973 (RMB 5,000,000), bears interest at 4.35% per annum, and matures on November 26, 2025. The proceeds are restricted to the purchase of raw materials for production. |
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| (2) | On November 30, 2022, the Company and two of its related parties, jointly entered into a line of credit loan agreement with Postal Savings Bank of China (“PSBC”), which allow the Company to borrow revolving loans of $704,235 (RMB 5,000,000) from PSBC. The revolving loan bore interest of 5% per annum and was to expire on November 29, 2024. The loan was paid in full on November 2, 2024. |
| (3) | On March 9, 2023, the Company obtained a short-term small business loan of $633,812 (RMB 4,500,000) from the Industrial and Commercial Bank of China (“ICBC”). The loan bore interest of 4.35% per annum and was due by March 8, 2024. The use of loan proceeds was designated for working capital. The loan was also guaranteed by the two family members of the CEO. The Company repaid the loan in full amount on March 8, 2024. |
| (4) | On January 6, 2023, the Company obtained a $422,541 (RMB 3,000,000) short-term loan from the Bank of Beijing. The loan bore an interest of 4.3% per annum and matured on January 6, 2024. The Company repaid this loan in full on January 5, 2024. On December 29, 2023, the Company acquired a second $422,541 (RMB 3,000,000) short-term loan from the Bank of Beijing. The loan bore interest of 4.30% per annum and matured on December 28, 2024. The loan was paid in full on December 20, 2024. On December 25, 2024, the Company obtained a new short-term loan of $977,162 (RMB7,000,000) from the Bank of Beijing. The loan bears interest of 3.10% per annum and is to mature on December 25, 2025. The use of loan proceeds is restricted to working capital for production. The loan is guaranteed by CEO and one family members of the CEO. Land use rights and construction in progress valued approximately at $729,000 (RMB5,320,000) was pledged to secure this short-term loan. |
| (5) | On February 14, 2023, the Company obtained $704,235 (RMB 5,000,000) from the Bank of Rizhao. Of this amount, $140,847 (RMB 1,000,000) was a short-term loan for working capital only, $563,388 (RMB 4,000,000) was a short-term loan for the purchase of raw materials only. The loan bore interest of 5.50% per annum, and matured on February 14, 2024. During January and February of 2024, the Company repaid the full amount of the loan. On April 17, 2024, the Company acquired a new short-term loan of $1,095,996 (RMB 8,000,000) from the Bank of Rizhao. The proceeds from this loan were designated solely for purchasing raw materials. The loan, with an interest rate of 3.7% per annum, matured on April 10, 2025, and was fully repaid on that date. Following the repayment, the Company acquired a new loan in the amount of $697,973 (RMB 5,000,000). The loan was designated for working capital and the purchase of raw materials. The new loan bears an interest of 3.50% per annum and is scheduled to mature on April 10, 2026. To secure the loan, the Company pledged land use right valued approximately at $675,000 (RMB 4,836,000). In addition, the CEO and three family members of the CEO have provided personal guarantees for this loan. |
| (6) | On August 14, 2023, the Company secured a short-term loan amounting to $760,574 (RMB 5,400,000) from Industrial Bank Co., Ltd. (“IBC”). This loan bore an interest rate of 4.35% per annum, matured on August 13, 2024. The funds obtained from this loan were earmarked exclusively for the Company’s working capital needs, particularly to support production activities. To secure the loan, the Company pledged accounts receivable valued approximately at $1.10 million (RMB 7,800,000). Additionally, a family member of the CEO provided a personal guarantee for this financial obligation. The Company repaid the loan in full amount on August 7, 2024. |
| (7) | On October 21, 2023, the Company obtained a $1,352,132 (RMB 9,600,000) short-term loan from the Agricultural Bank of China (“ABC”) The loan with an interest rate of 3.80% per annum and matured on September 21, 2024. The Company repaid the loan on September 21, 2024. Following the repayment, the Company acquired a new short-term loan of $1,340,108 (RMB9,600,000) from the ABC on September 29, 2024. The new short-term loan bears an interest rate of 3.9%per annum and is set to mature on September 28, 2025. The proceeds from this loan are designated solely for the purchase of raw materials for production purposes. To secure the loan, the Company pledged land use right valued at $2.07 million (RMB 14,805,100). Moreover, a family member of the CEO has provided personal guarantees for this loan. |
| (8) | On August 30, 2024, the Company obtained a short-term loan of $1,369,994 (RMB 10,000,000) from China Minsheng Bank. The loan bore interest at an annual rate of 4.0% and is to mature on August 30, 2025. The proceeds were designated for working capital to purchase raw materials. On December 9, 2024, the Company repaid $684,997 (RMB 5,000,000). As of June 30, 2025 and December 31, 2024, the outstanding loan balance was $697,973 (RMB 5,000,000) and $684,997 (RMB 5,000,000), respectively. The loan is secured by accounts receivable totaling approximately $2.48 million (RMB 17,777,592) and is personally guaranteed by two family members of the CEO. |
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On February 11, 2025, the Company obtained a loan of $279,189 (RMB 2,000,000) from China Minsheng Bank. The loan bears interest at 3.30% per annum and is scheduled to mature on February 11, 2026. On June 30, 2025, the Company obtained an additional loan of $418,784 (RMB 3,000,000) from China Minsheng Bank. This loan also bears interest at 3.30% per annum and is scheduled to mature on June 30, 2026. Both loans were designated solely for the purchase of raw materials to support working capital needs. The loan is secured by accounts receivable totaling approximately $2.48 million (RMB 17,777,592) and is personally guaranteed by two family members of the CEO.
| (9) | On February 29, 2024, the Company obtained a short-term loan of $1,095,996 (RMB 8,000,000) from Weihai City Commercial Bank. The loan proceeds were designated solely for the purchasing of raw materials. It bore interest at 3.75% per annum and matured on February 25, 2025. The Company repaid the loan in full on its maturity date. The CEO and three of the CEO’s family members provided personal guarantees for this loan. |
| (10) | On May 29, 2025, the Company entered into two recourse factoring agreements with XCMG Group Commercial Factoring (Xuzhou) Co., Ltd. (also known as XuGong Group Commercial Factoring), under which it received advances against trade receivables in the aggregate principal amount of $837,568 (RMB 6,000,000). The borrowings comprised $139,595 (RMB 1,000,000) and $697,973 (RMB 5,000,000), each bearing interest at an annual rate of 3.50% and maturing on November 25, 2025. Pursuant to the terms of the contracts, the advances were provided on a full-recourse basis, and the Company remains ultimately responsible for repayment in the event of non-collection from the underlying debtors. The transferred receivables remain on the Company’s balance sheet, and the proceeds are accounted for as short-term loans. Interest expense arising under the contracts is recognized as incurred. |
| (11) | On April 23, 2023, the Company entered into a loan agreement with the Bank of Weifang for approximately $1.37 million (RMB 10 million) to support working capital. The loan bears interest at an annual rate of 4.0% and is scheduled for maturity on April 22, 2026. The repayment plan is organized into five equal semi-annual installments of $13,700 (RMB 100,000) each, culminating in a balloon payment of $1.30 million (RMB 9.5 million) at maturity. The loan is secured by land use right worth $1.37 million (RMB 10 million). Additionally, personal guarantees have been provided by Mr. Yuanqing Liu and three family members and one entity controlled by the family members. During 2023, the Company repaid $1.23 million (RMB 9 million), leaving a balance of approximately $137,000 (RMB 1 million) outstanding as of December 31, 2024. For the six months ended June 30, 2025, an additional $41,368 (RMB 300,000) was repaid, reducing the outstanding balance to approximately $97,716 (RMB 700,000) as of June 30, 2025. While this loan balance was classified as a long-term loan at year-end 2024, it became payable within twelve months of the reporting date and has therefore been reclassified as a short-term loan as of June 30, 2025. |
On May 10, 2023, the Company entered into a loan agreement with the Bank of Weifang for approximately $1.23 million (RMB 9 million) to support working capital. The loan bears an annual interest rate of 4.0%, is scheduled for maturity on April 22, 2026. The repayment plan is organized into five equal semi-annual installments of $2,758 (RMB 20,000) each, culminating in a balloon payment of $1.22 million (RMB 8.9 million) at the end of the maturity. The loan is secured by land use right valued at $1.37 million (RMB 10 million). Additionally, personal guarantees have been provided by Mr. Yuanqing Liu and three family members and one entity controlled by the family members. The loan balance was approximately $1.22 million (RMB 8.9 million) as of December 31, 2024. For the six months ended June 30, 2025, an additional $2,758 (RMB 20,000) was repaid, reducing the outstanding balance to approximately $1,245,184 (RMB 8,920,000) as of June 30, 2025. While this loan balance was classified as a long-term loan at year-end 2024, it became payable within twelve months of the reporting date and has therefore been reclassified as a short-term loan as of June 30, 2025.
| (12) | On April 28, 2023, the Company entered into a loan agreement with the Rural Commercial Bank of Shandong for approximately $1.92 million (RMB 14 million) to support working capital. The loan bears interest at an annual rate of 4.1% and is scheduled for maturity on April 27, 2026. The repayment plan is organized into six equal semi-annual installments of $1,370 (RMB 10,000) each, culminating in a balloon payment of $1.91 million (RMB 13.94 million) at maturity. The loan is secured by land use right valued at $4.23 million (RMB 30.85 million). Additionally, personal guarantees have been provided by Mr. Yuanqing Liu and three family members. The outstanding loan balance was approximately $1.90 million (RMB 13.96 million) as of December 31, 2024. For the six months ended June 30, 2025, an additional $1,379 (RMB 10,000) was repaid, reducing the outstanding balance to approximately $1,947,345 (RMB 13.95 million) as of June 30, 2025. While this loan balance was classified as a long-term loan at year-end 2024, it became payable within twelve months of the reporting date and has therefore been reclassified as a short-term loan as of June 30, 2025. |
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| (13) | On January 30, 2024, the Company obtained three 24-month loans totaling $410,998 (RMB 3.0 million) from Shenzhen Qianhai WeBank Co., Ltd., with proceeds designated solely for working capital. The loans bear interest at an annual rate of 6.29 % and are scheduled to mature on February 1, 2026. Mr. Yuanqing Liu has provided personal guarantees for these borrowings. The outstanding balance was approximately $274,000 (RMB 2.0 million) as of December 31, 2024. During the six months ended June 30, 2025, repayments of $118,194 (RMB 857,143) were made, reducing the balance to approximately $159,538 (RMB 1,142,857) as of June 30, 2025. While this balance was classified as a long-term loan at year-end 2024, it became payable within twelve months of the reporting date and has therefore been reclassified as a short-term loan as of June 30, 2025. |
Interest expense pertaining to the above short-term loans for the six months ended June 30, 2025 and 2024 amounted to approximately $170,000 and $128,000, respectively, which included in the interest and financing expenses, net, in the Company’s unaudited condensed consolidated statements of operations and comprehensive income (loss). The weighted average interest rate for short-term loans was 3.89% and 4.24% for the six months ended June 30, 2025 and 2024, respectively.
Existing Commitment under Expansion Plan
Yingxuan Acquisition
In November 2020, Hongli Shandong signed a letter of intent with Yingxuan Heavy Industry Co., Ltd. (“Yingxuan”) regarding a planned purchase of all of Yingxuan’s assets located in an industrial area, including its use rights of three parcels of industrial land, buildings, facilities and infrastructure (collectively, the “Yingxuan Assets”) for a total consideration of approximately $17.1 million (RMB 125.0 million). During the year ended December 31, 2021, Hongli Shandong paid the deposit of approximately $2.1 million (RMB 15.0 million) from its working capital.
Following the signing of the letter of intent, in January 2021, Hongli Shandong signed asset transfer agreements with Yingxuan regarding the acquisition of the Yingxuan Assets. Pursuant to the asset transfer agreements, Hongli Shandong agreed to pay for the acquisition price in installments for approximately $7.1 million (RMB 52.0 million), $6.4 million (RMB 47.0 million) and $1.5 million (RMB 11.0 million), respectively, by the end of December 31, 2021, 2022 and 2023. The installments bear an annual interest of 7%. However, as mutually agreed, Hongli Shandong did not pay the agreed installment in fiscal year 2021 due to the delay of the acquisition of Yingxuan Assets, and Hongli Shandong made a prepayment of approximately $1.1 million (RMB 7.8 million) in 2021. The title of use rights of two parcels of industrial land, buildings, facilities and infrastructure for consideration of approximately $11.7 million (RMB 85.2 million) were transferred to Hongli Shandong on June 13, 2022.
On May 5, 2023, Hongli Shandong entered into a supplementary agreement with Yingxuan. Based on the mutual agreement between the Hongli Shandong and Yingxuan, the annual interest of 7% was waived as the transfer of Yingxuan Assets was delayed due to the impact of the COVID-19 pandemic and the total consideration was adjusted to approximately $20.7 million (RMB 151.4 million) given effect of the demolition compensation to be assigned to Hongli Shandong. Meanwhile, both parties also agreed that the demolition compensation to be reimbursed by the local government in relation to Yingxuan Assets will belong to the Hongli Shandong.
The Company made a payment of approximately $0.3 million (RMB 2.0 million) to Yingxuan in January 2024.
On May 10, 2025, the Company entered into a supplementary agreement stipulating that payment for the acquisition of land would not be made until the Company receives the land use right certificate.
Following are summary of transactions as of June 30, 2025:
| RMB | US$ | |||||||
| Total consideration for purchase of Yingxuan Assets | ¥ | 151,372,197 | $ | 21,130,744 | ||||
| Total amount paid | 124,178,969 | 17,334,715 | ||||||
| Balance due | ¥ | 27,193,228 | $ | 3,796,029 | ||||
| Assets title transferred to the Company | ¥ | 85,207,329 | $ | 11,894,485 | ||||
| Title to be transferred to the Company | ¥ | 66,164,868 | $ | 9,236,259 | ||||
| Prepayment for purchase of Yingxuan Assets | ¥ | 38,971,639 | $ | 5,440,231 | ||||
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As of June 30, 2025, the Company had made cumulative payments of approximately $17.3 million (RMB 124.2 million) to Yingxuan in connection with the acquisition of real estate and land use rights. Of this amount, titles of assets totaling approximately $11.9 million (RMB 85.2 million) had been legally transferred to the Company. The remaining title of assets, valued at approximately $9.2 million (RMB 66.2 million), had not yet been transferred as of the filing date of this report. A remaining balance of approximately $3.8 million (RMB 27.2 million) is contractually payable only upon completion of the legal title transfer for the remaining real estate and land use rights. As this payment obligation is contingent on the occurrence of a future event, no liability has been recognized as of June 30, 2025 and December 31, 2024.
Management is actively working with Yingxuan and relevant government authorities to facilitate the completion of the legal title transfer. The Company expects the transfer to be finalized, but the timing may be impacted by legal or administrative delays. The Company continues to monitor developments and evaluate any potential financial or operational impact.
On July 22, 2025, the Company made an additional payment of approximately $405,479 (RMB 2,904,692) to Yingxuan.
Investment in Joint Venture
On March 10, 2025, WFOE entered into an Investment Framework Agreement (the “Agreement”) with Zhongke Hongyuan (Beijing) Holdings Co., Ltd. (“Zhongke”). Pursuant to the Agreement, WFOE and Zhongke agreed to establish a joint venture entity named Jinan Langchi Heavy Industry Co., Ltd. (“Langchi”). Zhongke will hold a 60% equity interest in Langchi, while WFOE will hold the remaining 40%. Zhongke committed to contribute capital totaling approximately $41.9 million (RMB 300 million), and WFOE committed to contribute approximately $33.50 million (RMB 239.98 million). WFOE will act solely as an investor and will not participate in the management or operations of the joint venture. Both parties are required to transfer their respective capital contributions to Langchi by June 30, 2025. The initial term of the Agreement is effective from March 10, 2025 through December 31, 2025, and may be renewed upon mutual consent. On December 6, 2024, WFOE deposited its capital contribution of approximately $33.5 million (RMB 239,979,300) following the receipt of proceeds from a private placement completed by the Company. This amount is presented in the consolidated balance sheet as December 31, 2024, under the line item, “Deposit for investment in joint venture”.
As of the reporting date, Zhongke had not made its capital contribution. Langchi have no reportable transactions during six months ended June 30, 2025. Langchi is in discussions with the relevant government agency regarding the land acquisition agreement. Negotiations have commenced but have not yet been formally concluded, and the agreement with the government remains under discussion. Both the land acquisition agreement and Zhongke’s capital contribution are expected to be finalized by the end of 2025. Accordingly, there have been no changes in the status of the deposit for investment in joint venture as of June 30, 2025.
Inflation
Not applicable
Seasonality
Not applicable
Critical Accounting Estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for doubtful accounts, inventory write-down, useful lives of property, plant and equipment, intangible assets, valuation allowance of deferred tax assets and share-based compensations. Actual results could differ from those estimates.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2025.
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