{"url_path":"/sec/hcai/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 Operating and Financial","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/1958399/0001213900-26-055775-index.html","accession_number":"0001213900-26-055775","cik":"0001958399","ticker":"HCAI","issuer_name":"Huachen AI Parking Management Technology Holding Co., Ltd","edgar_url":"https://www.sec.gov/Archives/edgar/data/1958399/0001213900-26-055775-index.html","primary_entity_key":"0001958399","primary_entity_name":"Huachen AI Parking Management Technology Holding Co., Ltd"},"word_count":5960,"has_tables":true,"body_markdown":"**Item 5. Operating and Financial\nReview and Prospects**\n\n \n\n*You should read the following\ndiscussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements\nand the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks\nand uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking\nstatements as a result of various factors, including those set forth under “Item 3. Key Information — 3.D. Risk Factors”\nand elsewhere in this annual report.*\n\n \n\n**Overview**\n\n** **\n\nHuachen Cayman was established\nunder the laws of Cayman Islands as a holding company. Our main business operations are conducted through our Operating Subsidiaries in\nChina.\n\n \n\nWe are an equipment structural\nparts provider and conduct all our operations through our Operating Subsidiaries in China. The Operating Subsidiaries offer equipment\nstructural parts, including (i) product structural parts, (ii) garage structural parts, (iii) materials such as customized steel and load-bearing\nsteel plates for cubic parking equipment, and (iv) railroad accessories. Customers of equipment structural parts, including are industrial\nmanufacturing companies, such as producers of mining haulers, industrial conveyors, railroad tracks, and other products.\n\n \n\nThe Company entered into an\nagreement to sell its Hong Kong subsidiary, Hua Chen Intelligent Technology Co., Limited, and its eight PRC subsidiaries to an unrelated\nbuyer for $50,000. The disposal aligns with the Company’s strategic exit from the smart parking business amid slowing growth in\nChina’s real estate market. The Company will focus on its equipment structural parts business (Jiaxing XC) and electric vehicle\ncharging operations (Hangzhou ZHC), launched in the second half of 2025.\n\n \n\nFor the years ended December\n31, 2025, 2024 and 2023, our revenues from continuing operations were approximately $6.58 million, nil, and nil, respectively. For the\nyears ended December 31, 2025, 2024 and 2023, our revenues from discontinued operations were approximately $8.32 million, $40.94 million,\nand $34.28 million. For the years ended December 31, 2025, 2024 and 2023, we had net loss of approximately $41.92 million, net income\nof approximately $1.51 million, and net income of approximately $2.02 million, respectively.\n\n \n\n**Reorganization**\n\n** **\n\nFor the purpose of our initial\npublic offering and listing on the Nasdaq Capital Market, a reorganization of our legal structure was completed. The reorganization involved\nthe incorporation of the Company’s wholly-owned subsidiary - Hua Chen Intelligent Technology Co. Limited (“Huachen HK”)\nand Huachen HK’s wholly-owned subsidiary - Huachen AI Technology (Zhejiang) Co., Ltd. (“Hua Chen WFOE”). Zhejiang Huachen\nTechnology Co., Ltd. (“Zhejiang Hua Chen Tech”) is owned by Hua Chen WFOE. Zhejiang Hua Chen Tech and its subsidiaries specialized\nin the design, manufacture, sales, installation and maintenance of smart cubic parking equipment in China.\n\n \n\n56\n\n \n\n**Disposal of Subsidiaries**\n\n \n\nFrom April to November 2025, Huachen Cayman formed\nthe following direct and indirect subsidiaries:\n\n \n\n●Yu He Chuang Co., Ltd (“YHC HK”)\nwas incorporated on April 1, 2025, under the laws of the under the laws of Hong Kong. YHC HK is a wholly-owned subsidiary of the Company.\nIt is a holding company and is not actively engaging in any business.\n\n \n\n●Chuang Yu He (Shanghai) Industrial Co., Ltd.\n(“CYH Shanghai”) was incorporated on June 12, 2025 under the laws of the PRC. CYH Shanghai is a wholly-owned subsidiary of\nYHC HK and currently has no operations.\n\n \n\n●Hangzhou Zhihuichong Technology Co., Ltd. (“Hangzhou\nZHC”) was incorporated on November 20, 2025 under the laws of the PRC. Hangzhou ZHC is a wholly-owned subsidiary of CYH Shanghai\nand its primary business consists of the development and operation of charging infrastructure and operating platforms for new-energy two-wheeled\nvehicles and electric vehicles.\n\n \n\n●Jiaxing Xuchen Technology Co., Ltd. (“Jiaxing\nXC”) was incorporated on September 9, 2025 under the laws of the PRC. Jiaxing XC is a wholly-owned subsidiary of CYH Shanghai and\ncurrently engages in the sale of equipment structures and metal products.\n\n \n\nOn December 22, 2025, Huachen Cayman and Hua Chen\nIntelligent Technology Co., Limited, a company formed under the laws of Hong Kong and a subsidiary of the Company (the “Target”)\nentered into a share purchase agreement (the “Agreement”) with a buyer (the “Buyer”). Pursuant to the Agreement,\nthe Company agreed to sell and the Buyer agreed to purchase all the issued and outstanding shares of the Target at a purchase price of\n$50,000, which sale includes the sale of the Target’s subsidiaries, including Huachen AI Technology (Zhejiang) Co., Ltd., Zhejiang\nHuachen Technology Co., Ltd., Shanghai Tiandidaochuan Parking Equipment Manufacturing Co., Ltd., Zhejiang Tiandidaochuan Parking Equipment\nCo., Ltd., Shanghai Tiandiricheng Parking Lots Management Co., Ltd., Shanghai Yufeng Information Technology Co., Ltd., Shanghai Tiandi\nPuji Parking Management Co., Ltd. Shanghai Tiandidaochuan Parking Equipment Installation Co., Ltd., and Zhejiang Xinfeng Trade Co., Ltd.\n\n \n\nUpon the completion of such\ndisposition, the Company’s corporate structure is as follows:\n\n \n\n \n\n57\n\n \n\n**Key Factors that Affect Operating Results**\n\n** **\n\nThe growth and future success\nof the business depends on many factors. While each of these factors presents significant opportunities for the business, they also present\nchallenges. We must meet these challenges to sustain our growth and improve our operating results.\n\n \n\n**Success of strategic transformation to an\nasset-light model**\n\n** **\n\nOur future profitability and\noperational efficiency are heavily dependent on the successful execution of our transition from traditional manufacturing to an asset-light\ntrade and agency model within the equipment structural parts segment. While this shift is intended to reduce capital expenditures and\ndepreciation costs, our margins will increasingly depend on our ability to manage a network of third-party manufacturers and maintain\nfavorable terms in our agency agreements. Any inability to maintain quality control or supply chain stability during this transition could\nmaterially impact our results.\n\n \n\n**Market adoption and scaling of EV charging\ninfrastructure**\n\n** **\n\nAs we pivot toward the EV\ncharging sector, our revenue growth is driven by the pace at which we can deploy hardware in high-traffic destination charging locations.\nThis depends on our success in securing partnerships with property managers and commercial developers. Factors such as the overall adoption\nrate of electric vehicles, changes in government subsidies for green infrastructure, and the competitive landscape for charging pile installations\nwill significantly influence our top-line growth and market share.\n\n \n\n**Ability to monetize value-added services\nvia our digital platform**\n\n** **\n\nA critical factor for our\nlong-term margin expansion is our ability to transition from hardware-based sales to data-driven monetization. Our operating results will\nbe affected by the progress of our R&D initiatives—specifically the development of proprietary communication protocols and the\nrollout of value-added services (such as digital marketing and premium memberships). Our success depends on our ability to convert charging\nuser traffic into recurring revenue streams, which is subject to user engagement levels and evolving data privacy regulations.\n\n \n\n **Timing of R&D milestones and commercialization**\n\n** **\n\nAs our current charging service\nofferings are in the research and development stage, the timing of their commercial launch—currently anticipated for the second\nhalf of 2026—will be a primary driver of our future financial performance. Delays in technical milestones, challenges in recruiting\nspecialized MCU and software engineers, or higher-than-anticipated R&D expenditures could postpone revenue generation and affect our\nliquidity and short-term profitability.\n\n \n\n**Accounting for discontinued operations and\nstructural realignment**\n\n** **\n\nOur historical financial results\nfor the 2023 and 2024 fiscal years, as well as the first half of 2025, primarily reflect discontinued operations. Consequently, our future\nfinancial statements may not be directly comparable to our historical data. Our ability to manage the wind-down costs of legacy operations\nwhile simultaneously funding the growth of our new business segments will be a significant factor in our near-term financial stability.\n\n \n\n58\n\n \n\n**Results of operations**\n\n \n\n**For the fiscal years ended December 31,\n2025 and 2024**\n\n \n\n  \n   \nChange \n\n  \n2025  \n2024  \nAmount  \n% \n\n  \n(US$)  \n(US$)  \n(US$)  \n  \n\nRevenue \n 6,575,095  \n -  \n 6,575,095  \n -%\n\nCost of revenue \n 6,166,197  \n -  \n 6,166,197  \n -%\n\nGross profit \n 408,898  \n -  \n 408,898  \n -%\n\n  \n    \n    \n    \n   \n\nOperating expenses \n    \n    \n    \n   \n\nGeneral and administrative expenses \n 21,628,718  \n 78,136  \n 21,550,582  \n 27,581%\n\nTotal operating cost and expenses \n 21,628,718  \n 78,136  \n 21,550,582  \n 27,581%\n\n  \n    \n    \n    \n   \n\nLoss from operations \n (21,219,820) \n (78,136) \n (21,141,684) \n 27,058%\n\n  \n    \n    \n    \n   \n\nOther (expenses) income \n    \n    \n    \n   \n\nInterest income \n 196  \n 21  \n 175  \n 833%\n\nOther expenses, net \n (1,464) \n -  \n (1,464) \n - \n\nLoss on disposal of subsidiaries \n (22,119,583) \n -  \n (22,119,583) \n -%\n\nTotal other (expenses) income, net \n (22,120,851) \n 21  \n (22,120,872) \n 1,053,375%\n\nLoss before income taxes \n (43,340,671) \n (78,115) \n (43,262,556) \n 55,383%\n\nIncome taxes expense \n 2,844  \n -  \n 2,844  \n -%\n\nLoss from continuing operations \n (43,343,515) \n (78,115) \n (43,265,400) \n 55,387%\n\nIncome from discontinued operation (net of tax) \n 1,425,125  \n 1,589,509  \n (164,384) \n (10)%\n\nNet (loss) income \n (41,918,370) \n 1,511,394  \n (43,429,784) \n (2,873)%\n\nNet income attributable to the noncontrolling interest \n (582) \n 15,880  \n (16,462) \n (104)%\n\nNet (loss) income attributable to common shareholders \n (41,917,808) \n 1,495,514  \n (43,413,322) \n (2,903)%\n\n  \n    \n    \n    \n   \n\nOTHER COMPREHENSIVE INCOME (LOSS) \n    \n    \n    \n   \n\nForeign currency translation income (loss) \n 4,972,897  \n (393,841) \n 5,366,738  \n (1,363)%\n\nTotal comprehensive (loss) income \n (36,945,493) \n 1,117,553  \n (38,063,046) \n (3,406)%\n\n ** **\n\n**For the fiscal years ended December 31,\n2024 and 2023**\n\n** **\n\nOperating expenses \n   \n   \n   \n  \n\nGeneral and administrative expenses \n 78,136  \n -  \n 78,136  \n -%\n\nTotal operating cost and expenses \n 78,136  \n -  \n 78,136  \n -%\n\n  \n    \n    \n    \n   \n\nLoss from operations \n (78,136) \n -  \n (78,136) \n -%\n\nInterest income \n 21  \n -  \n 21  \n -%\n\n  \n    \n    \n    \n   \n\nLoss before income taxes \n (78,115) \n -  \n -  \n -%\n\nIncome taxes expense \n -  \n -  \n -  \n -%\n\nLoss from continuing operations \n (78,115) \n -  \n (78,115) \n -%\n\nIncome from discontinued operation (net of tax) \n 1,589,509  \n 2,016,100  \n (426,591) \n (21)%\n\nNet income \n 1,511,394  \n 2,016,100  \n (504,706) \n (25)%\n\nNet income attributable to the noncontrolling interest \n 15,880  \n 195,140  \n (179,260) \n (92)%\n\nNet (loss) income attributable to common shareholders \n 1,495,514  \n 1,820,960  \n 1,820,960  \n (18)%\n\n  \n    \n    \n    \n   \n\nOTHER COMPREHENSIVE INCOME (LOSS) \n    \n    \n    \n   \n\nForeign currency translation loss \n (393,841) \n (1,770,360) \n 1,376,519  \n (78)%\n\nTotal comprehensive income \n 1,117,553  \n 245,740  \n 871,813  \n 355%\n\n \n\n59\n\n \n\n*Revenue*\n\n* *\n\nThe following table presents a breakdown of our\nrevenue for fiscal years 2025 and 2024.\n\n \n\n  \nFor the Years Ended December 31, \n\n  \n2025  \n%  \n2024  \n%  \nChange  \n% \n\nEquipment structural parts \n$8,445,429  \n 57% \n$36,456,054  \n 89% \n$(28,010,625) \n (77)%\n\nCubic parking garage \n 6,297,030  \n 42% \n 4,040,079  \n 10% \n 2,256,951  \n 56%\n\nMaintenance services \n 149,079  \n 1% \n 429,572  \n 1% \n (280,493) \n (65)%\n\nOthers \n 3,515  \n -  \n 19,065  \n -  \n (15,550) \n (82)%\n\nTotal revenue \n$14,895,053  \n 100% \n$40,944,770  \n 100% \n$(26,049,717) \n (64)%\n\n * *\n\nThe following table presents a breakdown of our\nrevenue for fiscal years 2024 and 2023.\n\n \n\n  \nFor the Years Ended December 31, \n\n  \n2024  \n%  \n2023  \n%  \nChange  \n% \n\nEquipment structural parts \n$36,456,054  \n 89% \n$25,526,870  \n 74% \n$10,929,184  \n 43%\n\nCubic parking garage \n 4,040,079  \n 10% \n 8,012,037  \n 23% \n (3,971,958) \n (50)%\n\nMaintenance services \n 429,572  \n 1% \n 584,696  \n 2% \n (155,124) \n (27)%\n\nOthers \n 19,065  \n -  \n 155,419  \n 1% \n (136,354) \n (88)%\n\nTotal revenue \n$40,944,770  \n 100% \n$34,279,022  \n 100% \n$6,665,748  \n 19%\n\n* *\n\nOn December 22, 2025, Huachen Cayman divested\nHua Chen Intelligent Technology Co., Limited and its subsidiaries and incorporated new subsidiaries dedicated to the equipment structural\nparts business, while also planning to expand into the electric vehicle charging business.\n\n \n\nTotal revenue for the year\nended December 31, 2025, was approximately $14.9 million, representing a decrease of $26.0 million, or 64%, from $40.9 million for the\nyear ended December 31, 2024. The decrease was primarily due to the fact that the Company’s parent entity, acting as a holding company,\ngenerated no revenue during fiscal year 2025, 2024, and 2023. Instead, the majority of the Company’s revenue was derived from the\ndisposed subsidiaries and newly incorporated subsidiaries in 2025.\n\n \n\nIn FY2025, $6,575,095 of the\nrevenue from the equipment structural parts, was derived from continuing operations Jiaxing XC, while $8,319,958 of the revenue was generated\nby the mainland China subsidiaries under Hua Chen Intelligent Technology Co., Limited, a disposed subsidiary. As the Company’s revenues\nfor the years ended December 31, 2024 and 2023, $40,944,770 and $34,279,022, were also primarily generated by the disposed subsidiaries.\nRevenue from the disposed subsidiaries has been reclassified to net profit from discontinued operations.\n\n* *\n\n*Cost of Revenue*\n\n* *\n\nThe following table presents a breakdown of our\ncost of revenue for fiscal years 2025 and 2024.\n\n \n\n  \nFor the Years Ended December 31, \n\n  \n2025  \n%  \n2024  \n%  \nChange  \n% \n\nEquipment structural parts \n$7,615,306  \n 65% \n$32,852,658  \n 93% \n$(25,237,352) \n (77)%\n\nCubic parking garage \n 3,970,263  \n 34% \n 2,110,701  \n 6% \n 1,859,562  \n 88%\n\nMaintenance services \n 186,762  \n 1% \n 262,943  \n 1% \n (76,181) \n (29)%\n\nTotal cost of revenue \n$11,772,331  \n 100% \n$35,226,302  \n 100% \n$(23,453,971) \n (67)%\n\n  \n\nThe following table presents a breakdown of our\ncost of revenue for fiscal years 2024 and 2023.\n\n \n\n  \nFor the Years Ended December 31, \n\n  \n2024  \n%  \n2023  \n%  \nChange  \n% \n\nEquipment structural parts \n$32,852,658  \n 93% \n$23,710,016  \n 84% \n$9,142,642  \n 39%\n\nCubic parking garage \n 2,110,701  \n 6% \n 3,924,354  \n 14% \n (1,813,653) \n (46)%\n\nMaintenance services \n 262,943  \n 1% \n 438,378  \n 2% \n (175,435) \n (40)%\n\nTotal cost of revenue \n$35,226,302  \n 100% \n$28,072,748  \n 100% \n$7,153,554  \n 25%\n\n* *\n\nCosts of revenue from equipment structural parts\nprimarily consist of steel materials cost, manufacturing expenses incurred in the production of structural parts, and other business and\nsales related taxes.\n\n* *\n\n60\n\n \n\nFor the year ended December\n31, 2025, the cost of revenue was $11.8 million, reflecting a decrease of $23.45 million, or 67%, from $35.23 million for the year ended\nDecember 31, 2024. The decrease was primarily due to the fact that the costs of revenue for the fiscal year 2025 were mainly generated\nby operations of the disposed subsidiaries, which have been reclassified to net profit from discontinued operations. For fiscal year 2024\nand 2023, the Company’s cost of revenue, $35,226,302 and $28,072,748 were primarily derived from the disposed subsidiaries. In FY2025,\n$6,166,197 of the cost of revenue from the equipment structural parts, was derived from continuing operations Jiaxing XC, while $5,606,134\nof the cost of revenue was generated by the disposed subsidiaries.\n\n \n\n*Gross Profit*\n\n \n\nFor the years ended December\n31, 2025, gross profit from continuing operations was $0.41 million and gross profit from discontinued operations was $2.7 million.\n\n \n\nAs the Company disposed of subsidiary Hua Chen\nIntelligent Technology Co., Limited, whose revenues for the years ended December 31, 2024 and 2023 were primarily generated by its mainland\nChina subsidiaries, and such revenues have been reclassified to discontinued operations, there are no comparable data available for gross\nprofit analysis.\n\n \n\n*Operating Expenses*\n\n* *\n\nThe following table presents a breakdown of operating\nexpenses for fiscal years 2025 and 2024:\n\n \n\n  \nFor the Years Ended December 31, \n\n  \n2025  \n%  \n2024  \n%  \nChange  \n% \n\nGeneral and administrative expenses \n$21,628,718  \n 100% \n$78,136  \n 100% \n$21,550,582  \n 27,581%\n\nTotal operating expenses \n$21,628,718  \n 100% \n$78,136  \n 100% \n$21,550,582  \n 27,581%\n\n* *\n\nThe following table presents a breakdown of operating\nexpenses for fiscal years 2024 and 2023:\n\n \n\n  \nFor the Years Ended December 31, \n\n  \n2024  \n%  \n2023  \n%  \nChange  \n% \n\nGeneral and administrative expenses \n$78,136  \n 100% \n$     -  \n 100% \n$78,136  \n     -%\n\nTotal operating expenses \n$78,136  \n 100% \n$-  \n 100% \n$78,136  \n -%\n\n* *\n\nOperating expenses\nprimarily comprised of general and administrative expenses. Total operating expenses were $21.6 million for fiscal year 2025, a\nsignificant increase of $21.6 million, or 27,581%, from $78,136 in the same period of the prior year. The increase in expenses was\nprimarily due to (i) the fact that the general and administrative expenses for the fiscal year 2024 were mainly generated by\noperations of the disposed subsidiaries, totaling $2.8 million, which have been reclassified to net profit from discontinued\noperations, and (ii) share-based compensation expenses incurred in fiscal year 2025.\n\n* *\n\nIn fiscal year 2025, the $21.6 million in general\nand administrative expenses was primarily comprised of non-cash expense of $20.9 million related to the issuance of common shares during\nfiscal year 2025 under the Company’s employee equity incentive plan to reward exceptional employees who had made significant contributions\nto the Company.\n\n* *\n\n*Other (expenses) income*\n\n* *\n\nOther (expenses) income, is used to record our\nnon-operating income and expenses, interest income, and loss on disposal of subsidiaries.\n\n \n\nFor fiscal year 2025, the Company had total other expenses, net, of\n$22.1 million, representing an increase of $22.1 million or 1,053,375%, compared to other income, net of $21 for fiscal year 2024. The\nincrease was mainly due to a disposal loss of $22.1 million recognized upon the disposal of Hua Chen Intelligent Technology Co., Limited\nand its subsidiaries for cash consideration of $50,000 on December 22, 2025. The consolidated net assets of Hua Chen Intelligent Technology\nCo., Limited and its subsidiaries were $22.2 million as of the disposal date, and the related accounts receivable from Hua Chen Intelligent\nTechnology Co., Limited and its subsidiaries, which were deemed uncollectible, were also included in the disposal loss.\n\n* *\n\n61\n\n* *\n\n*Income tax expenses*\n\n* *\n\nFor fiscal year 2025, income\ntax expense was $2,844, the income tax expense mainly relates to income tax recognized on the net income generated by Jiaxing XC, a subsidiary\nnewly consolidated in December 2025, from its operations in mainland China.\n\n* *\n\n*Income from discontinued operations(net of\ntax)*\n\n* *\n\nDiscontinued operations represent our former PRC-based\nbusiness, which was disposed of in 2025. These operations accounted for substantially all of our revenue in fiscal years 2024 and 2023,\nand continued to contribute significantly to our results in fiscal year 2025 prior to disposal.\n\n \n\nRevenue from discontinued operations was approximately\n$8.3 million for the year ended December 31, 2025, compared to $40.9 million and $34.3 million for the years ended December 31, 2024 and\n2023, respectively. The decrease in revenue was primarily attributable to the substantial cessation of operations of the disposed subsidiaries\nas of June 30, 2025.\n\n \n\nCosts and expenses associated with discontinued\noperations were $6.9 million, $39.3 million, and $32.3 million for the years ended December 31, 2025, 2024, and 2023, respectively. The\ndecrease in costs and expenses was primarily attributable to the decline in revenue, which resulted in a corresponding reduction in associated\ncosts.\n\n \n\nIncome from discontinued operations was $1.4 million,\n$1.6 million, and $2.0 million for the years ended December 31, 2025, 2024, and 2023, respectively. The decrease was primarily attributable\nto the factors discussed above.\n\n \n\nFollowing the completion of the disposal, we no\nlonger generate revenue from these operations, and they are not expected to contribute to our future results. Accordingly, our future\nfinancial performance will depend entirely on our continuing operations.\n\n* *\n\n*Net income(loss)*\n\n* *\n\nFor fiscal year 2025, the\nCompany generated net loss of $41.9 million, compared to net income of approximately $1.5 million for fiscal year 2024, the decrease was\nprimarily driven by a disposal loss of $22.1 million recognized in connection with the disposal of Hua Chen Intelligent Technology Co.,\nLimited and its subsidiaries, on December 22, 2025. $20.9 million in non-cash share-based compensation under the employee equity incentive\nplan also contributed to the decrease in profit.\n\n* *\n\n**B. Liquidity and Capital Resources**\n\n** **\n\n**Cash flow**\n\n \n\n  \nYears Ended \n\n  \n2025  \n2024  \n2023 \n\n  \n(US$)  \n(US$)  \n(US$) \n\nNet cash (used in) provided by operating activities \n (1,301,620) \n 1,506,390  \n (2,465,652)\n\nNet cash used in investing activities \n -  \n (2,183) \n (916,453)\n\nNet cash provided by (used in) financing activities \n 270,758  \n (2,393,686) \n 1,951,254 \n\nEffect of exchange rate changes on cash \n 1,049,816  \n 418,388  \n (197,272)\n\nNet change in cash, including cash from discontinued operations \n 18,954  \n (471,091) \n (1,628,123)\n\nCash, including cash from discontinued operations - beginning of year \n 28,654  \n 499,745  \n 2,127,868 \n\nCash, including cash from discontinued operations - end of year \n 47,608  \n 28,654  \n 499,745 \n\n  \n\n**Operating activities**\n\n** **\n\nNet cash used in operating\nactivities was $1,301,620 for the year ended December 31, 2025, comprised of net cash provided by operating activities from continuing\noperations $882,782 and net cash used in operating activities from discontinued operations of $418,839. Net cash used in operating activities\nfrom continuing operations mainly derived from a net loss continuing operations of $43,343,515 for the period, as primarily adjusted by\nthe non-cash loss from disposal of subsidiaries of approximately $22.1 million and share-based compensation of $20.9 million, and net\nchanges in our operating assets and liabilities, which mainly included an increase in accounts receivable balance of approximately $6.9\nmillion mainly due to the business development of Jiaxing XC. As a result, the accounts receivable increased significantly in 2025. An\nincrease in accounts payable of approximately $6.5 million which was primary due to deferred payments to suppliers of Jiaxing XC. A decrease\nin other payables of $208,992 also resulted in a slight reduction in cash flow.\n\n \n\n62\n\n \n\nNet cash provided by\noperating activities for the fiscal year ended December 31, 2024 was $1,506,390, comprised of net cash provided by operating\nactivities from continuing operations $517 and net cash provided by operating activities from discontinued operations of $1,505,873.\nNet cash provided by operating activities from continuing operations mainly derived from a net loss from continuing operations of\n$78,115 for the period, and net changes in our operating assets and liabilities, which mainly included an increase in other payables\nof $77,171. Other payables of Huachen Cayman increased in 2024.\n\n \n\nNet cash used in operating\nactivities was $2,465,652 for the year ended December 31, 2023, comprised of net cash used in operating activities from continuing operations\n$nil and net cash used in operating activities from discontinued operations of $2,465,652. There is no operating activity from continuing\noperations for the years ended December 31, 2023.\n\n** **\n\n**Investing activities**\n\n \n\nThere is no investing activities\nfor the years ended December 31, 2025.\n\n \n\nNet cash used in investing\nactivities were approximately $2,183 and used in $0.92 million for the years ended December 31, 2024 and 2023, respectively. Both are\nfrom discontinued operations, there is no investing activities from continuing operations for the years ended December 31, 2024 and 2023.\n\n \n\n**Financing activities**\n\n \n\nNet cash provided\nby financing activities was approximately $0.7 million for the year ended December 31, 2025, comprised of net cash provided by financing\nactivities from continuing operations $699,490 and net cash used in financing activities from discontinued operations of $428,732. Net\ncash provided by financing activities from continuing operations mainly derived from proceeds from issuance of common stock of approximately\n$5.4 million and payments of related party of approximately $4.7 million.\n\n \n\nNet cash used in financing\nactivities was approximately $2.4 million for the year ended December 31, 2024, which was net cash used in financing activities from discontinued\noperations of $2,393,686. Net cash provided by financing activities was approximately $1.95 million for the year ended December 31, 2023,\nall from discontinued operations.\n\n \n\n**Capital expenditures**\n\n \n\nThere is no capital expenditures\nfrom continuing operations for the fiscal year ended December 31, 2025 and 2024, respectively. We made capital expenditures from discontinued\noperations of $2,183 and $902,263 for the fiscal year ended December 31, 2024 and 2023, respectively. Our capital expenditures have been\nused primarily to purchase fixed assets for business purposes. We estimate that our capital expenditures will increase moderately in the\nfollowing two or three years to support the expected growth of our business. We anticipate funding our future capital expenditures primarily\nwith net cash flows from operating activities and financing activities.\n\n \n\n**Off-Balance Sheet Arrangements**\n\n \n\nThere were no off-balance\nsheet arrangements for the years ended December 31, 2025, 2024 and 2023 that have or that in the opinion of management are likely to have,\na current or future material effect on our financial condition or results of operations.\n\n \n\n**5.C. Research and Development, Patent and Licenses,\netc.**\n\n \n\nPlease refer to “Item\n4. Information on the Company – D. Property, Plant and Equipment – Intellectual Property.”\n\n \n\n**5.D. Trend Information.**\n\n \n\nOther than as disclosed elsewhere\nin this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have\na material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would\ncause reported financial information not necessarily to be indicative of future operating results or financial condition or results of\noperations.\n\n \n\n63\n\n \n\n**5.E. Critical Accounting Estimates.**\n\n \n\n**Uses of estimates**\n\n \n\nIn preparing the unaudited\ncondensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America\n(“US GAAP”), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure\nof contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during\nthe reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements.\nSignificant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable and inventories,\nuseful lives of property, plant and equipment and land use right, the recoverability of long-lived assets, and realization of deferred\ntax assets. Actual results could differ from those estimates.\n\n** **\n\n**Cash and cash equivalents**\n\n \n\nWe consider cash, bank deposit\nand all highly liquid investments with original maturities of three months or less when purchased to be cash and cash equivalents. Cash\nconsists primarily of cash in accounts held at a financial institution.\n\n** **\n\n**Accounts receivable**\n\n \n\nAccounts\nreceivable are presented net of allowance for credit losses.\n\n \n\nAccounts\nreceivable are recorded at the gross billing amount less an allowance for any uncollectible accounts due from the customers. Accounts\nreceivable do not bear interest.\n\n \n\nSince\nJanuary 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses\n(Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), using the modified retrospective transition\nmethod. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more\ntimely recognition of credit losses. Upon adoption, the Company changed the impairment model to utilize a forward-looking current expected\ncredit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost and receivables\nresulting from the application of ASC 606, including contract assets.\n\n \n\nThe\nCompany maintains an allowance for credit losses and records the allowance for credit losses as an offset to accounts receivable and\nthe estimated credit losses charged to the allowance is classified as “General and administrative expenses” in the consolidated\nstatements of comprehensive income(loss). The Company assesses collectability by reviewing accounts receivable on aging schedules because\nthe accounts receivable were primarily consisted of receivables arising from sales of our products. In determining the amount of the\nallowance for credit losses, the Company considers historical collectability based on past due status, the age of the balances, current\neconomic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s\nability to collect from customers. Delinquent account balances are written-off against the allowance for expected credit.\n\n \n\nAs of December 31, 2025 and 2024,\nthere is no allowance for credit losses balances from continuing operations.\n\n \n\n**Revenue recognition**\n\n \n\nWe generate our revenues primarily\nthrough sales of products. We early adopted Accounting Standards Codification (“ASC”) 606 using the modified retrospective\napproach. The adoption of this standard did not have a material impact on our unaudited condensed consolidated financial statements. Therefore,\nno adjustments to opening retained earnings were necessary.\n\n \n\nASC 606, “Revenue from\nContracts with Customers,” establishes principles for reporting information about the nature, amount, timing and uncertainty of\nrevenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires\nan entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that\nit expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.\n\n \n\nASC 606 requires the use of\na new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract\nwith the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable\nconsideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price\nto the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance\nobligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant\nchanges in the way we record our revenue.\n\n \n\n64\n\n \n\n**Income taxes**\n\n \n\nThe Company accounts for current\nincome taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences\nexist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax\nassets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary\ndifferences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized\nin income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets\nto the amount expected to be realized.\n\n \n\nAn uncertain tax position\nis recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination.\nThe amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions\nnot meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment\nof income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes\nhave been incurred during the years ended December 31, 2025, 2024 and 2023. As of December 31, 2024, the tax years ended December 31,\n2015 through December 31, 2024 for the Company’s PRC subsidiaries remain open for statutory examination by PRC tax authorities.\n\n \n\n**Recent Accounting Pronouncements**\n\n \n\nWe consider the applicability\nand impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are\nissued.\n\n \n\nIn December 2025, the FASB\nissued ASU 2025-11, which clarifies the scope and disclosure requirements for interim financial reporting under ASC 270. The amendments\nintroduce a principle requiring disclosure of events and transactions occurring after the end of the most recent annual reporting period\nthat have a material impact on the entity and consolidate certain interim disclosure requirements. The amendments are effective for interim\nreporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently\nevaluating the impact that adoption of this ASU will have on its interim financial statement disclosures.\n\n \n\nIn November 2025, the FASB\nissued ASU 2025-08, Financial Instruments — Credit Losses (“Topic 326”): Purchased Loans (“ASU 2025-08”).\nThe amendments expand the population of acquired loans subject to the gross-up approach, treating non-credit-deteriorated loans (excluding\ncredit cards) as “seasoned” if purchased at least 90 days after origination or acquired in a business combination. ASU 2025-08\nis effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within those annual reporting\nperiods. Early adoption is permitted. The Company is currently evaluating the impact that adoption of this ASU will have on its interim\nfinancial statement disclosures.\n\n \n\nIn September 2025, the FASB issued ASU 2025-07, Derivatives and Hedging\n(“Topic 815”) and Revenue from Contracts with Customers (“Topic 606”): Derivatives Scope Refinements and Scope\nClarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract (“ASU 2025-07”). ASU 2025-07, expands\nan existing scope exception under Topic 815 to exclude non-exchange-traded contracts where the underlying is based on the operations or\nactivities specific to one of the contract parties. The Company is currently evaluating the impact of this ASU on its financial statements.\n\n \n\nIn July 2025, the\nFASB issued ASU 2025-05, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable\nand Contract Assets (“ASU 2025-05”). The amendments in ASU 2025-05 provide entities with a practical expedient to simplify\nthe estimation of expected credit losses on current accounts receivable and current contract assets that arise from transactions accounted\nfor under ASC 606, Revenue from Contracts with Customers (“ASC 606”) by allowing the assumption that current conditions as\nof the balance sheet date will not change during the remaining life of the asset. ASU 2025-05 is effective for the Company for its for\nannual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with\nearly adoption permitted. The Company is currently evaluating the impact ASU 2025-05 will have on its financial statements.\n\n \n\nIn January 2025, the FASB issued\nASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying\nthe Effective Date. This ASU amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt\nthe guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning\nafter December 15, 2027. Early adoption of Update 2024-03 is permitted. The Company plans to adopt this guidance effective January 1,\n2025, and the adoption of this ASU is not expected to have a material impact on its financial statements.\n\n \n\nOther accounting standards\nthat have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on our financial position,\nresult of operations, or cash flows.\n\n \n\n**Off-Balance Sheet Arrangements**\n\n \n\nThere was no off-balance sheet\narrangements for the years ended December 31, 2025 and 2024 that have or that in the opinion of management are likely to have, a current\nor future material effect on our financial condition or results of operations.\n\n \n\n65\n\n \n\n**Disclosure pertaining\nto Russia’s invasion of Ukraine and the ongoing conflict in the Middle East**\n\n** **\n\nThe ongoing war between\nRussia and Ukraine continues to affect international operations. In response to Russia’s invasion of Ukraine, the European Union,\nthe U.K. and the U.S. introduced extensive sanctions on Russia and Belarus, including targeted restrictions on individuals and entities,\nexport controls, restrictions on economic relations, trade and financial transactions. These sanctions have had and may continue to have\na disruptive effect on global markets.\n\n \n\nOn February 28, 2026, the United\nStates and Israel launched a joint military operation against Iran-codenamed “Operation\nEpic Fury”-targeting the country’s leadership, nuclear facilities, missile sites, and security forces, Iran launched\nhundreds of ballistic missiles and drones against Israel, United Arab Emirates, Qatar, and U.S. military bases in the region. Ongoing\ngeopolitical tensions, including the potential for military escalation and broader regional conflict, may adversely affect economic conditions\nand create uncertainty that could negatively impact our business, financial condition and results of operations. In addition, the virtual\nclosure of shipping through the Strait of Hormuz has raised concerns about broader disruptions to global supply chains, which could in\nturn contribute to elevated inflation and slower economic growth in major economies.\n\n \n\nWe do not have any direct\nor indirect exposure to Ukraine, Belarus, Russia or the Middle East, through our operations, employee base or any investments in any of\nthese countries. In addition, our securities are not traded on any stock exchanges in these three countries. We do not believe that the\nsanctions levied against Russia or Belarus or individuals and entities associated with these two countries will have a material impact\non our operations or business, if any.\n\n \n\nWe do not believe that we\nhave any direct or indirect reliance on goods sourced from Russia, Ukraine, Belarus, the Middle East or countries that are supportive\nof Russia.\n\n \n\nWe provide customized parking\nsolutions covering smart cubic parking garage design, cubic parking equipment manufacturing, sales, installation, and maintenance to customers\nin China. The cubic parking equipment operating devices are not connected to the internet, and we do not collect date from the internet\nin our ordinary business. As of the date of this annual report, we believe the Operating Subsidiaries are not subject to cybersecurity\nrisks and we have not seen any risk of cybersecurity attacks emanating from Russia, Ukraine, Belarus, the Middle East or any other country.\n\n \n\nThe impact of the invasion\nby Russia of Ukraine, and the present uncertainty in the Middle East has increased volatility in trading prices and commodities throughout\nthe world, to date, we have not seen a material impact on our operations, however, a prolonged conflict may impact on consumer spending,\nin general, which could have an adverse impact on our business.\n\n** **\n\n**Holding Company Structure**\n\n \n\nHuachen Cayman is a holding\ncompany with no material operation. The Operating Subsidiaries conduct operations in China. Huachen Cayman may rely on dividends to be\npaid by the PRC subsidiaries to fund its cash and financing requirements, including the funds necessary to pay dividends and other cash\ndistributions to our shareholders, to service any debt it may incur and to pay its operating expenses. If the PRC subsidiaries incur debt\non their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions\nto Huachen Cayman.\n\n \n\n**Inflation**\n\n \n\nInflation does not materially\naffect our business or the results of our operations."}