{"url_path":"/sec/hlp/10-k/2026/item-3","section_key":"item-3","section_title":"Item 3 KEY INFORMATION","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/1855557/0001213900-26-055737-index.html","accession_number":"0001213900-26-055737","cik":"0001855557","ticker":"HLP","issuer_name":"Hongli Group Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1855557/0001213900-26-055737-index.html","primary_entity_key":"0001855557","primary_entity_name":"Hongli Group Inc."},"word_count":33678,"has_tables":true,"body_markdown":"Item 3. KEY INFORMATION\n\n \n\nContractual Arrangements between Hongli WFOE and Hongli Shandong\n\n \n\nHongli WFOE, a wholly subsidiary of Hongli Cayman,\nand Hongli Shandong entered into a series of contractual arrangements in April 2021 (the “Contractual Arrangements”). Such\nContractual Arrangements consist of a series of three agreements, along with shareholders’ powers of attorney (“POAs”)\nand irrevocable spousal consent letters. Neither Hongli Cayman nor its subsidiaries own any equity interests in the PRC operating entities.\n\n \n\nThe Contractual Arrangements are designed to allow\nHongli Cayman to consolidate Hongli Shandong’s operations and financial results in Hongli Cayman’s financial statements in\naccordance with U.S. GAAP as the primary beneficiary for accounting purposes.\n\n \n\nDue to PRC legal restrictions on foreign ownership\nin certain sectors or other matters, such as telecommunications and the internet, many China-based operating companies had to list on\na U.S. exchange through Contractual Arrangements, or a VIE structure, without a direct ownership in main operating entities. However,\neven though the business of some other China-based operating companies, including Hongli Shandong, is not within any sensitive sector\nthat Chinese law prohibits or restricts direct foreign investment in, some China-based operating companies, as well as Hongli Shandong,\nat the discretion of the management, still selected to utilize such VIE structure to list overseas to avoid the substantial costs and\ntime. If Hongli Shandong had selected to directly list on a U.S. exchange without such Contractual Arrangements, Hongli Shandong would\nbe required to obtain certain regulatory approvals in connection with the conversion of the PRC operating entities into wholly foreign\nowned entities which would take the Company approximately 3-6 months to complete, without certainty when the conversion would be completed\nsuccessfully. As a result, management elected to pursue the VIE structure, at which time that the PRC government did not initiate a series\nof regulatory actions and statements to regulate business operations in China including enhancing supervision over the use of variable\ninterest entities for overseas listing.\n\n \n\nThe PRC government has initiated a series of regulatory\nactions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities\nin the securities market, enhancing supervision over the use of variable interest entities for overseas listing, adopting new measures\nto extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. As we chose such VIE structure,\nwe understand that we are subject to certain risks and uncertainties that may not otherwise exist if we had direct equity ownership in\nthe operating entities. The VIE structure has inherent risks that may affect your investment, including less effectiveness and certainties\nthan direct ownership and potential substantial costs to enforce the terms of the Contractual Arrangements. See “Item 3. Key Information\n- D. Risk Factors - *We rely on Contractual Arrangements with the VIE and the shareholders of the VIE to consolidate the financial\nresults of the PRC operating entities. We do not have an equity ownership in, direct foreign investment in, or control of, through such\nownership or investment, the VIE**.***” We, as a Cayman Islands holding company, may have difficulty in enforcing any rights\nwe may have under the Contractual Arrangements with Hongli Shandong, its founders and owners, in PRC because all of our Contractual Arrangements\nare governed by the mainland China laws and provide for the resolution of disputes through arbitration in the PRC, where the legal environment\nis not as developed as in the United States. See “Item 3. Key Information - D. Risk Factors - *Any failure by the VIE or its\nshareholders to perform their obligations under our Contractual Arrangements with them would have a material adverse effect on our results\nof operation.*” Furthermore, these Contractual Arrangements may not be enforceable in China if PRC government authorities or\ncourts take a view that such Contractual Arrangements contravene applicable PRC laws and regulations or are otherwise not enforceable\nfor public policy reasons. See “Item 3. Key Information - D. Risk Factors - *The Chinese government exerts substantial influence\nover the manner in which we and the PRC operating entities must conduct business activities.*” In the event we are unable to\nenforce these Contractual Arrangements, we may not be able to consolidate the financial results of Hongli Shandong, and our results of\noperation may be materially and adversely affected. For more information, see “Item 3. Key Information - D. Risk Factors - Risks\nRelated to Our Corporate Structure” and “Item 3. Key Information - D. Risk Factors - Risks Related to Doing Business in China.”\n\n \n\n1\n\n \n\n \n\nPermission Required from the PRC Authorities for the VIE’s\nOperation.\n\n \n\nThe operation of the PRC operating entities is\ngoverned by laws and regulations in mainland China. The PRC operating entities have received all requisite permissions and approvals\nfrom the government authorities or agencies in mainland China to conduct its current business in mainland China. Hongli Cayman and its\nsubsidiaries as well as the PRC operating entities have not received any denial from the mainland China government authorities or agencies\nfor the VIE’s operation in mainland China. Hongli HK is a holding company with no operation except that Hongli HK holds all of\nthe outstanding equity of Hongli WFOE and may distribute any dividends or payments (if any) received from Hongli WFOE to Hongli Cayman\nas dividends or transfer the cash proceeds from Hongli Cayman to Hongli WFOE. As of the date hereof, Hongli HK has received all the requisite\nlicense or permits from Hong Kong government with regards to its activities.\n\n \n\nOn February 17, 2023, the CSRC promulgated the\nTrial Measures and five supporting guidelines, which went effective on March 31, 2023. According to the Trial Measures, among other requirements,\n(1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfil the filing procedures\nwith the CSRC; if a domestic company fails to complete the filing procedure, such domestic company may be subject to administrative penalties;\n(2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas\noffering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities\nof the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited\nconsolidated financial statements for the same period; (ii) its major operational activities are carried out in China or its main places\nof business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens\nor are domiciled in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the\nissuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and such filings shall\nbe submitted to the CSRC within three business days after the submission of the overseas offering and listing application. According\nto the CSRC Notice, the domestic companies that have already been listed overseas before the effective date of the Trial Measures (namely,\nMarch 31, 2023) shall be deemed as Existing Issuers. Existing Issuers are not required to complete the filing procedures immediately,\nbut they shall be required to file with the CSRC within three working days from the completion of any subsequent offerings.\n\n \n\nAfter the completion of the private placement\noffering of 60,000,000 Ordinary Shares of the Company on December 5, 2024, we submitted a CSRC filing for correspondence on December\n11, 2024 and later submitted a formal CSRC filing on January 2, 2025. As of the date of this report, the CSRC filing is still under review\nby CSRC.\n\n \n\nOn February 24, 2023, the CSRC, Ministry of Finance\nof the PRC, National Administration of State Secrets Protection and National Archives Administration of China promulgated the Provisions\non Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the\nArchives Rules, which took effect on March 31, 2023. Pursuant to the Archives Rules, domestic companies that seek for overseas offering\nand listing shall strictly abide by applicable laws and regulations of the PRC and the Archives Rules, enhance legal awareness of keeping\nstate secrets and strengthening archives administration, institute a sound confidentiality and archives administration system, and take\nnecessary measures to fulfill confidentiality and archives administration obligations. Such domestic companies shall not leak any state\nsecret and working secret of government agencies, or harm national security and public interest. Furthermore, a domestic company that\nplans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including\nsecurities companies, securities service providers and overseas regulators, any document and materials that contain state secrets or\nworking secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy\nadministrative department at the same level. Moreover, a domestic company that plans to, either directly or through its overseas listed\nentity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers\nand overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest,\nshall strictly fulfill relevant procedures stipulated by applicable national regulations. The Archives Rules also stipulate that a domestic\ncompany that provides accounting archives or copies of accounting archives to any entities including securities companies, securities\nservice providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable national regulations.\n\n \n\n2\n\n \n\n \n\nAny failure of us to fully comply with new regulatory\nrequirements may significantly limit or completely hinder our ability to offer or continue to offer the Ordinary Shares, causing significant\ndisruption to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results\nof operations and cause the Ordinary Shares to significantly decline in value or become worthless. See “Item 3. Key Information-D.\nRisk Factor - *Uncertainties with respect to the PRC legal system could have a material adverse effect on us*”; “Item\n3. Key Information-D. Risk Factor - *Our failure to obtain prior approval of the China Securities Regulatory Commission for the listing\nand trading of our Ordinary Shares on a foreign stock exchange could have a material adverse effect upon our business, operating results,\nreputation and trading price of our Ordinary Shares*”; “Item 3. Key Information-D. Risk Factor - *New rules for China-based\ncompanies seeking for securities offerings in foreign stock markets was released by the CSRC recently*”; and “Regulation\n- Regulation Related to M&A Regulations and Overseas Listings.”\n\n \n\nOn December 28, 2021, the Cyberspace Administration\nof China (the “CAC”), together with twelve other government agencies in mainland China, published the Measures for Cybersecurity\nReview which became effective on February 15, 2022, which required that any “network platform operator” controlling personal\ninformation of no less than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity\nreview. As the PRC operating entities’ business is engaged in cold roll formed steel profile manufacturing in mainland China and\ndo not involve the collection of personal data of at least 1,000,000 users, implicate cybersecurity, we believe that neither we, nor\nthe PRC operating entities are “network platform operator(s)”, and subject to the cybersecurity review of the CAC. On July\n7, 2022, the CAC issued the Security Assessment Measures for Outbound Data Transfers which became effective on September 1, 2022, and\nit requires that a data processor to provide data abroad under specific circumstances shall apply for the security assessment in respect\nof the outbound data transfer. As the PRC operating entities do not engage in any operation of information in infrastructure or involve\nthe process of personal data of more than 1,000,000 individual, and have not provided over 100,000 individual’s personal information\nor over 10,000 individual’s sensitive personal information since January 1 of the last years abroad, further, the PRC operating\nentities have not involved the “important data” under the Security Assessment Measures for Outbound Data Transfer. We believe\nthat we, our subsidiaries, or the VIE are not subject to the security assessment of outbound data transfer under the Security Assessment\nMeasures for Outbound Data Transfers. As of the date of this Annual Report, we are of the view that we are in compliance with the applicable\nPRC laws and regulations governing the data privacy, personal information and information and outbound data transfer in all material\nrespects, including the data privacy, personal information and outbound data transfer requirements of the CAC, and we have not received\nany complaints from any third party, or been investigated or punished by any PRC competent authority in relation to data privacy and\npersonal information protection. However, as there remains significant uncertainty in the interpretation and enforcement of relevant\nPRC cybersecurity laws and regulations, we could be subject to cybersecurity review or security assessment of outbound data transfer.\nIn addition, we could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. If\nwe (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not\nrequired, or (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals\nin the future, it may result in fines or other penalties, including suspension of business, and revocation of prerequisite licenses,\nas well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial\ncondition or results of operations. If we are not able to fully comply with the Measures for Cybersecurity Review, our ability to offer\nor continue to offer securities to investors may be significantly limited or completely hindered, and our securities may significantly\ndecline in value or become worthless. See “Item 3. Key Information-D. *Risk Factor - In light of recent events indicating greater\noversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange,\nthough such oversight is not applicable to us, we may be subject to a variety of PRC laws and other obligations regarding data protection\nand any other rules, and any failure to comply with applicable laws and obligations could have a material and adverse effect on the business\nof the PRC operating entities, our listing on the Nasdaq Capital Market, financial condition, results of operations, and the offering.*”\n\n \n\nDividend Distributions or Transfers of Cash among Hongli Cayman,\nIts Subsidiaries, and the PRC Operating Entities\n\n \n\nAs of the date of this Annual Report, none of\nHongli HK, Hongli WFOE have made any dividends to Hongli Cayman. As of the date of this Annual Report, no dividends or distributions\nhave been made to any U.S. investors. We intend to keep any future earnings to re-invest in and finance the expansion of the business\nof the PRC operating entities, and we do not anticipate that any cash dividends will be paid in the foreseeable future. As of the date\nof this Annual Report, Hongli Cayman, Hongli HK, Hongli WFOE as well as the PRC operating entities have not adopted or maintained any\nother cash management policies and procedures.\n\n \n\n3\n\n \n\n \n\nHongli Cayman is a holding company with no material\noperations of its own and does not directly generate any revenue. Cash proceeds raised from overseas financing activities, including\nthe cash proceeds from any securities offering, may be transferred by Hongli Cayman to Hongli HK, and then transferred to Hongli WFOE\nvia capital contribution or shareholder loans, as the case may be. Cash proceeds may flow to the VIE from Hongli WFOE pursuant to certain\ncontractual agreements between Hongli WFOE and the VIE as permitted by the applicable PRC regulations. The process for sending such proceeds\nback to the mainland China may be time-consuming after the closing of the offering. We may be unable to use these proceeds to grow the\nbusiness of the PRC operating entities until the PRC operating entities receive such proceeds in mainland China. Any transfer of funds\nby the offshore holding company to the entities in the PRC, either as a loan or as an increase in registered capital, are subject to\napproval by or registration or filing with relevant governmental authorities in mainland China. Any foreign loans procured by the PRC\noperating entities and Hongli WFOE is required to be registered with China’s State Administration of Foreign Exchange (“SAFE”)\nor its local branches or satisfy relevant requirements, and Hongli WFOE may not procure foreign loans which exceed the difference between\ntheir respective total project investment amount and registered capital or 3.5 times (which may be varied due to the change of mainland\nChina’s national macro-control policy) of the net worth of Hongli WFOE, and the VIE may not procure foreign loans which exceed\n3.5 times (which may be varied due to the change of mainland China’s national macro-control policy) of the net worth of the VIE.\nAccording to the applicable PRC regulations on foreign-invested enterprises in mainland China, capital contributions to the PRC operating\nentities are subject to registration with the competent market regulation authority, reporting of foreign investment information through\nthe enterprise registration system and the National Enterprise Credit Information Publicity System, and foreign exchange registration\nwith a qualified bank, to the extent applicable. See “Item 3. Key Information-D. Risk Factors - Risks Related to Doing Business\nin China - *Mainland China regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental\ncontrol of currency conversion may delay us from using the proceeds of future offering to make loans or additional capital contributions\nto our subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand the business of the\nPRC operating entities.*”\n\n \n\nUnder our current corporate structure, we rely\non dividend payments from Hongli HK and Hongli WFOE to fund any cash and financing requirements we may have, including the funds necessary\nto pay dividends and other cash distributions to our shareholders or to pay any debt we may incur:\n\n \n\n \n●\nHongli WFOE’s ability\nto distribute dividends is based upon its distributable earnings. Current mainland China regulations permit Hongli WFOE to pay dividends\nto Hongli HK in accordance with applicable PRC laws and regulations under which Hongli WFOE can only pay dividends to Hongli HK out\nof its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Furthermore, Hongli\nWFOE could make payments to Hongli HK pursuant to the relevant agreements between them as permitted by the applicable PRC regulations.\nIn addition, Hongli WFOE is required to set aside certain after-tax profit to fund a statutory reserve as described below in this\nsection.\n\n \n\n \n●\nBased on the Hong Kong laws\nand regulations, as of the date of this Annual Report, there is no restriction imposed by the Hong Kong government on the transfer\nof capital within, into and out of Hong Kong (including funds from Hong Kong to mainland China), except transfer of funds involving\nmoney laundering and criminal activities and some tax restrictions between Hong Kong and mainland China as discussed herein below\nin this section. As a result, Hongli HK may further distribute any dividends or payments (if any) received from Hongli WFOE to Hongli\nCayman as dividends.\n\n \n\n \n●\nUnder Cayman Islands law,\na Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances\nmay a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business.\nIf we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, unless we receive proceeds from\nfuture offerings, we will be dependent on receipt of funds from Hongli HK, which will be dependent on receipt of dividends or payments\n(if any) from Hongli WFOE, which will be dependent on payments from the VIE in accordance with the laws and regulations of the PRC\nand the Contractual Arrangements between them.\n\n \n\n \n●\nCash dividends, if any, on\nour Ordinary Shares will be paid in U.S. dollars. The PRC government also imposes controls on the conversion of RMB into foreign\ncurrencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative\nprocedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if\nHongli WFOE, Hongli HK or the VIE incurs debt on its own in the future, the instruments governing the debt may restrict their ability\nto pay dividends or make other payments. If either Hongli WFOE, Hongli HK or the VIE is unable to distribute dividends or make payments\ndirectly or indirectly to Hongli Cayman, we may be unable to pay dividends on our Ordinary Shares.\n\n \n\n4\n\n \n\n \n\nThe transfer of funds among the PRC operating\nentities are subject to the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the\nTrial of Private Lending Cases (2020 Second Amendment, the “Provisions on Private Lending Cases”), which was implemented\non January 1, 2021 to regulate the financing activities between natural persons, legal persons and unincorporated organizations. The\nProvisions on Private Lending Cases set forth that private lending contracts will be upheld as invalid under the circumstance that (i)\nthe lender swindles loans from financial institutions for relending; (ii) the lender relends the funds obtained by means of a loan from\nanother profit-making legal person, raising funds from its employees, illegally taking deposits from the public; (iii) the lender who\nhas not obtained the lending qualification according to the law lends money to any unspecified object of the society for the purpose\nof making profits; (iv) the lender lends funds to a borrower when the lender knows or should have known that the borrower intended to\nuse the borrowed funds for illegal or criminal purposes; (v) the lending is violations of public orders or good morals; or (vi) the lending\nis in violations of mandatory provisions of laws or administrative regulations.\n\n \n\nIn addition, the mainland China government imposes\ncontrols on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of mainland\nChina. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency\ndemands, we may not be able to transfer cash out of mainland China and pay dividends in foreign currencies to our shareholders. There\ncan be no assurance that the PRC government will not intervene or impose restrictions on our ability to transfer or distribute cash within\nour organization or to foreign investors, which could result in an inability or prohibition on making transfers or distributions outside\nof mainland China and may adversely affect our business, financial condition and results of operations. See “Item 3. Key Information-D.\n*Risk Factors - Risks Related to Doing Business in China* - *Restrictions on currency exchange may limit our ability to utilize\nour revenues effectively.*”\n\n \n\nIf we are considered a mainland China tax resident\nenterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result\nmay be subject to PRC withholding tax at a rate of up to 10.0%. Certain payments from the VIE, Hongli Shandong, to Hongli WFOE are subject\nto mainland China taxes, including VAT.\n\n \n\nIn addition, each of Hongli WFOE and the PRC\noperating entities is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve\nuntil such reserve reaches 50% of its registered capital. Each of such entity in mainland China is required to set aside at least\n10% of its after-tax profits each year, if any, to fund its statutory reserve until such reserve reaches 50% of its registered\ncapital. After making allocations to the statutory reserve, each such entity may, upon approval by its shareholders’ meeting,\nset aside a portion of its after-tax profits to fund a discretionary reserve. Although the statutory reserves can be used, among\nother ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective\ncompanies, the reserve funds are not distributable as cash dividends except in the event of liquidation.\n\n \n\nPursuant to the Arrangement between Mainland China\nand the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance\nArrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a mainland\nChina project. However, the 5% withholding tax rate does not automatically apply, and certain requirements must be satisfied, including\nwithout limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project\nmust directly hold no less than 25% share ownership in the mainland China project during the 12 consecutive months preceding its receipt\nof the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to\napply for the 5% lower mainland China withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate\non a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong\ntax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to\nbe paid by Hongli WFOE to its immediate holding company, Hongli HK. As of the date of this Annual Report, we have not applied for the\ntax resident certificate from the relevant Hong Kong tax authority. Hongli HK intends to apply for the tax resident certificate when\nHongli WFOE plans to declare and pay dividends to Hongli HK. See “Item 3. Key Information-D. Risk Factors - *Risks Related to\nDoing Business in China - There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of Hongli\nWFOE, and dividends payable by Hongli WFOE to Hongli HK may not qualify to enjoy certain treaty benefits.*”\n\n \n\n5\n\n \n\n \n\nFinancial Information Related to the VIE\n\n \n\nThe following tables present selected condensed\nconsolidating statements of operations and comprehensive income (loss), and cash flows for the years ended December 31, 2025, 2024 and\n2023, and the selected condensed consolidating balance sheets as of December 31, 2025 and 2024, which showing financial information for\nparent company, Hongli Cayman, its subsidiaries (Hongli HK and Hongli WFOE), the VIE and its subsidiaries, eliminating entries and consolidated\ninformation.\n\n \n\n**SELECTED CONDENSED CONSOLIDATING STATEMENTS\nOF OPERATIONS**\n\n \n\n  \nFor the Year Ended December 31, 2025 \n\n  \nHongli Cayman\n(Cayman Islands)  \nSubsidiary\n(Hong Kong)  \nHongli WFOE\n(Mainland China)  \nVIE and Its\nSubsidiaries  \nEliminations  \nConsolidated\nTotal \n\n  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$ \n\nRevenues \n -  \n -  \n -  \n 19,600,691  \n -  \n 19,600,691 \n\nConsulting fee income from VIE and VIE’s subsidiaries \n -  \n -  \n 1,952,276  \n -  \n (1,952,276) \n - \n\nShare of income from VIE \n 1,952,276  \n 1,952,276  \n -  \n -  \n (3,904,552) \n - \n\nShare of income from subsidiary \n (9,414) \n 23  \n 9,391  \n -  \n -  \n - \n\nBenefits through VIE and VIE’s subsidiaries \n -  \n -  \n -  \n -  \n -  \n - \n\nConsulting fee in relation to services rendered by Hongli WFOE \n -  \n -  \n -  \n (1,952,276) \n 1,952,276  \n - \n\nNet income (loss) \n 1,942,840  \n 1,952,276  \n 1,952,276  \n -  \n (3,904,552) \n 1,942,840 \n\nComprehensive income (loss) \n 3,686,640  \n 3,696,076  \n 3,696,076  \n 652,188  \n (7,392,152) \n 4,338,828 \n\n \n\n  \nFor the Year Ended December 31, 2024 \n\n  \nHongli Cayman\n(Cayman Islands)  \nSubsidiary\n(Hong Kong)  \nHongli WFOE\n(Mainland China)  \nVIE and Its\nSubsidiaries  \nEliminations  \nConsolidated\nTotal \n\n  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$ \n\nRevenues \n -  \n -  \n -  \n 14,105,620  \n    \n 14,105,620 \n\nConsulting fee income from VIE and VIE’s subsidiaries \n -  \n -  \n 146,528  \n    \n (146,528) \n - \n\nShare of income from VIE \n 146,528  \n 146,528  \n -  \n -  \n (293,056) \n - \n\nShare of income from subsidiary \n 60,143  \n (1) \n (60,142) \n -  \n -  \n - \n\nBenefits through VIE and VIE’s subsidiaries \n -  \n -  \n -  \n -  \n -  \n - \n\nConsulting fee in relation to services rendered by Hongli WFOE \n -  \n -  \n -  \n (146,528) \n 146,528  \n - \n\nNet income (loss) \n (1,761,351) \n 146,528  \n 26,244  \n -  \n (293,056) \n (1,881,635)\n\nComprehensive income (loss) \n (1,761,351) \n 146,528  \n 299,572  \n (381,527) \n (293,056) \n (2,582,258)\n\n \n\n  \nFor the Year Ended December 31, 2023 \n\n  \nHongli Cayman\n(Cayman Islands)  \nSubsidiary\n(Hong Kong)  \nHongli WFOE\n(Mainland China)  \nVIE and Its\nSubsidiaries  \nEliminations  \nConsolidated\nTotal \n\n  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$ \n\nRevenues \n -  \n -  \n -  \n 15,997,954  \n -  \n 15,997,954 \n\nConsulting fee income from VIE and VIE’s subsidiaries \n -  \n -  \n 780,491  \n -  \n (780,491) \n - \n\nShare of income from VIE \n 780,491  \n 780,491  \n -  \n -  \n (1,560,982) \n - \n\nShare of income from subsidiary \n 64,242  \n 299  \n (64,541) \n -  \n -  \n - \n\nBenefits through VIE and VIE’s subsidiaries \n -  \n -  \n -  \n -  \n -  \n - \n\nConsulting fee in relation to services rendered by Hongli WFOE \n -  \n -  \n -  \n (780,491) \n 780,491  \n - \n\nNet income \n 864,722  \n 780,491  \n 780,491  \n -  \n (1,560,982) \n 864,722 \n\nComprehensive income (loss) \n 590,315  \n 526,084  \n 526,084  \n (384,754) \n (1,052,168) \n 205,561 \n\n \n\n6\n\n \n\n \n\n**SELECTED CONDENSED CONSOLIDATING BALANCE SHEETS**\n\n \n\n  \nAs of December 31, 2025 \n\n  \nHongli Cayman\n(Cayman Islands)  \nSubsidiary\n(Hong Kong)  \nHongli WFOE\n(Mainland China)  \nVIE and Its\nSubsidiaries  \nEliminations  \nConsolidated\nTotal \n\n  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$ \n\nCash, cash equivalents and restricted cash \n 4,632  \n 1,744  \n 41,819  \n 1,836,972  \n -  \n 1,885,167 \n\nConsulting fee receivable due from VIE and VIE’s subsidiaries \n -  \n -  \n -  \n -  \n -  \n - \n\nTotal current assets \n 40,427,244  \n 8,368,644  \n 8,279,201  \n 17,016,567  \n (58,007,596) \n 16,084,060 \n\nInvestments in VIE \n 16,259,895  \n 16,259,895  \n 16,259,895  \n -  \n (48,779,685) \n - \n\nInvestments in subsidiaries \n (5,314) \n (4,993) \n -  \n -  \n 10,307  \n - \n\nExchange adjustments \n 1,150,299  \n -  \n -  \n -  \n (1,150,298) \n - \n\nAccumulated benefits through VIE and VIE’s subsidiaries \n -  \n -  \n -  \n -  \n -  \n - \n\nTotal non-current assets \n -  \n -  \n 34,316,583  \n 21,790,002  \n -  \n 56,106,585 \n\nTotal Assets \n 57,832,124  \n 24,623,546  \n 58,855,679  \n 38,806,569  \n (107,927,273) \n 72,190,645 \n\nVIE and subsidiaries profit shared with parent and pledged equity \n 1  \n 16,254,581  \n 16,308,533  \n 16,259,895  \n (48,823,009) \n - \n\nTotal Liabilities \n -  \n 24,623,546  \n 58,855,679  \n 38,806,569  \n (107,927,273) \n 14,358,522 \n\nTotal Shareholders’ Equity \n 57,832,123  \n -  \n -  \n -  \n -  \n 57,832,123 \n\nTotal Liabilities and Shareholders’ Equity \n 57,832,124  \n 24,623,546  \n 58,855,679  \n 38,806,569  \n (107,927,273) \n 72,190,645 \n\n \n\n  \nAs of December 31, 2024 \n\n  \nHongli Cayman\n(Cayman Islands)  \nSubsidiary\n(Hong Kong)  \nHongli WFOE\n(Mainland China)  \nVIE and Its\nSubsidiaries  \nEliminations  \nConsolidated\nTotal \n\n  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$ \n\nCash, cash equivalents and restricted cash \n 4,654  \n 1,767  \n 46,083  \n 872,282  \n -  \n 924,786 \n\nConsulting fee receivable due from VIE and VIE’s subsidiaries \n -  \n -  \n -  \n -  \n -  \n - \n\nTotal current assets \n 40,427,266  \n 8,368,667  \n 7,941,103  \n 12,823,007  \n (57,624,662) \n 11,935,381 \n\nInvestments in VIE \n 13,655,431  \n 13,655,431  \n 13,655,431  \n -  \n (40,966,293) \n - \n\nInvestments in subsidiaries \n 4,101  \n 4,399  \n -  \n -  \n (8,500) \n - \n\nExchange adjustments \n (593,502) \n -  \n -  \n -  \n 593,502  \n - \n\nAccumulated benefits through VIE and VIE’s subsidiaries \n -  \n -  \n -  \n -  \n -  \n - \n\nTotal non-current assets \n -  \n -  \n 32,877,029  \n 20,198,011  \n -  \n 53,075,040 \n\nTotal Assets \n 53,493,296  \n 22,028,497  \n 54,473,563  \n 33,021,018  \n (98,005,953) \n 65,010,421 \n\nVIE and subsidiaries profit shared with parent and pledged equity \n -  \n 13,659,532  \n 13,701,989  \n 13,655,431  \n (41,016,952) \n - \n\nTotal Liabilities \n 1  \n 22,028,497  \n 54,473,563  \n 33,021,018  \n (98,005,953) \n 11,517,126 \n\nTotal Shareholders’ Equity \n 53,493,295  \n -  \n -  \n -  \n -  \n 53,493,295 \n\nTotal Liabilities and Shareholders’ Equity \n 53,493,296  \n 22,028,497  \n 54,473,563  \n 33,021,018  \n (98,005,953) \n 65,010,421 \n\n \n\n7\n\n \n\n \n\n**SELECTED CONDENSED CONSOLIDATING STATEMENTS\nOF CASH FLOWS**\n\n \n\n  \nFor the Year Ended December 31, 2025 \n\n  \nHongli Cayman\n(Cayman Islands)  \nSubsidiary\n(Hong Kong)  \nHongli WFOE\n(Mainland China)  \nVIE and Its\nSubsidiaries  \nEliminations  \nConsolidated\nTotal \n\n  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$ \n\nNet cash (used in) provided by operating activities \n (22) \n (23) \n (6,112) \n 907,258  \n (22,834) \n 878,267 \n\nNet cash (used in) provided by investing activities \n -  \n -  \n -  \n (1,261,573) \n -  \n (1,261,573)\n\nNet cash provided by (used in) financing activities \n -  \n -  \n -  \n 1,255,752  \n -  \n 1,255,752 \n\n** **\n\n  \nFor the Year Ended December 31, 2024 \n\n  \nHongli Cayman\n(Cayman Islands)  \nSubsidiary\n(Hong Kong)  \nHongli WFOE\n(Mainland China)  \nVIE and Its\nSubsidiaries  \nEliminations  \nConsolidated\nTotal \n\n  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$ \n\nNet cash (used in) provided by operating activities \n (33,000,022) \n 1  \n 33,317,755  \n (381,390) \n (350,378) \n (414,034)\n\nNet cash (used in) provided by investing activities \n -  \n -  \n (33,350,376) \n 38,567  \n -  \n (33,311,809)\n\nNet cash provided by (used in) financing activities \n 33,000,000  \n -  \n 5,559  \n 503,018  \n -  \n 33,508,577 \n\n** **\n\n  \nFor the Year Ended December 31, 2023 \n\n  \nHongli Cayman\n(Cayman Islands)  \nSubsidiary\n(Hong Kong)  \nHongli WFOE\n(Mainland China)  \nVIE and Its\nSubsidiaries  \nEliminations  \nConsolidated\nTotal \n\n  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$  \nUS$ \n\nNet cash (used in) provided by operating activities \n (10) \n (299) \n 84,567  \n 1,517,286  \n (716,627) \n 884,917 \n\nNet cash (used in) provided by investing activities \n (8,368,965) \n 2,065  \n (9,561) \n (2,253,634) \n 8,376,461  \n (2,253,634)\n\nNet cash provided by (used in) financing activities \n 8,373,651  \n -  \n -  \n (586,781) \n (7,404,776) \n 382,094 \n\n \n\n8\n\n \n\n \n\nROLL-FORWARD OF INVESTMENT IN SUBSIDIARIES\nAND VIE\n\n \n\nBalance, December 31, 2023 \n$13,680,265 \n\nComprehensive income for the year \n 205,561 \n\nBalance, December 31, 2024 \n 13,066,030 \n\nComprehensive loss for the year \n$(2,582,258)\n\nBalance, December 31, 2025 \n 17,404,880 \n\nComprehensive loss for the year \n$4,338,828 \n\n \n\nEmerging Growth Company Status\n\n \n\nAs a company with less than $1.235 billion in\nrevenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business\nStartups Act, or JOBS Act, enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise applicable\nto public companies. These provisions include, but are not limited to:\n\n \n\n \n●\nbeing permitted to present\nonly two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial\nCondition and Results of Operations in our Securities and Exchange Commission (“SEC”) filings;\n\n \n\n \n●\nnot being required to comply\nwith the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;\n\n \n\n \n●\nreduced disclosure obligations\nregarding executive compensation in periodic reports, proxy statements and registration statements; and\n\n \n\n \n●\nexemptions from the requirements\nof holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously\napproved.\n\n \n\nWe may take advantage of these provisions until\nthe last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant\nto an effective registration statement under the Securities Act of 1933, as amended. However, if certain events occur before the end\nof such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.235 billion\nor we issue more than $1.00 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company\nbefore the end of such five-year period.\n\n \n\nIn addition, Section 107 of the JOBS Act provides\nthat an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of\nthe Securities Act for complying with new or revised accounting standards. We have elected to take advantage of the extended transition\nperiod for complying with new or revised accounting standards.\n\n \n\n9\n\n \n\n \n\nForeign Private Issuer Status\n\n \n\nWe are incorporated and registered in the Cayman\nIslands, and more than 50 percent of our outstanding voting securities are not directly or indirectly held by residents of the United\nStates. Therefore, we are a “foreign private issuer,” as defined in Rule 405 under the Securities Act and Rule 3b-4(c) under\nthe Exchange Act. As a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will\nbe subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies.\nFor example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual\nexecutive compensation information. Furthermore, our directors and executive officers will not be subject to the insider short-swing\nprofit disclosure and recovery regime.\n\n \n\nImplication of The Holding Foreign Companies Accountable Act\n\n \n\nOur Ordinary Shares may be prohibited to trade\non a national exchange or “over-the-counter” markets under the Holding Foreign Companies Accountable Act (“HFCA Act”)\nif the PCAOB is unable to inspect our auditors for two consecutive years.\n\n \n\nOn December 16, 2021, the PCAOB issued a Determination\nReport which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in:\n(1) mainland China, and (2) Hong Kong. Our auditor, HTL International, LLC, headquartered in Houston, Texas, is an independent registered\npublic accounting firm with the PCAOB, subject to laws in the United States pursuant to which the PCAOB conducts regular inspections\nto assess its compliance with the applicable professional standards. HTL is subject to inspection by the PCAOB on a regular basis, and\nHTL is not subject to the PCAOB determinations as of the date of this annual report. Notwithstanding the foregoing, in the future, if\neither there is any regulatory change or step taken by PRC regulators that does not permit HTL International, LLC to provide audit documentation\nlocated in mainland China or Hong Kong to the PCAOB for inspection or investigation or the PCAOB expands the scope of the Determination\nReport so that we are subject to the HFCA Act, as the same may be amended, you may be deprived of the benefits of such inspection which\ncould result in limitation or restriction to our access to the U.S. capital markets and trading of our securities, including on a national\nexchange and on “over-the-counter” markets, may be prohibited under the HFCA Act. On August 26, 2022, the CSRC, the Ministry\nof Finance of the PRC, and PCAOB signed a Statement of Protocol, or the Protocol, governing inspections and investigations of audit firms\nbased in China and Hong Kong. Pursuant to the Protocol, the PCAOB has independent discretion to select any issuer audits for inspection\nor investigation and has the unfettered ability to transfer information to the SEC. The PCAOB was required to reassess these determinations\nby the end of 2022. Under the PCAOB’s rules, a reassessment of a determination under the HFCA Act may result in the PCAOB reaffirming,\nmodifying or vacating the determination. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access\nto inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous\ndeterminations to the contrary. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered\npublic accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out\nof our, and our auditor’s, control. See “Item 3. Key Information-D. Risk Factors - *Ordinary Shares may be prohibited from\nbeing traded on a national exchange under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditors.\nThe delisting of our Ordinary Shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.”*for more information.\n\n** **\n\nA. [Reserved]\n\n \n\nB. Capitalization and Indebtedness\n\n \n\nNot applicable.\n\n \n\nC. Reasons for the Offer and Use of Proceeds\n\n \n\nNot applicable.\n\n \n\nD. Risk Factors\n\n \n\n10\n\n \n\n \n\n**SUMMARY OF RISK FACTORS**\n\n \n\n*Investment in our securities involves a high\ndegree of risk. You should carefully consider the risks described below together with all of the other information included in this Annual\nReport before making an investment decision. The risks and uncertainties described below represent our known material risks to our business.\nIf any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case,\nyou may lose all or part of your investment.*\n\n** **\n\n**Risks Related to the Business and Industry**\n\n \n\nRisks and uncertainties related to the business\nand industry of the PRC operating entities include, but are not limited to, the following:\n\n** **\n\n \n●\nOur entrusted investment arrangement relating to a potential investment\nproject may not result in a completed transaction or the timely recovery of our deposit, which could adversely affect our liquidity and\nresults of operations. (see page 12)\n\n \n \n \n\n \n●\nOur acquisition of the Yingxuan Assets may be delayed or may not be completed as expected, which could adversely affect our expansion plans, operations and financial condition. (see page 12)\n\n \n \n \n\n \n●\nOngoing geopolitical tensions around the world may have a material adverse effect on our business, financial condition, and results of operations. (see page 13)\n\n \n \n \n\n \n●\nThe business of our PRC operating entities involves occupational hazards to their workforce. (see page 13)\n\n \n \n \n\n \n●\nThe PRC operating entities may not be able to accurately forecast demand for their products. (see page 15)\n\n** **\n\n \n●\nEnvironmental regulations impose substantial costs and limitations\non the PRC operating entities’ operations. (see page 13)\n\n \n\n**Risks Related to Our Corporate Structure**\n\n \n\nWe are also subject to risks and uncertainties\nrelated to our corporate structure, including, but not limited to, the following:\n\n \n\n \n●\nWe rely on Contractual Arrangements with the VIE and the shareholders of the VIE to consolidate the financial results of the PRC operating\nentities. We do not have an equity ownership in, direct foreign investment in, or control of, through such ownership or investment, the\nVIE. (see page 22)\n\n \n\n \n●\nAny failure by the VIE or its shareholders to perform their obligations under our Contractual Arrangements with them would have a material adverse effect on our results of operation. (see page 22)\n\n \n\n \n●\nContractual Arrangements in\nrelation to the VIE may be subject to scrutiny by the mainland China tax authorities and they may determine that we or the VIE owe\nadditional taxes, which could negatively affect our financial condition and the value of your investment. (see page 24)\n\n \n\n \n●\nIf the VIE goes bankrupt or\nbecomes subject to a dissolution or liquidation proceeding, its ability to operate its business might be materially and adversely\nhindered, which could materially and adversely affect our results of operations. (see page 25)\n\n** **\n\n11\n\n \n\n** **\n\n**Risks Related to Doing Business in China**\n\n \n\nHongli WFOE and PRC operating entities are based\nin mainland China, Hongli HK is established in Hong Kong as a holding company, and the PRC operating entities have all of their operations\nin China, and therefore, we and the PRC operating entities face risks and uncertainties related to doing business in China in general,\nincluding, but not limited to, the following:\n\n \n\n \n●\nUncertainties with respect\nto the PRC legal system could have a material adverse effect on us. (see page 27)\n\n \n\n \n●\nOur Ordinary Shares may be\nprohibited from being traded on a national exchange under the Holding Foreign Companies Accountable Act if the PCAOB is unable to\ninspect our auditors. The delisting of our Ordinary Shares, or the threat of their being delisted, may materially and adversely affect\nthe value of your investment. (see page 36)\n\n \n\n \n●\nChina’s economic, political\nand social conditions, as well as changes in any government policies, laws and regulations may be quick with little advance notice\nand could have a material adverse effect on the PRC operating entities’ business and the value of our Ordinary Shares. (see\npage 28)\n\n \n\n \n●\nThe Chinese government exerts\nsubstantial influence over the manner in which we and the PRC operating entities must conduct business activities. (see page 29)\n\n \n\n**Risks Related to Our Ordinary Shares**\n\n \n\nIn addition to the risks described above, we are\nsubject to general risks and uncertainties related to our Ordinary Shares, including, but not limited to, the following:\n\n \n\n \n●\nWe are a “foreign private\nissuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide\nyou the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it\nmore difficult for you to evaluate our performance and prospects. (see page 43)\n\n \n\n \n●\nWe may experience extreme\nshare price volatility unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult\nfor prospective investors to assess the rapidly changing value of our Ordinary Shares. (see page 45)\n\n \n\nRisks Related to the Business and Industry\n\n \n\n**Our entrusted investment arrangement relating to a potential\ninvestment project may not result in a completed transaction or the timely recovery of our deposit, which could adversely affect our liquidity\nand results of operations.**\n\n \n\nOn December 6, 2024, Hongli WFOE deposited approximately $32.9 million\n(RMB239.98 million) in anticipation of a proposed investment project. After the related framework agreement expired on December 31, 2025\nwithout completion of the contemplated investment, the investment amount was transferred to an account designated by Shanghai Zhuofan\nIndustrial Co., Ltd. in connection with a new entrusted investment arrangement. Shanghai Zhuofan, SBI China Mega Asset Management Limited\nand Hongli WFOE also entered into a project investment entrustment service agreement under which potential investment projects are to\nbe sourced and screened. As of the date of this annual report, no investment project has been completed. There can be no assurance that\nany suitable investment opportunity will be identified, that any transaction will be completed on acceptable terms or at all, or that\nthe deposited amount will be returned in a timely manner if no transaction is consummated. Any delay, dispute or failure in connection\nwith this arrangement could adversely affect our liquidity, business, financial condition and results of operations.\n\n \n\n**Our acquisition of the Yingxuan Assets may be delayed or may\nnot be completed as expected, which could adversely affect our expansion plans, operations and financial condition.**\n\n \n\nIn November 2020, Hongli Shandong began the acquisition\nof the Yingxuan Assets, consisting of certain industrial land use rights, buildings, facilities and infrastructure, and later amended\nthe total consideration to approximately $21.9 million. As of December 31, 2025, we had made cumulative payments of approximately $18.9\nmillion in connection with this acquisition. However, assets with a value of approximately $7.7 million had not yet been legally transferred\nto us as of the filing date of this annual report. In addition, a remaining balance of approximately $2.8 million is contractually payable\nonly upon completion of the legal title transfer for the remaining real estate and land use rights. See “Item 4. Information on\nthe Company – B. Business Overview – Facilities and Equipment of the PRC Operating Entities – Yingxuan Assets Purchase.”\n\n \n\nThe completion of the transfer of the remaining\nYingxuan Assets is subject to legal, administrative and other uncertainties, including the timely completion of title transfer procedures\nand coordination with the relevant counterparties and government authorities. If the transfer of the remaining Yingxuan Assets is significantly\ndelayed or cannot be completed on acceptable terms, our expansion plans may be delayed or adversely affected, and we may not realize\nthe expected operational or strategic benefits of the acquisition. Any such delay or failure could adversely affect our production planning,\nbusiness operations, financial condition and results of operations.\n\n \n\n12\n\n \n\n \n\n**Ongoing geopolitical tensions around the world may have a material\nadverse effect on our business, financial condition, and results of operations.**\n\n** **\n\nWe may face risks associated with heightened tensions\nin geopolitical and economic relations. Rivalries and sanctions between major powers, including the United States and China, and unrest,\nterrorist threats, wars and other conflicts involving Ukraine, the Middle East and elsewhere have created increased global uncertainty.\nSuch geopolitical tensions, along with trade disputes and regional conflicts, may result in economic instability, market volatility,\nand regulatory changes, which could impact our supply chain, operations, and consumer demand. In particular, trade tensions between the\nUnited States and China have resulted in, and may continue to result in, changes in tariff policies, import and export restrictions,\nsanctions, trade barriers and other protectionist measures. In 2025, the United States and China announced multiple rounds of tariff\nincreases and retaliatory measures, although some of those measures were later suspended, reduced or otherwise modified. As of the date\nof this annual report, U.S.-China trade measures, including reciprocal tariffs, tariffs imposed in connection with the fentanyl-related\nnational emergency, Section 301 tariffs, Section 232 tariffs and related exclusions and suspensions, continue to evolve and remain subject\nto further change.\n\n \n\nHistorically, tariffs have led to increased trade\nand political tensions, between the U.S. and China, as well as between the U.S. and other countries. Political tensions as a result of\ntrade policies could reduce trade volume, cross-border investment, technological exchange, and other economic activities between major\neconomies, resulting in a material adverse effect on global economic conditions and the stability of global financial and stock markets.\nMoreover, the heightened geopolitical uncertainty and potential for further escalation may discourage investments in securities issued\nby China-based companies (including us) and affect the global macroeconomic environment. For example, it has been reported that the U.S.\nadministration may consider imposing further restrictions or prohibitions on trading of Chinese securities. Such geopolitical developments\ncould materially and adversely affect our overall financial performance and prices of our Ordinary Shares.\n\n \n\nMoreover, such tensions may lead to consumer boycotts,\nincreased security measures, and travel restrictions, all of which could negatively affect our ability to conduct business, maintain\nsupply chain operations, and expand into new markets. Any restrictions on international trade and capital flows may have a negative impact\non our ability to access capital and expand our operations. As a result, any of these events could have a material adverse effect on\nour business, financial condition, and results of operations. However, our current business operations are primarily focused on the domestic\nChinese and South Korean markets, and we have not exported products to the United States in the near future. Our revenues from South\nKorean market have remained stable, with business volume increasing compared to the same period last year. In the first quarter of 2026,\nsales in South Korea reached RMB5.4 million ($0.75 million), representing an increase of RMB0.8 million ($0.11 million), or 16%, from\nRMB4.7 million ($0.65 million) in the same period last year. Orders have continued to grow in the second quarter of 2026 as well. As\nsuch, the recent changes in the international trade landscape are not expected to have a material impact on our day-to-day operations.\n\n \n\n**The business of our PRC operating entities involves occupational\nhazards to their workforce.**\n\n \n\nThe operations of our PRC operating entities rely\nheavily on their workforce, which is exposed to a wide range of operational hazards typical for the steel-making industry. These hazards\narise from working at industrial sites, operating heavy machinery and performing other hazardous activities. Although the PRC operating\nentities provide their workforce with occupational health and safety training and believe that their safety standards and procedures\nare adequate, accidents at their sites and facilities have occurred in the past and may occur in the future as a result of unexpected\ncircumstances, failure of employees to follow proper safety procedures, human error or otherwise. If any of these circumstances were\nto occur in the future, they could result in personal injury, business interruption, possible legal liability, damage to our business\nreputation and corporate image and, in severe cases, fatalities, any of which could have a material adverse effect on our business, financial\ncondition, results of operations or prospects. The PRC operating entities have job-related injury insurance to protect them against such\nrisks, but recoveries under the insurance coverage that we obtain in the future, if any, may not fully offset their costs in the event\nof a claim.\n\n \n\n**Environmental regulations impose substantial\ncosts and limitations on the PRC operating entities’ operations.**\n\n \n\nThe PRC operating entities use a variety of chemicals and produce\nsignificant emissions in their manufacturing operations. As such, the PRC operating entities are subject to various national and local\nenvironmental laws and regulations in China concerning issues such as air emissions, wastewater discharges, and solid waste management\nand disposal. These laws and regulations can restrict or limit their operations and expose them to liability and penalties for non-compliance.\nWhile the PRC operating entities believe that their facilities are in material compliance with all applicable environmental laws and\nregulations, the risks of substantial unanticipated costs and liabilities related to compliance with these laws and regulations are an\ninherent part of the PRC operating entities’ business. It is possible that future conditions may develop, arise or be discovered\nthat create new environmental compliance or remediation liabilities and costs. While the PRC operating entities believe that they can\ncomply with existing environmental legislation and regulatory requirements and that the costs of compliance have been included within\nbudgeted cost estimates, compliance may prove to be more limiting and costly than anticipated.\n\n \n\n13\n\n \n\n \n\n**Non-compliance with present or future construction and environmental\nregulations may result in potentially significant monetary damages and fines.**\n\n \n\nAs the operations of the PRC operating entities’\nbusiness impact the environment, the PRC operating entities must comply with all applicable national and local environmental laws and\nregulations in China. The PRC operating entities are required to undertake environmental impact assessment procedures and pass certain\ninspection and approval procedures before commencing our operations. The PRC operating entities are also required to register with, or\nobtain approvals from, relevant environmental protection authorities for various environmental matters such as discharging waste generated\nby their operations.\n\n \n\nThe PRC operating entities intend to increase\ntheir capacity in the future by establishing new facilities. The PRC operating entities will be required to obtain certain environmental,\nconstruction and safety approvals and completed certain examination and acceptance procedures for these facilities. They may not be able\nto obtain such approvals or complete such procedures in a timely manner or at all. If for any reason the relevant government authorities\nin China determine that the PRC operating entities are not in compliance with environmental and construction laws and regulations, the\nPRC operating entities may be required to pay fines, suspend or cease their operations in the relevant premises. In addition, because\nthe requirements imposed by environmental, health and safety laws and regulations may change and more stringent regulations may be adopted,\nthe PRC operating entities may be unable to accurately predict the cost of complying with these laws and regulations, which could be\nsubstantial.\n\n \n\n**The PRC operating entities’ business is also affected\nby global economic conditions.**\n\n \n\nAs the PRC operating entities profile\nproducts are applied to different kinds of machineries and equipment manufactured by enterprises in South Korea, Japan, and United\nStates, the demands of the machineries and equipment in the world will to a certain extent impact the business of the PRC operating\nentities. Further, the PRC operating entities offer a broad range of products exported to South Korea, Japan, and United States, so the business of the PRC operating entities also depend upon factors relating to global economic conditions such as\nbusiness conditions, interest rates, availability of credit, and applicable taxation in regional and local markets where they sell\ntheir products.\n\n \n\n**The PRC operating entities operate in a competitive industry.\nIf the PRC operating entities are unable to compete successfully, they may lose market share to their competitors.**\n\n \n\nThe domestic market for custom-made profile and\nrelated products is highly competitive. The PRC operating entities’ current or potential competitors include major and scaled manufacturers\nin China and overseas. Some of their competitors may have greater brand recognition, a larger group of customers or vendors, longer operating\nhistories and greater marketing resources than we do. Customers may weight their experience and resources over us in various ways, therefore\nincreasing our competitor’s respective market shares. This competition affects the prices at which the PRC operating entities are\nable to sell their products, and their ability to retain or attract customers.\n\n \n\nYou should not expect that the PRC operating entities\nwill be able to compete successfully against current or potential competitors, and such competitive pressures may have a material and\nadverse effect on our business, financial condition and results of operations. Failure to compete successfully against existing or new\ncompetitors may cause the PRC operating entities to lose market share, customers and other business partners.\n\n \n\n**If the PRC operating entities are not able to continue to innovate\nor if the PRC operating entities fail to adapt to changes in their industry, our business, financial condition and results of operations\nwould be materially and adversely affected.**\n\n \n\nThe custom-made profile products industry has\ntrends of developing high-end and high-tech products to fulfill the changing customers’ demands. Furthermore, the competitors of\nthe PRC operating entities are constantly developing innovations in different types of steel products to enhance customers’ experience.\nThe PRC operating entities continue to invest significant resources in their infrastructure, research and development and other areas\nto enhance their existing products as well as to introduce new products that will attract more participants to their marketplaces. The\nchanges and developments taking place in this industry may also require the PRC operating entities to re-evaluate their business model\nand adopt significant changes to their long-term strategies and business plan. The failure of the PRC operating entities to innovate\nand adapt to these changes would have a material adverse effect on our business, financial condition and results of operations.\n\n \n\n14\n\n \n\n \n\n**We cannot assure you that the internal growth strategy of the\nPRC operating entities will be successful, which may result in a negative impact on our growth, financial condition, results of operations\nand cash flow.**\n\n \n\nOne of the strategies of the PRC operating entities\nis to grow internally through increasing the development of new products and improving the quality of existing products. However, many\nobstacles to this expansion exist, including, but not limited to, increased competition from similar businesses, the PRC operating entities’\nability to improve their products and product mix to realize the benefits of their research and development efforts, international trade\nand tariff barriers, unexpected costs, costs associated with marketing efforts abroad and maintaining attractive foreign exchange rates.\nWe cannot, therefore, assure you that the PRC operating entities will be able to successfully overcome such obstacles and establish their\nproducts in any additional markets. The inability of the PRC operating entities to implement this internal growth strategy successfully\nmay have a negative impact on our growth, future financial condition, results of operations or cash flows.\n\n \n\n**New\nlines of business or new products may subject us to additional risks.**\n\n \n\nFrom time to time, the PRC operating entities\nmay implement new lines of business or offer new products within existing lines of business. There are substantial risks and uncertainties\nassociated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines\nof business and/or new products, the PRC operating entities may invest significant time and resources. Initial timetables for the introduction\nand development of new lines of business and/or new products may not be achieved and price and profitability targets may not prove feasible.\nExternal factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the\nsuccessful implementation of a new line of business or a new product. Furthermore, any new line of business and/or new products could\nhave a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the\ndevelopment and implementation of new lines of business or new products could have a material adverse effect on our business, results\nof operations and financial condition.\n\n \n\n**If the PRC operating entities fail to manage their growth effectively,\ntheir business, financial condition and results of operations could be materially and adversely affected.**\n\n \n\nDuring any growth, the PRC operating entities may encounter problems\nrelated to their operational and financial systems and controls, including quality control and delivery and production capacities. For\neffective growth management, the PRC operating entities will be required to continue improving their operations, management, and financial\nsystems and controls. The PRC operating entities’ failure to manage growth effectively may lead to operational and financial inefficiencies,\nwhich will have a negative effect on their profitability. We cannot assure investors that the PRC operating entities will be able to\ntimely and effectively meet increased demand and maintain the quality standards required by their existing and potential customers.\n\n \n\n**The PRC operating entities may not be able to accurately forecast\ndemand for their products.**\n\n \n\nThe PRC operating entities order raw materials and supplies and plan\nproduction based on discussions with their customers and internal forecasts of demand. If they are unable to accurately forecast demand\nfor their products, in terms of both overall volume and specific products, they may experience delayed product shipments and customer\ndissatisfaction which could have an adverse impact on our business, results of operations and financial condition.\n\n \n\n**If the PRC operating entities fail to promote and maintain their\nbrand in an effective and cost-efficient way, our business and results of operations may be harmed.**\n\n \n\nWe believe that developing and maintaining awareness\nof the PRC operating entities’ brand effectively is critical to attracting new and retaining existing customers. Successful promotion\nof the PRC operating entities’ brand and their ability to attract customers depend largely on the effectiveness of their marketing\nefforts and the success of the channels they use to promote their products. It is likely that the PRC operating entities’ future\nmarketing efforts will require them to incur significant additional expenses. These efforts may not result in increased revenues in the\nimmediate future or at all and, even if they do, any increases in revenues may not offset the expenses incurred. If the PRC operating\nentities fail to successfully promote and maintain their brand while incurring substantial expenses, our results of operations and financial\ncondition would be adversely affected, which may impair the PRC operating entities’ ability to grow their business.\n\n \n\n15\n\n \n\n \n\n**Any decline in the availability or increase in the cost of raw\nmaterials could materially affect our earnings.**\n\n \n\nThe principal raw material used to manufacture the products of the\nPRC operating entities is steel. The manufacturing operations of the PRC operating entities depend heavily on the availability of raw\nmaterials. The availability of raw materials may decline and their prices may fluctuate greatly. During the fiscal years ended December\n31, 2025, 2024 and 2023, Hongli Shandong, the VIE, purchased a total of approximately $4.4 million, $2.5 million, and $3.6 million, respectively,\nof raw materials from our top four suppliers, which accounted for approximately 45%, 35%, and 48% of our raw materials purchase, respectively.\nThough the PRC operating entities are not dependent on their current suppliers and may be able to find replacement in the market, we cannot\nassure you that their operations will not be interrupted if their major suppliers are unable or unwilling to provide them with raw materials\non terms acceptable to them. This could result in a decrease in profit and damage to our reputation in the industry. If the cost of raw\nmaterials used by the PRC operating entities increase, whether because they have to use a substitute supplier or because their existing\nsuppliers raise prices, the PRC operating entities may not be able to pass these higher costs on to their customers in full or at all.\nAny increase in the prices for raw materials could materially increase their costs and therefore lower their earnings.\n\n \n\n**Equipment failures or production curtailments or shutdowns could\nadversely affect the PRC operating entities’ production.**\n\n \n\nThe production capacities of the PRC operating\nentities are subject to equipment failures and to the risk of catastrophic loss due to unanticipated events, such as fires, explosions\nand adverse weather conditions. Any such event could disrupt their operations, delay production and delivery, and adversely affect their\nbusiness, financial condition and results of operations.\n\n \n\n**We have a substantial customer concentration, with a limited\nnumber of customers accounting for a substantial portion of our revenues.**\n\n \n\nWe derive a significant portion of our revenues\nfrom a few major customers. The PRC operating entities had 3 major customers, who in aggregate accounted for approximately $13.9 million,\nor 71% of the sales, $9.5 million, or 67% of the sales, and $12.0 million, or 75% of sales for the fiscal years ended December 31, 2025,\n2024 and 2023, respectively. All of these major customers have been with the PRC operating entities for an average of 10 years and we\nconsider that their relationship with them are stable and solid. However, there can be no assurance that the PRC operating entities will\nmaintain or improve relationships with customers who do not have long-term contracts with them. If the PRC operating entities cannot\nmaintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the\nloss of such sales could have an adverse effect on our business, financial condition and results of operations.\n\n \n\nInherent risks exist whenever a large percentage\nof total revenues are concentrated with a limited number of customers. It is not possible for us to predict the future level of demand\nfor our products and services that will be generated by these customers or the future demand for our products by these customers in the\nmarketplace. If any of these customers experience declining or delayed sales due to market, economic or competitive conditions, the PRC\noperating entities could be pressured to reduce their product prices or these customers could decrease the purchase quantity of the products\nof the PRC operating entities, which could have an adverse effect on the margins and financial position, and could negatively affect\nour revenues and results of operations. If any of these three large customers of the PRC operating entities terminates the purchase of\nthe PRC operating entities’ products, such termination would materially negatively affect our revenues, results of operations and\nfinancial condition.\n\n \n\n16\n\n \n\n \n\n**Our revenue will decrease if the industries in which the customers\nof the PRC operating entities operate experience a protracted slowdown.**\n\n \n\nThe products of the PRC operating entities mainly serve as key components\nin projects and machines operated by their customers which are in a broad range of industries. Therefore, the PRC operating entities\nare subject to the general changes in economic conditions affecting those industry segments of the economy. If the industry segments\nin which the customers of the PRC operating entities operate do not grow or if there is a contraction in those industries, demand for\nthe PRC operating entities’ products will decrease. Demand for the PRC operating entities’ products is typically affected\nby a number of overarching economic factors, including, but not limited to, interest rates, the availability and magnitude of private\nand governmental investment in infrastructure projects and the health of the overall global economy. If there is a decline in economic\nactivity in China and the other markets in which the PRC operating entities operate or a protracted slowdown in industries on which the\nPRC operating entities rely for their sales, demand for their products and our revenue will likewise decrease.\n\n \n\n**The PRC operating entities may require substantial additional\nfunding in the future. There can be no assurance that such financing will be available to the PRC operating entities. If we are unable\nto raise additional capital, our financial condition and results of operations could be materially and adversely affected.**\n\n \n\nThe PRC operating entities have been dependent\nupon bank loans to meet their capital requirements in the past. We cannot assure you that the PRC operating entities will be able to\nobtain capital in the future to meet their capital requirements for their product development and to maintain operations and improve\nfinancial performance. If the PRC operating entities were unable to meet their future funding requirements for working capital and for\ngeneral business purposes, they could experience operating losses and limit their marketing efforts as well as decrease or eliminate\ncapital expenditures. If so, our operating results, our business results and our financial position would be adversely affected. If adequate\nadditional financing is not available on reasonable terms, the PRC operating entities may not be able to undertake their expansion plan,\npurchase additional equipment for their operations, satisfy the increased demands from their existing customers, or respond to new orders\nfrom potential customers, purchase necessary materials and supplies, develop new products, or hire additional employees. In that event,\nthey would have to modify their business plans accordingly, which could have a material adverse effect on our business, financial conditions\nand results of operation.\n\n \n\n**Potential disruptions in the capital and credit markets may\nadversely affect the PRC operating entities’ business, including the availability and cost of short-term funds for liquidity requirements,\nwhich could adversely affect our results of operations, cash flows and financial condition.**\n\n \n\nPotential changes in the global economy may affect\nthe availability of business and customer credit. The PRC operating entities may need to rely on the credit markets, particularly for\nshort-term borrowings from banks in China, as well as the capital markets, to meet our financial commitments and short-term liquidity\nneeds if internal funds from their operations are not available to be allocated to such purposes. Disruptions in the credit and capital\nmarkets could adversely affect their ability to draw on such short-term bank facilities. The PRC operating entities’ access to\nfunds under such credit facilities is dependent on the ability of the banks that are parties to those facilities to meet their funding\ncommitments, which may be dependent on governmental economic policies in China. Those banks may not be able to meet their funding commitments\nto the PRC operating entities if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing\nrequests from the PRC operating entities and other borrowers within a short period of time.\n\n \n\n17\n\n \n\n \n\nLong-term disruptions in the credit and capital\nmarkets could result from uncertainty, changing or increased regulations, reduced alternatives or failures of financial institutions\ncould adversely affect our access to the liquidity needed for our business. Any disruption could require us to take measures to conserve\ncash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such\nmeasures may include deferring capital expenditures, and reducing or eliminating discretionary uses of cash. These events would adversely\nimpact our results of operations, cash flows and financial position.\n\n \n\n**Our indebtedness to lenders and other creditors is significant\nand if we encounter demands for payment that we cannot meet, it could have adverse consequences for our business and future prospects.**\n\n \n\nAs of December 31, 2025, our current assets were approximately $16.1\nmillion, and our current liabilities were approximately $14.4 million. As of December 31, 2024, our current assets were approximately\n$11.9 million, and our current liabilities were approximately $8.2 million.\n\n \n\nFor the fiscal year ended December 31, 2025,\nthe PRC operating entities entered into various loan agreements with the banks for an aggregated amount of approximately $8.93\nmillion to facilitate their operations. As of December 31, 2025, short-term loan balance was approximately $11.5 million, long-term\nloan balance was nil million. Interest rates for the loans outstanding during the fiscal year ended December 31, 2025 range from\n2.80% to 6.28% per annum. For the fiscal year ended December 31, 2024, the PRC operating entities entered into various loan\nagreements with the banks for an aggregated amount of approximately $9.38 million to facilitate their operations. As of December 31,\n2024, short-term loan balance was approximately $6.08 million, long-term loan balance was $3.30 million. Interest rates for the\nloans outstanding during the fiscal year ended December 31, 2024 range from 2.0% to 6.3% per annum. Substantially all outstanding\nbank loans as of December 31, 2025 were guaranteed by Jie Liu and the family members of Mr. Jie Liu, our CEO and certain loans were\nsecured by patents, land use rights, construction in progress, real estate and accounts receivable.\n\n \n\nOur ability to pay these liabilities and meet our\nobligations will also depend on our cash reserves, available additional financing and ongoing operating performance. Although we generated\nnet cash provided by operating activities of approximately $0.9 million in 2025, there can be no assurance that we will continue to generate\nsufficient cash flow or be able to obtain additional financing on acceptable terms, or at all. In addition, we may continue to require\nbank borrowings and other financing to support our working capital needs and fund our Expansion Plan. If we are unable to meet our payment\nobligations when due or obtain sufficient financing as needed, our operations, Expansion Plan, business, financial condition and future\nprospects could be materially and adversely affected.\n\n \n\n**The business of the PRC operating entities depends on the continued\nefforts of their senior management. If one or more of the key executives of the PRC operating entities were unable or unwilling to continue\nin their present positions, the business of senior management may be severely disrupted.**\n\n \n\nThe business operations of the PRC operating entities\ndepend on the continued services of their senior management, particularly the executive officers named in this Annual Report. While the\nPRC operating entities have provided different incentives to their management, we cannot assure you that the PRC operating entities can\ncontinue to retain their services. If one or more of their key executives were unable or unwilling to continue in their present positions,\nthe PRC operating entities may not be able to replace them easily, or at all, their future growth may be constrained, their business\nmay be severely disrupted and our financial condition and results of operations may be materially and adversely affected, and the PRC\noperating entities may incur additional expenses to recruit, train and retain qualified personnel. In addition, although the PRC operating\nentities have entered into confidentiality and non-competition agreements with certain management, there is no assurance that any member\nof their management team will not join the competitors of the PRC operating entities or form a competing business. If any dispute arises\nbetween the PRC operating entities and their current or former officers, the PRC operating entities may have to incur substantial costs\nand expenses in order to enforce such agreements in China or the PRC operating entities may be unable to enforce them at all.\n\n \n\n18\n\n \n\n \n\n**The business of the PRC operating entities is substantially\ndependent upon their key R&D personnel who possess skills that are valuable in this industry, and the PRC operating entities may\nhave to actively compete for their services.**\n\n \n\nOne key to the success of the PRC operating entities\nis their experienced R&D team which enables them to be a “custom-made profile shop” for their customers. The PRC operating\nentities compete for qualified personnel with other similar products manufacturing companies. Intense competition for these personnel\ncould cause their compensation costs to increase, which could have a material adverse effect on our results of operations and financial\nperformance. Key R&D personnel and our general managers of the PRC operating entities have entered into non-compete and confidentiality\nagreements with us, however, we cannot assure you that the PRC operating entities will not lose them because of such contractual obligations.\nThe future success of the PRC operating entities and ability to grow their business will depend in part on the continued service of these\nindividuals and the PRC operating entities’ ability to identify, hire and retain additional qualified personnel. If the PRC operating\nentities are unable to attract and retain qualified employees, they may not be able to meet their business and financial goals.\n\n \n\n**The PRC operating entities may be unable to hire, train and\nretain sufficient personnel to support their growth.**\n\n \n\nAny significant growth in the market for the products of the PRC operating\nentities or their entry into new markets may require additional employees for managerial, operational, financial and other purposes. As\nof April 27, 2026, the PRC operating entities have 176 full-time employees. The PRC operating entities would also need to continue to\nexpand, train and manage their employees. Continued future growth will impose significant added responsibilities upon their management\nto identify, recruit, maintain, integrate, and motivate new employees.\n\n \n\n**A lack of insurance coverage could expose the PRC operating\nentities to significant costs and business disruption.**\n\n \n\nNone of the PRC operating entities maintain any\ninsurance to cover assets, property and potential liability of their business. The lack of insurance could leave their business inadequately\nprotected from loss. If the PRC operating entities were to incur substantial losses or liabilities due to fire, explosions, floods, other\nnatural disasters or accidents or business interruption, our results of operations could be materially and adversely affected.\n\n \n\n**The PRC operating entities may not be able to prevent others\nfrom unauthorized use of their intellectual property, which could cause a loss of customers, reduce our revenues and harm their competitive\nposition.**\n\n \n\nThe PRC operating entities rely on a combination\nof copyright, trademark, software registration, anti-unfair competition and trade secret laws, as well as confidentiality agreements\nand other methods to protect our intellectual property rights. To protect their trade secrets and other proprietary information, key\nR&D personnel and their general managers are required to enter into confidentiality agreements. These agreements might not provide\neffective protection for the trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation\nor disclosure of such trade secrets, know-how or other proprietary information. Implementation of intellectual property-related laws\nin China has historically been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly,\nintellectual property rights and confidentiality protections in China may not be as effective as those in the United States or other\ndeveloped countries, and infringement of intellectual property rights continues to pose a serious risk of doing business in China. Policing\nunauthorized use of proprietary technology is difficult and expensive. The steps the PRC operating entities have taken may be inadequate\nto prevent the misappropriation of their proprietary technology. Unauthorized copying, other misappropriation, or negligent or accidental\nleakage of their proprietary technologies could enable third parties to benefit from their technologies without obtaining their consent\nor paying them for doing so, which could harm the business and competitive position of the PRC operating entities. Though the PRC operating\nentities are not currently involved in any litigation with respect to intellectual property, they may need to enforce their intellectual\nproperty rights through litigation. Litigation relating to their intellectual property may not prove successful and might result in substantial\ncosts and diversion of resources and management attention.\n\n \n\n19\n\n \n\n \n\n**The PRC operating entities may face intellectual property infringement\nclaims that could be time-consuming and costly to defend. If the PRC operating entities fail to defend themselves against such claims,\nwe may lose significant intellectual property rights and may be unable to continue providing their existing products.**\n\n \n\nThe success of the PRC operating entities largely\ndepends on their ability to use and develop their technology without infringing the intellectual property rights of third parties, especially\npatents. The PRC operating entities may be subject to risk related to potential patent infringement claims, regarding the patents of\nour profile products developed by them used for the production of the profile products for their customers. The PRC operating entities\nmay be subject to litigation involving claims of violation of other intellectual property rights of third parties. The PRC operating\nentities may be unaware of intellectual property registrations or applications relating to their products that may give rise to potential\ninfringement claims against them. There may also be technologies licensed to and relied on by the PRC operating entities that are subject\nto infringement or other corresponding allegations or claims by third parties which may damage our ability to rely on such technologies.\nThe PRC operating entities are subject to additional risks as a result of their hiring of new employees who may misappropriate intellectual\nproperty from their former employers. Parties making infringement claims may be able to obtain an injunction to prevent the PRC operating\nentities from delivering services or using technology involving the allegedly infringing intellectual property. Intellectual property\nlitigation is expensive and time-consuming and could divert management’s attention from our business. A successful infringement\nclaims against the PRC operating entities, whether with or without merit, could, among others, require them to pay substantial damages,\ndevelop non-infringing technology, or re-brand their name or enter into royalty or license agreements that may not be available on acceptable\nterms, if at all, and cease making, licensing or using products that have infringed a third party’s intellectual property rights.\nProtracted litigation could also result in existing or potential customers deferring or limiting their purchase or use of the PRC operating\nentities’ products until resolution of such litigation, or could require the PRC operating entities to indemnify their customers\nagainst infringement claims in certain instances. Any intellectual property claim or litigation in this area, whether the PRC operating\nentities ultimately win or lose, could damage the reputation of the PRC operating entities and have a material adverse effect on their\nbusiness, results of operations or financial condition.\n\n \n\n**Pandemics and epidemics, natural disasters, terrorist activities,\npolitical unrest, and other outbreaks could disrupt our delivery and operations, which could materially and adversely affect our business,\nfinancial condition, and results of operations.**\n\n \n\nGlobal pandemics, or fear of spread of contagious\ndiseases, such as Ebola virus disease (EVD), coronavirus disease 2019 (COVID-19), Middle East respiratory syndrome (MERS), severe acute\nrespiratory syndrome (SARS), H1N1 flu, H7N9 flu, swine influenza, and avian flu, as well as hurricanes, earthquakes, tsunamis, or other\nnatural disasters could disrupt our business operations, reduce or restrict our operations and services, incur significant costs to protect\nour employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business,\nfinancial condition, and results of operations. Historically, our financial and operating performance has been adversely affected by\nCOVID-19, natural disasters and other catastrophes. As a result of COVID-19, the PRC operating entities have experienced slowdowns and\ntemporary suspensions in production. The PRC operating entities’ business could be materially and adversely affected in the event\nthat the slowdowns or suspensions last for a long period of time, or decrease demand for their products. During such epidemic outbreak,\nChina may adopt certain hygiene measures, including quarantining visitors from places where any of the contagious diseases were rampant.\nAny prolonged restrictive measures in order to control the contagious disease or other adverse public health developments in China or\nour targeted markets may have a material and adverse effect on the PRC operating entities’ business operations.\n\n \n\nActual or threatened war, terrorist activities,\npolitical unrest, civil strife, and other geopolitical uncertainty could have a similar adverse effect on our business, financial condition,\nand results of operations. These events may disrupt supply chains, increase energy and raw material costs, contribute to inflation, impair\ncustomer demand, disrupt financial markets and increase overall economic uncertainty. In addition, such events may increase the risk\nof cyberattacks or other disruptions affecting critical infrastructure, financial institutions and global markets, which could adversely\naffect the operations of the PRC operating entities. The PRC operating entities may not be adequately prepared in contingency planning\nor recovery capability in relation to a major incident or crisis, and as a result, their operational continuity may be adversely and\nmaterially affected, which in turn may harm their reputation. Any one or more of these events may impede our operation and delivery efforts\nand adversely affect our sales results, or even for a prolonged period of time, which could materially and adversely affect our business,\nfinancial condition, and results of operations.\n\n \n\n20\n\n \n\n \n\n**We may be exposed to liabilities under the Foreign Corrupt Practices\nAct, and any determination that we violated the foreign corrupt practices act could have a material adverse effect on our business.**\n\n \n\nWe are subject to the Foreign Corrupt Practice\nAct, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political\nparties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We will have operations,\nagreements with third parties and make sales in South-East Asia, which may experience corruption. The existing business of the PRC operating\nentities in Asia creates the risk of unauthorized payments or offers of payments by one of the employees, consultants, or sales agents\nof our Company, because these parties are not always subject to the control of the PRC operating entities. It will be our policy to implement\nsafeguards to discourage these practices by our employees. Also, our existing safeguards and any future improvements may prove to be\nless than effective, and the employees, consultants, or sales agents of our Company may engage in conduct for which we might be held\nresponsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which\ncould negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company\nliable for successor liability for FCPA violations committed by companies in which we invest or that we acquire.\n\n \n\n**We have identified material weaknesses and significant deficiencies\nin our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial\nreporting, we may be unable to accurately report our financial results or prevent fraud.** \n\n \n\nAs defined under standards established by the\nPCAOB, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that\nthere is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements\nwill not be prevented or detected on a timely basis. As described elsewhere in our Annual Report for the fiscal year ended December 31,\n2025, our management, together with our independent registered public accounting firm identified material weaknesses in the design and\noperation of our internal controls because:\n\n \n\n \n●\nThe Company lacked key monitoring\nmechanisms, including an internal control department, to oversee and monitor risk management, business strategies and financial reporting\nprocesses.\n\n \n\n \n●\nThe Company did not have adequately\ndesigned and documented management review controls to effectively identify and prevent delays in account reconciliations.\n\n \n\n \n●\nThe Company lacked accounting\npersonnel with sufficient knowledge of U.S. GAAP and the SEC reporting requirements, which resulted in several adjustments being\nidentified and proposed by our independent registered public accounting firm.\n\n \n\nWe also identified the following deficiencies\nthat we believe to be significant deficiencies. As defined in standards established by the PCAOB, a “significant deficiency”\nis a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness,\nyet important enough to merit attention by those responsible for oversight of our financial reporting as follows:\n\n \n\n \n●\nLack of formal internal controls\nover financial closing and reporting processes.\n\n \n\n \n●\nLack of formal risk assessment process.\n\n \n\nIn order to address the material weaknesses and\nsignificant deficiencies in internal control over financial reporting of the Company, we have: (a) hired an experienced outside consultant\nwith adequate experience with U.S. GAAP and the SEC reporting and compliance requirements; (b) continued our efforts to provide ongoing\ntraining courses in U.S. GAAP to existing personnel, including our Chief Financial Officer, as well as establishing a regular assessment\nmechanism; (c) continued our efforts to set up the internal audit department, and enhance the effectiveness of the internal control system;\nand (d) continued our efforts to implement necessary review and controls at related levels and all important documents and contracts\nwill be submitted to the office of its chief executive officer for retention.\n\n \n\n21\n\n \n\n \n\nWe cannot be certain that these measures will\nsuccessfully remediate the material weakness or that other material weaknesses will not be discovered in the future. If our efforts are\nnot successful or other material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results\naccurately on a timely basis or help prevent fraud, which could cause our reported financial results to be materially misstated and result\nin the loss of investor confidence or delisting and cause the market price of our ordinary shares to decline. In addition, it could in\nturn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our securities.\nAdditionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate\nassets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal\nsanctions. We may also be required to restate our financial statements from prior periods. Because of our status as an emerging growth\ncompany, we are not required to obtain, and therefore you will not be able to depend on, an attestation from our independent registered\npublic accountants as to our internal control over financial reporting for the foreseeable future.\n\n \n\nRisks Related to Our Corporate Structure\n\n \n\n**We rely on Contractual Arrangements with the VIE and the shareholders\nof the VIE to consolidate the financial results of the PRC operating entities. We do not have an equity ownership in, direct foreign\ninvestment in, or control of, through such ownership or investment, the VIE.**\n\n \n\nWe have relied and expect to continue to rely\non the Contractual Arrangements with the VIE to consolidate the financial results of the PRC operating entities. We do not have an equity\nownership in, direct foreign investment in, or control of, through such ownership or investment, the VIE.\n\n \n\nIf we had direct ownership of the VIE, we would\nbe able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement\nchanges, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current Contractual\nArrangements, we rely on the performance by the VIE and its shareholders of their obligations under the contracts to consolidate financial\nresults of the VIE. The shareholders of the VIE may not act in the best interests of our company or may not perform their obligations\nunder these contracts. Such risks exist throughout the period in which we consolidate the financial results of the PRC operating entities\nthrough the Contractual Arrangements with the VIE. Although we have the right to replace any shareholder of the VIE under the Contractual\nArrangements, if any shareholder of the VIE is uncooperative or any dispute relating to these contracts remains unresolved, we will have\nto enforce our rights under these contracts through the operations of PRC laws and arbitration, litigation and other legal proceedings\nand therefore will be subject to uncertainties in the PRC legal system. See “Item 3. Key Information-D. Risk Factors - Uncertainties\nwith respect to the PRC legal system could have a material adverse effect on us.” Therefore, we do not have an equity ownership\nin, direct foreign investment in, or control of, through such ownership or investment, the VIE.\n\n \n\n**Any failure by the VIE or its shareholders to perform their\nobligations under our Contractual Arrangements with them would have a material adverse effect on our results of operation.**\n\n \n\nIf the VIE or its shareholders fail to perform\ntheir respective obligations under the Contractual Arrangements, we may have to incur substantial costs and expend additional resources\nto enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive\nrelief, and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of the VIE\nwere to refuse to transfer their equity interest in the VIE to us or our designee if we exercise the purchase option pursuant to these\nContractual Arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal action to compel them\nto perform their contractual obligations.\n\n \n\nAll the agreements under our Contractual Arrangements\nare governed by PRC laws and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would\nbe interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal system\nin the PRC is not as well established as in some other jurisdictions, such as in the United States. As a result, uncertainties in the\nPRC legal system could limit our ability to enforce these Contractual Arrangements. Meanwhile, there are some regulations that are unfavorable\nto the PRC operating entities. There are also very few precedents and little formal guidance as to how Contractual Arrangements in the\ncontext of a consolidated variable interest entity should be interpreted or enforced under PRC laws and there remain significant uncertainties\nregarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators\nare final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent\ncourt. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only\nenforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses\nand delay. In the event that we are unable to enforce these Contractual Arrangements, or if we suffer significant delay or other obstacles\nin the process of enforcing these Contractual Arrangements, we may not be able to consolidate the financial results of the PRC operating\nentities, and our results of operation may be negatively affected.\n\n \n\n22\n\n \n\n \n\n**Our Ordinary Shares may decline in value or become worthless\nif we are unable to assert our contractual rights over the assets of the PRC operating entities that conduct all or substantially all\nof our operations.**\n\n \n\nWe are an offshore holding company incorporated\nand registered in the Cayman Islands. As a holding company with no material operations of our own, we consolidate financial results of\nthe PRC operating entities through Contractual Arrangements with Hongli Shandong and its subsidiaries. We have relied and expect to continue\nto rely on the Contractual Arrangements with the PRC operating entities, to operate our business. If the PRC government determines that\nthe Contractual Arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change\nor are interpreted differently in the future, it would likely result in a material change in our operations and our Ordinary Shares may\ndecline in value or become worthless if we are unable to consolidate the financial results of the PRC operating entities.\n\n \n\n**Substantial uncertainties exist with respect to the interpretation\nand implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate\ngovernance and business operations.**\n\n \n\nOn March 15, 2019, the National People’s\nCongress, or the NPC, approved the Foreign Investment Law, which has taken effect on January 1, 2020 and replaced the trio of existing\nlaws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative\nJoint Venture Enterprise Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations.\nThe Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line\nwith prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic\ninvestments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. For\ninstance, under the Foreign Investment Law, “foreign investment” refers to the investment activities directly or indirectly\nconducted by foreign individuals, enterprises or other entities in China. Though it does not explicitly classify Contractual Arrangements\nas a form of foreign investment, there is no assurance that foreign investment through Contractual Arrangements would not be interpreted\nas a type of indirect foreign investment activity under the definition in the future. In addition, the definition contains a catch-all\nprovision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other\nmethods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions\npromulgated by the State Council to provide for Contractual Arrangements as a form of foreign investment. In any of these cases, it will\nbe uncertain whether our Contractual Arrangements will be deemed to be in violation of the market access requirements for foreign investment\nunder the PRC laws and regulations. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council\nmandate further actions to be taken by companies with respect to existing Contractual Arrangements, we may face substantial uncertainties\nas to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with\nany of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate\ngovernance and business operations.\n\n \n\nHowever, the above recent developments may have\nadded uncertainties to our ability to continue to list on Nasdaq or to offer our securities and we cannot assure you whether Nasdaq or\nregulatory authorities would apply additional and more stringent criteria to us since we are an emerging growth company and substantial\nall of our operations are conducting in China.\n\n \n\n**The shareholders of the VIE may have actual or potential conflicts\nof interest with us, which may materially and adversely affect our business and financial condition.**\n\n \n\nThe shareholders of the VIE are currently controlling shareholders\nof us with 9.242% equity interest. As of the date of this report, the shareholders of the VIE are Mr. Jie Liu, the Chief Executive Officer\nand Chairman of Hongli Cayman, who holds 30% of the equity interest, Mr. Yuanqing Liu, who holds 40% of the equity interest, and Ms. Ronglan\nSun, who holds 30% of the equity interest, respectively, of the VIE. As of the date of this report, these three shareholders of the VIE\nare also the shareholders of Hongli Development, which owns 9.242% equity interest in Hongli Cayman. Mr. Yuanqing Liu is the founder of\nthe Hongli Shandong and the father of Mr. Jie Liu, and Ms. Ronglan Sun is the spouse of Mr. Yuanqing Liu and the mother of Mr. Jie Liu.\nMr. Yuanqing Liu and Ms. Ronglan Sun have granted their proxy to Mr. Jie Liu to vote their shares in Hongli Development for all corporate\ntransactions requiring shareholders’ approval, and Mr. Jie Liu as such may be deemed to have sole voting and investment discretion\nwith respect to the Ordinary Shares held by Hongli Development. However, we expect their holding to be diluted as a result of any potential\nequity financing that we may contemplate, and thus they may have actual or potential conflicts of interest with us. These shareholders\nmay breach, or refuse to renew, the existing Contractual Arrangements we have with them, which may have a material and adverse effect\non our ability to effectively consolidate financial results of the PRC operating entities. We cannot assure you that when conflicts of\ninterest arise any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our\nfavor. If we cannot resolve any conflict of interest or dispute between us and these shareholders, we would have to rely on legal proceedings,\nwhich could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.\n\n \n\n23\n\n \n\n \n\n**If the custodians or authorized users of our controlling non-tangible\nassets, including chops and seals of the VIE, fail to fulfill their responsibilities, or misappropriate or misuse these assets, our business\nand operations may be materially and adversely affected.**\n\n \n\nUnder PRC law, legal documents for corporate transactions,\nincluding agreements and contracts that our business relies on, are executed using the chop or seal of the signing entity or with the\nsignature of a legal representative whose designation is registered and filed with the relevant local branch of the State Administration\nfor Market Regulation (“SAMR”), formerly known as the State Administration for Industry and Commerce. We generally execute\nlegal documents by affixing chops or seals, rather than having the designated legal representatives sign the documents.\n\n \n\nWe use two major types of chops: corporate chops\nand finance chops. Chops are seals or stamps used by a PRC company to legally authorize documents, often in place of a signature. We\nuse corporate chops generally for documents to be submitted to government agencies, such as applications for changing business scope,\ndirectors or company name, and for legal letters. We use finance chops generally for making and collecting payments, including issuing\ninvoices. Use of corporate chops must be approved by department manager and office of the president, and use of finance chops must be\napproved by our finance department. The chops of our subsidiary and consolidated VIE are generally held by the relevant entities so that\ndocuments can be executed locally. Although we usually utilize chops to execute contracts, the registered legal representatives of our\nsubsidiary and consolidated VIE have the apparent authority to enter into contracts on behalf of such entities without chops, unless\nsuch contracts set forth otherwise.\n\n \n\nIn order to maintain the physical security of\nour chops, we generally have them stored in secured locations accessible only to the designated key employees of the office of the president\nor finance departments. Our designated legal representatives generally do not have access to the chops. Although we have approval procedures\nin place and monitor our key employees, including the designated legal representatives of our subsidiary and consolidated VIE, the procedures\nmay not be sufficient to prevent all instances of abuse or negligence. There is a risk that our key employees or designated legal representatives\ncould abuse their authority, for example, by binding our subsidiary and consolidated VIE with contracts against our interests, as we\nwould be obligated to honor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of\nour chops or signatures of our legal representatives. If any designated legal representative obtains control of the chop in an effort\nto obtain control over the relevant entity, we would need to have a shareholder or board resolution to designate a new legal representative\nto take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies\nfor the legal representative’s misconduct. If any of the designated legal representatives obtains and misuses or misappropriates\nour chops and seals or other controlling intangible assets for whatever reason, we could experience disruption to our normal business\noperations. We may have to take corporate or legal action, which could involve significant time and resources to resolve the matter,\nwhile distracting management from our operations, and our business operations may be materially and adversely affected.\n\n \n\n**Contractual Arrangements in relation to the VIE may be subject\nto scrutiny by the mainland China tax authorities and they may determine that we or the VIE owe additional taxes, which could negatively\naffect our financial condition and the value of your investment.**\n\n \n\nUnder applicable PRC laws and regulations, arrangements\nand transactions among related parties may be subject to audit or challenge by the mainland China tax authorities within ten years after\nthe taxable year when the transactions are conducted. The mainland China enterprise income tax law requires every enterprise in mainland\nChina to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant\ntax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions\nthat are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the mainland China tax\nauthorities determine that the Contractual Arrangements among Hongli WFOE, the VIE, and the shareholders of the VIE were not entered\ninto on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules\nand regulations, and adjust the VIE’s income in the form of a transfer pricing adjustment. A transfer pricing adjustment could,\namong other things, result in a reduction of expense deductions recorded by the VIE for mainland China tax purposes, which could in turn\nincrease its tax liabilities without reducing Hongli WFOE’s tax expenses. In addition, if Hongli WFOE requests the shareholders\nof the VIE to transfer their equity interests in the VIE at nominal or no value pursuant to these Contractual Arrangements, such transfer\ncould be viewed as a gift and subject our Hongli WFOE and VIE to mainland China income tax. Furthermore, the mainland China tax authorities\nmay impose late payment fees and other penalties on the VIE for the adjusted but unpaid taxes according to the applicable regulations.\nOur financial position could be materially and adversely affected if our consolidated variable interest entities’ tax liabilities\nincrease or if it is required to pay late payment fees and other penalties.\n\n \n\n24\n\n \n\n \n\n**If the VIE goes bankrupt or becomes subject to a dissolution\nor liquidation proceeding, its ability to operate its business might be materially and adversely hindered, which could materially and\nadversely affect our results of operations.**\n\n \n\nThe VIE holds certain assets that are material\nto the operation of its business, including the use right of industrial land and production facilities. Under the Contractual Arrangements,\nthe VIE may not cause it to, in any manner, sell, transfer, mortgage or dispose of its assets or its legal or beneficial interests in\nthe business without our prior consent. However, in the event the shareholders of the VIE breach the Contractual Arrangements and voluntarily\nliquidate the VIE or the VIE declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors,\nor are otherwise disposed of without our consent, the VIE may be unable to continue some or all of its business activities, which could\nmaterially and adversely affect our results of operations. If the VIE undergoes a voluntary or involuntary liquidation proceeding, independent\nthird-party creditors may claim rights to some or all of these assets, thereby hindering its ability to operate business, which could\nmaterially and adversely affect our financial condition and results of operations.\n\n \n\n**You may face difficulties in protecting your interests, and\nyour ability to protect your rights through U.S. courts may be limited, because we are incorporated and registered under Cayman Islands\nlaw.**\n\n \n\nHongli Cayman is an exempted company with limited\nliability incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our amended and restated memorandum\nand articles of association, as amended, the Companies Act (Revised) of the Cayman Islands, which we refer to as the Companies Act below,\nand the common law of the Cayman Islands. The rights of shareholders to take actions against the directors, actions by minority shareholders\nand the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of\nthe Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman\nIslands and from English common law. Appeals from the Cayman Islands Courts to the Privy Council (which is the final Court of Appeal\nfor British overseas territories such as the Cayman Islands) are binding on courts in the Cayman Islands. Decisions of the English courts,\nand particularly the Supreme Court and the Court of Appeal are generally of persuasive authority but are not binding in the courts of\nthe Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. The\nrights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established\nas they would be under statutes or judicial precedent in some jurisdictions in the U.S. In particular, the Cayman Islands has a less\ndeveloped body of securities laws than the U.S. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted\nbodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder\nderivative action in a federal court of the U.S.\n\n \n\nShareholders of Cayman Islands exempted companies\nlike us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of\nthese companies (other than copies of our amended and restated memorandum and articles of association and register of mortgages and charges,\nand any special resolutions passed by our shareholders). Under Cayman Islands law, the names of our current directors can be obtained\nfrom a search conducted at the Registrar of Companies. Pursuant to our amended and restated articles of association, shareholders will\nnot have any right to inspect any account or book or document of the Company except as conferred by Companies Act or as authorized by\nour directors or by ordinary resolution of our shareholders. This may make it more difficult for you to obtain the information needed\nto establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.\n\n \n\nAs a company incorporated in the Cayman Islands,\nwe are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the\nNasdaq corporate governance requirements; these practices may afford less protection to shareholders than they otherwise would under\nrules and regulations applicable to U.S. domestic issuers.\n\n \n\n25\n\n \n\n \n\nAs a result of all of the above, our public shareholders\nmay have more difficulties in protecting their interests in the face of actions taken by management, members of the board of directors\nor controlling shareholders than they would as public shareholders of a company incorporated in the U.S.\n\n \n\n**You may experience difficulties in effecting service of legal\nprocess, enforcing foreign judgments or bringing original actions in mainland China against us based on foreign laws.**\n\n \n\nHongli Cayman is an exempted company with limited liability incorporated\nand registered under the laws of the Cayman Islands, we conduct a significant portion of our operations in mainland China and the majority\nof our assets are located in mainland China. In addition, all of our senior executive officers reside within mainland China for a significant\nportion of the time and are PRC nationals. A substantial portion of the assets of these persons is located outside the United States.\nAs a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States\nor to effect service of process upon us or those persons inside mainland China in the event that you believe we have violated your rights,\neither under United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful\nin bringing an action of this kind, the laws of the Cayman Islands and of China may not permit you to enforce the U.S. courts judgments\nobtained in U.S. courts including judgments based on the civil liability provisions of the U.S. federal securities laws against our assets\nor the assets of our directors and officers.\n\n \n\nIn addition, our PRC legal counsel has advised\nus that mainland China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the\nCayman Islands and many other countries and regions. Therefore, recognition and enforcement in mainland China of judgments of a court\nin any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.\n\n \n\n**You may have difficulty enforcing judgments obtained against\nus in Cayman Islands.**\n\n \n\nOgier (Cayman) LLP, our counsel with respect to the laws of the Cayman\nIslands, has advised us that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us, judgments of the United\nStates courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of\nthe United States or any state in the United States; or (ii) in original actions brought in the Cayman Islands, to impose liabilities\nagainst us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or\nany state in the United States, so far as the liabilities imposed by those provisions are penal in nature.\n\n \n\nOgier (Cayman) LLP has further advised us that, in those circumstances,\nalthough there is currently no statutory enforcement or treaty between the United States and the Cayman Islands providing for enforcement\nof judgments, the courts of the Cayman Islands may recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction\nwithout a retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an\nobligation to pay the amount for which the judgment was issued, provided certain conditions are met. For a foreign judgment to be enforced\nin the Cayman Islands, such judgment must be final and conclusive, given by a court of competent jurisdiction (the courts of the Cayman\nIslands will apply the rules of Cayman Islands private international law to determine whether the foreign court is a court of competent\njurisdiction), and must not be in respect of taxes, a fine, or a penalty, inconsistent with a Cayman Islands judgment on the same matter,\nimpeachable on the grounds of fraud, or obtained in a manner or of a kind that would be contrary to natural justice or the public policy\nof the Cayman Islands. Furthermore, it is uncertain that Cayman Islands courts would enforce: (1) judgments of U.S. courts obtained in\nactions against us or other persons that are predicated upon the civil liability provisions of the U.S. federal securities laws; or (2)\noriginal actions brought against us or other persons predicated upon the Securities Act, where the liabilities imposed by those provisions\nare penal in nature or otherwise contrary to Cayman Islands public policy. Ogier (Cayman) LLP has informed us that whether a judgment\nobtained from the U.S. courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands\nto be unenforceable, due to it being penal or punitive in nature or otherwise, will be fact specific. A Cayman Islands court may stay\nenforcement proceedings if concurrent proceedings are being brought elsewhere.\n\n** **\n\n26\n\n \n\n** **\n\n**The ability of U.S. authorities to bring actions for violations of\nU.S. securities law and regulations against us, our directors and executive officers named in this Annual Report may be limited. Therefore,\nyou may not be afforded the same protection as provided to investors in U.S. domestic companies.**\n\n \n\nThe SEC, the U.S. Department of Justice, or the DOJ, and other U.S.\nauthorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies such as us, and non-U.S.\npersons, such as our directors and executive officers in the PRC. Due to jurisdictional limitations, matters of comity and various other\nfactors, the SEC, the DOJ and other U.S. authorities may be limited in their ability to pursue bad actors, including in instances of\nfraud, in emerging markets such as the PRC. It may also be difficult for you or overseas regulators to conduct investigations or collect\nevidence within China. Shareholder claims that are common in the U.S., including securities law class actions and fraud claims, generally\nare difficult to pursue as a matter of law or practicality in China. We conduct our operations mainly in the PRC and our assets are mainly\nlocated in the PRC. There are significant legal and other obstacles for U.S. authorities to obtain information needed for investigations\nor litigation against us or our directors, executive officers or other gatekeepers in case we or any of these individuals engage in fraud\nor other wrongdoing outside China or otherwise with respect to foreign entities.\n\n \n\nIn addition, local authorities in the PRC may be constrained in their\nability to assist U.S. authorities and overseas investors in connection with legal proceedings. Although the local authorities in China\nmay establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement\ncross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the U.S. have not\nbeen efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which\nbecame effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities\nwithin the territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents\nor materials related to securities business activities to foreign agencies without prior consent from the securities regulatory authority\nof the PRC State Council and the competent departments of the PRC State Council. Accordingly, without the consent of the competent PRC\nsecurities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities\nbusiness activities to overseas parties. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated,\nthe inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may\nfurther increase difficulties faced by you in protecting your interests. See also “Item 3. Key Information-D. Risks Related to Our\nOrdinary Shares - *You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts\nmay be limited, because we are incorporated under Cayman Islands law”* for risks associated with investing in us as a Cayman\nIslands company. As a result, if we, our directors, executive officers or other gatekeepers commit any securities law violation, fraud\nor other financial misconduct, the U.S. authorities may not be able to conduct effective investigations or bring and enforce actions against\nus, our directors, executive officers or other gatekeepers. Therefore, you may not be able to enjoy the same protection provided by various\nU.S. authorities as it is provided to investors in U.S. domestic companies.\n\n \n\nRisks Related to Doing Business in China\n\n** **\n\n**Uncertainties with respect to the PRC legal system could have\na material adverse effect on us.**\n\n \n\nThe PRC legal system is a civil law system based on written statutes.\nUnlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential\nvalue. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general.\nThe overall effect of legislation over the past four decades has significantly enhanced the protection afforded to various forms of foreign\ninvestments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may\nnot sufficiently cover all aspects of economic activities in China.\n\n \n\n27\n\n \n\n \n\nSince these laws and regulations are relatively\nnew and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform\nand enforcement of these laws, regulations and rules involves uncertainties, including, but not limited to, the laws and regulations\ngoverning the business of the PRC operating entities and the enforcement and performance of our arrangements with customers in certain\ncircumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and\nenforcement may involve substantial uncertainty. The effectiveness and interpretation of newly enacted laws or regulations, including\namendments to existing laws and regulations, may be delayed, and the business of the PRC operating entities may be affected if the PRC\noperating entities rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our understanding\nof these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.\nWe cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on the business of the PRC operating\nentities.\n\n \n\nFrom time to time, we may have to resort to administrative\nand court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion\nin interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative\nand court proceedings and the level of legal protection we enjoy than in more developed legal systems. In addition, any administrative\nand court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.\nFurthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely\nbasis or at all and may have retroactive effect. As a result, we may not be able to keep ourselves updated with these policies and rules\nin time and be aware of our violation of any of these policies and rules until sometime after the violation.\n\n \n\nThese uncertainties may affect our judgment on\nthe relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties\nmay be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us. Such uncertainties,\nincluding uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights,\nand any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede\nour ability to continue our operations.\n\n** **\n\n**China’s economic, political and social conditions, as\nwell as changes in any government policies, laws and regulations may be quick with little advance notice and could have a material adverse\neffect on the PRC operating entities’ business and the value of our Ordinary Shares.**\n\n \n\nA substantial majority of the operations of the\nPRC operating entities are conducted in China, and a significant portion of our net revenues are derived from customers where the contracting\nentity is located in China. Accordingly, our business, financial condition, results of operations, prospects and certain transactions\nwe may undertake may be subject, to a significant extent, to economic, political and legal developments in China.\n\n \n\nChina’s economy differs from the economies of most developed\ncountries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange\nand allocation of resources. While the PRC economy has experienced significant growth in the past two to three decades, growth has been\nuneven, both geographically and among various sectors of the economy, and the growth rate may decrease due to uncertainties with respect\nto national structural control along with other factors. Demand for the products of the PRC operating entities depends, in large part,\non economic conditions in China. If China’s growth rate slows, or even declines, demand for the products of the PRC operating entities\nmight be accordingly decreased. Any slowdown in China’s economic growth may cause the potential customers of the PRC operating\nentities to delay or cancel their plans to purchase the PRC operating entities’ products, which in turn could reduce our net revenues.\nTherefore, the business of the PRC operating entities might be adversely affected by the slowdown in the economic conditions, which would\nnegatively affect sales of their products, operations of our company and our financial condition. \n\n \n\n28\n\n \n\n \n\nAlthough China’s economy has been transitioning\nfrom a planned economy to a more market oriented economy since the late 1970s, the PRC government continues to play a significant role\nin regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s\neconomic growth through allocating resources, controlling the incurrence and payment of foreign currency-denominated obligations, setting\nmonetary policy and providing preferential treatment to particular industries or companies. Changes in any of these policies, laws and\nregulations may be quick with little advance notice and could adversely affect the economy in China and could have a material adverse\neffect on our business and the value of our Ordinary Shares.\n\n \n\nThe PRC government has implemented various measures\nto encourage foreign investment and sustainable economic growth and to guide the allocation of financial and other resources. However,\nwe cannot assure you that the PRC government will not repeal or alter these measures or introduce new measures that will have a negative\neffect on us, or more specifically, we cannot assure you that the PRC government will not initiate possible governmental actions or scrutiny\nto us, which could substantially affect our operation and the value of our Ordinary Shares may depreciate quickly.\n\n** **\n\n**The Chinese government exerts substantial influence over the\nmanner in which we and the PRC operating entities must conduct business activities.**\n\n \n\nThe Chinese government has exercised and continues\nto exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The ability\nof the PRC operating entities to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation,\nenvironmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose\nnew, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our and\nthe PRC operating entities’ part to ensure compliance with such regulations or interpretations. Accordingly, government actions\nin the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy\nor regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in\nChina or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.\n\n \n\nAs such, the Company’s business segments may be subject to various\ngovernment and regulatory interference in the provinces in which they operate. The Company could be subject to regulation by various\npolitical and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur\nincreased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. In the\nevent that the PRC operating entities are not able to substantially comply with any existing or newly adopted laws and regulations, the\nbusiness operations of the PRC operating entities may be materially adversely affected and the value of our Ordinary Shares may significantly\ndecrease or become worthless.\n\n \n\n**The Chinese government may exert more control over offerings\nconducted overseas and/or foreign investment in China-based issuers, which actions may impact our operations materially and adversely,\nsignificantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the value of our\nOrdinary Shares to significantly decline or be worthless.**\n\n \n\nIn July, 2021, the General Office of the Central\nCommittee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Strictly\nCracking Down on Illegal Securities Activities According to Law,” or the Opinions, which was made available to the public on July\n6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen\nthe supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory\nsystems will be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity and data privacy\nprotection requirements and similar matters. In particular, the CSRC promulgated the Trial Administrative Measures of Overseas Securities\nOffering and Listing by Domestic Companies on February 17, 2023, which became effective on March 31, 2023 and established a filing-based\nregime for direct and indirect overseas securities offerings and listings by domestic companies. These rules and measures may subject\nus to additional compliance requirements in connection with this offering and our listing.\n\n \n\n29\n\n \n\n \n\nFurthermore, given recent statements by the Chinese\ngovernment indicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment\nin China-based issuers, although, as advised by our PRC counsel, we or the PRC operating entities are currently not required to obtain\npermission or approval from any of the PRC authorities or agencies to list on U.S. exchanges nor for the execution of Contractual Arrangements,\nand have not received any denial to list on the U.S. exchange, it is uncertain whether or when we might be required to obtain permission\nfrom the PRC government to list on U.S. exchanges or enter into Contractual Arrangements (including retroactively) in the future, and\neven if such permission is obtained, whether it will be later denied or rescinded, which could significantly limit or completely hinder\nour ability to offer or continue to offer our securities to investors and cause the value of our shares to significantly decline or be\nworthless. If the VIE or the holding company were required to obtain approval and were denied permission from Chinese authorities or\nagencies to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange or continue to offer securities to investors,\nwhich could materially affect the interest of the investors and cause the value of our Ordinary Shares to significantly decline or be\nworthless.\n\n \n\n**Our failure to obtain prior approval of the China Securities\nRegulatory Commission for the listing and trading of our Ordinary Shares on a foreign stock exchange could have a material adverse effect\nupon our business, operating results, reputation and trading price of our Ordinary Shares.**\n\n \n\nThe M&A Rule contains provisions that require\nthat an offshore special purpose vehicle (“SPV”) formed for listing purposes and controlled directly or indirectly by Chinese\ncompanies or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an\noverseas stock exchange. On September 21, 2006, the CSRC published procedures specifying documents and materials required to be submitted\nto it by a SPV seeking CSRC approval of overseas listings. However, the application of the M&A Rule remains unclear with no consensus\ncurrently existing among leading Chinese law firms regarding the scope and applicability of the CSRC approval requirement. We have not\nchosen to voluntarily request approval under the M&A Rule. Based on the understanding of the current PRC law, rules and regulations,\nwe believe that the CSRC’s approval may not be required for the listing and trading of our ordinary shares on Nasdaq in the context\nof our initial public offering, given that Hongli WFOE was not established by a merger with or an acquisition of any PRC domestic companies\nas defined under the M&A Rules.\n\n \n\nIf prior CSRC approval was required, we may face\nregulatory actions or other sanctions from the CSRC or other Chinese regulatory authorities. These authorities may impose fines and penalties\nupon our operations in mainland China, limit our operating privileges in mainland China, delay or restrict the repatriation of the proceeds\nfrom the initial offering into China, or take other actions that could have a material adverse effect upon our business, financial condition,\nresults of operations, reputation and prospects, as well as the trading price of our Ordinary Shares. The CSRC or other Chinese regulatory\nagencies may also take actions requiring us, or making it advisable for us, to terminate the initial offering prior to closing.\n\n \n\n**New rules for China-based companies seeking for securities offerings\nin foreign stock markets was released by the CSRC recently. Such rules may subject us to additional compliance requirements in the future.**\n\n \n\nOn February 17, 2023, the CSRC promulgated the\nTrial Measures and five supporting guidelines, which went effective on March 31, 2023. According to the Trial Measures, among other requirements,\n(1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfil the filing procedures\nwith the CSRC; if a domestic company fails to complete the filing procedure, such domestic company may be subject to administrative penalties;\n(2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas\noffering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities\nof the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited\nconsolidated financial statements for the same period; (ii) its major operational activities are carried out in China or its main places\nof business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens\nor are domiciled in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the\nissuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and such filings shall\nbe submitted to the CSRC within three business days after the submission of the overseas offering and listing application. According\nto the CSRC Notice, the domestic companies that have already been listed overseas before the effective date of the Trial Measures (namely,\nMarch 31, 2023) shall be deemed as Existing Issuers. Existing Issuers are not required to complete the filing procedures immediately,\nbut they shall be required to file with the CSRC within three working days from the completion of any subsequent offerings. If a domestic\ncompany fails to complete required filing procedures or conceals any material fact or falsifies any major content in its filing documents,\nsuch domestic company may be subject to administrative penalties, such as an order to rectify, warnings, fines, and its controlling shareholders,\nactual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties,\nsuch as warnings and fines.\n\n \n\n30\n\n \n\n \n\nAfter the completion of the private placement\noffering of 60,000,000 Ordinary Shares of the Company on December 5, 2024, we submitted a CSRC filing for correspondence on December\n11, 2024 and later submitted a formal CSRC filing on January 2, 2025. As of the date of this report, the CSRC filing is still under review\nby CSRC.\n\n \n\nOn February 24, 2023, the CSRC, Ministry of Finance\nof the PRC, National Administration of State Secrets Protection and National Archives Administration of China promulgated the Archives\nRules, which took effect on March 31, 2023. Pursuant to the Archives Rules, domestic companies, including the domestic entities of overseas\nlisted companies, that seek for overseas offering and listing shall strictly abide by applicable laws and regulations of the PRC and\nthe Archives Rules, enhance legal awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality\nand archives administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. Such\ndomestic companies shall not leak any state secret and working secret of government agencies, or harm national security and public interest.\nFurthermore, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to\nrelevant individuals or entities including securities companies, securities service providers and overseas regulators, any document and\nmaterials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities\naccording to law, and file with the secrecy administrative department at the same level. Moreover, a domestic company that plans to,\neither directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities\ncompanies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental\nto national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The\nArchives Rules also stipulate that a domestic company that provides accounting archives or copies of accounting archives to any entities\nincluding securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in\ncompliance with applicable national regulations.\n\n \n\nAs we completed the listing and the initial offering\nprior to March 31, 2023, we do not believe that our listing and the initial offering are subject to the requirements provided under the\nTrial Measures. As the Trial Measures and the Archives Rules were newly published, however, there are substantial uncertainties as to\nthe implementation and interpretation, and how they will affect the future financing. Any failure of us to fully comply with new regulatory\nrequirements may significantly limit or completely hinder our ability to offer or continue to offer the Ordinary Shares, cause significant\ndisruption to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results\nof operations, and cause the Ordinary Shares to significantly decline in value or become worthless.\n\n** **\n\n**We rely on dividends and other distributions on equity paid\nby our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to\nmake payments to us could have a material adverse effect on our ability to conduct the business.**\n\n \n\nHongli Cayman is a holding company, and we rely\non dividends and other distributions on equity paid by our subsidiaries for our cash and financing requirements, including the funds\nnecessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If Hongli WFOE and Hongli\nShandong incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends\nor make other distributions to us. In addition, the mainland China tax authorities may require our subsidiaries to adjust its taxable\nincome, in a manner that would materially and adversely affect their ability to pay dividends and other distributions to us.\n\n \n\n31\n\n \n\n \n\nUnder PRC laws and regulations, Hongli WFOE, as\nwholly foreign-owned enterprise in China, may pay dividends only out of their respective accumulated after-tax profits as determined\nin accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside\nat least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount\nof such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its\nafter-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus\nfunds are not distributable as cash dividends.\n\n \n\nIn response to the persistent capital outflow\nand the Renminbi’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and SAFE\nhave implemented a series of capital control measures, including stricter vetting procedures for China-based companies to remit foreign\ncurrency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen\nits capital controls and our subsidiaries’ dividends and other distributions may be subjected to tighter scrutiny in the future.\nAny limitation on the ability of our subsidiaries to pay dividends or make other distributions to us could materially and adversely limit\nour ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and\nconduct the business of the PRC operating entities.\n\n** **\n\n**There are significant uncertainties under the EIT Law relating\nto the withholding tax liabilities of Hongli WFOE, and dividends payable by Hongli WFOE to Hongli HK may not qualify to enjoy certain\ntreaty benefits.**\n\n \n\nUnder the PRC EIT Law and its implementation\nrules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding\ncompany outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and\nmainland China of the PRC, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity\ninterest in the PRC company. Hongli WFOE is wholly-owned by Hongli HK. Moreover, under the Notice of the State Administration of\nTaxation on Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009, the\ntaxpayer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These conditions include: (1) the taxpayer\nmust be the beneficial owner of the relevant dividends, and (2) the corporate shareholder to receive dividends from the mainland\nChina subsidiary must have continuously met the direct ownership thresholds during the 12 consecutive months preceding the receipt\nof the dividends. Further, the State Administration of Taxation promulgated the Announcement on Issues concerning “Beneficial\nOwner” in Tax Treaties, which took effect on April 1, 2018 and superseded the previous rules on the recognition of\n“beneficial owner” status under tax treaties. In current practice, a Hong Kong enterprise\nmust obtain a tax resident certificate from the relevant Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate.\nAs the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will\nbe able to obtain the tax resident certificate from the relevant Hong Kong tax authority. As of the date of this Annual Report, we\nhave not commenced the application process for a Hong Kong tax resident certificate from the relevant Hong Kong tax authority, and\nthere is no assurance that we will be granted such a Hong Kong tax resident certificate.\n\n \n\nEven after we obtain the Hong Kong tax resident\ncertificate, we are required by applicable tax laws and regulations to file required forms and materials with relevant mainland China\ntax authorities to prove that we can enjoy 5% lower PRC withholding tax rate. Hongli HK intends to obtain the required materials and\nfile with the relevant tax authorities when it plans to declare and pay dividends, but there is no assurance that the tax authorities\nof mainland China will approve the 5% withholding tax rate on dividends received from Hongli HK.\n\n \n\n32\n\n \n\n \n\n**Mainland China regulation of loans to and direct investment\nin PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using the proceeds of\nfuture offering to make loans or additional capital contributions to our subsidiaries, which could materially and adversely affect our\nliquidity and our ability to fund and expand the business of the PRC operating entities.**\n\n \n\nHongli Cayman is an offshore holding company conducting\noperations in mainland China through the PRC operating entities pursuant to the Contractual Arrangements. We may make loans to our subsidiaries\nsubject to the approval from governmental authorities and limitation of amount, or we may make additional capital contributions to our\nsubsidiaries in China.\n\n \n\nAny loans to Hongli WFOE in China, which is treated\nas a foreign-invested enterprise under PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example,\nloans by us to Hongli WFOE in China to finance its activities cannot exceed statutory limits and must be registered with the local counterpart\nof SAFE. In addition, a foreign invested enterprise shall use its capital pursuant to the principle of authenticity and self-use within\nits business scope. The capital of a foreign invested enterprise shall not be used for the following purposes: (i) directly or indirectly\nused for payment beyond the business scope of the enterprise or the payment prohibited by relevant laws and regulations; (ii) directly\nor indirectly used for investment in securities investments other than banks’ principal-secured products unless otherwise provided\nby relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in\nthe business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested\nreal estate enterprises).\n\n \n\nSAFE promulgated the Notice of the State Administration\nof Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE\nCircular 19, effective June 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration\nof the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, the Notice from the State Administration of\nForeign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, and the Circular on Further\nClarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses. Although\nSAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to\nbe used for equity investments within China, it also reiterates the principle that RMB converted from the foreign currency-denominated\ncapital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear\nwhether SAFE will permit such capital to be used for equity investments in China in actual practice. SAFE promulgated the Notice of the\nState Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital\nAccount, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes\nthe prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company\nto issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of\nSAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly\nlimit our ability to transfer any foreign currency we hold to Hongli WFOE, which may adversely affect our liquidity and our ability to\nfund and expand the business of the PRC operating entities in China.\n\n \n\nOn October 23, 2019, SAFE issued the Circular\non Further Promoting Cross-border Trade and Investment Facilitation, or SAFE Circular 28, which took effect on the same day. SAFE Circular\n28, subject to certain conditions, allows foreign-invested enterprises whose business scope does not include investment, or non-investment\nforeign-invested enterprises, to use their capital funds to make equity investments in China. Since SAFE Circular 28 was issued only\nrecently, its interpretation and implementation in practice are still subject to substantial uncertainties.\n\n \n\n33\n\n \n\n \n\nIn light of the various requirements imposed by\nPRC regulations on loans to and direct investment in PRC entities by offshore holding companies, and the fact that the PRC government\nmay at its discretion restrict access to foreign currencies for current account transactions in the future, we cannot assure you that\nwe will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if\nat all, with respect to future loans to PRC subsidiaries in or future capital contributions by us to Hongli WFOE in China. As a result,\nuncertainties exist as to our ability to provide prompt financial support to our subsidiaries when needed. If we fail to complete such\nregistrations or obtain such approvals, our ability to use the proceeds and to capitalize or otherwise fund our PRC operations may be\nnegatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand the business of the\nPRC operating entities.\n\n \n\n**Restrictions on currency exchange may limit our ability to utilize\nour revenues effectively and affect the value of your investment.**\n\n \n\nThe mainland China government imposes controls\non the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of mainland China. Most\nof our revenues are denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes\ndividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign\ndirect investment and loans, including loans we may secure from our onshore subsidiaries.\n\n \n\nUnder our current corporate structure, we rely\non dividend payments from Hongli HK and Hongli WFOE to fund any cash and financing requirements we may have, including the funds necessary\nto pay dividends and other cash distributions to our shareholders or to pay any debt we may incur. Currently, PRC subsidiaries may purchase\nforeign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval\nof SAFE by complying with certain procedural requirements. Therefore, our subsidiaries are able to pay dividends in foreign currencies\nto us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with\ncertain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our\ncompany who are PRC residents. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign\ncurrencies in the future for current account transactions. Since we expect a significant portion of our future revenue will be denominated\nin Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi\nto fund our business activities outside of the PRC and/or transfer cash out of China to pay dividends in foreign currencies to our shareholders.\n\n \n\nBut approval from or registration with appropriate\ngovernment authorities is required where RMB is to be converted into foreign currency and remitted out of mainland China to pay capital\nexpenses such as the repayment of loans denominated in foreign currencies. Foreign exchange transactions under the capital account remain\nsubject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could\naffect our ability to obtain foreign currency through debt or equity financing for our subsidiaries. In addition, there can be no assurance\nthat the PRC government will not intervene or impose restrictions on our ability to transfer or distribute cash within our organization\nor to foreign investors, which could result in an inability or prohibition on making transfers or distributions outside of China and\nmay adversely affect our business, financial condition and results of operations.\n\n \n\n34\n\n \n\n \n\nIn light of the flood of capital outflows of mainland\nChina in 2016 due to the weakening RMB, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny\nof major outbound capital movement. More restrictions and substantial vetting process are put in place by SAFE to regulate cross-border\ntransactions falling under the capital account. The PRC government may also at its discretion restrict access in the future to foreign\ncurrencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies\nto satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders.\n\n \n\n**Fluctuations in exchange rates could have a material adverse\neffect on our results of operations and the price of our Ordinary Shares.**\n\n \n\nMost of our revenues and expenditures are denominated\nin RMB, whereas our reporting currency is the U.S. dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and\nRMB will affect the relative purchasing power in RMB terms of our U.S. dollar assets and the proceeds from financing. Gains and losses\nfrom the re-measurement of assets and liabilities that are receivable or payable in RMB are included in our consolidated statements of\noperations. The re-measurement has caused the U.S. dollar value of our results of operations to vary with exchange rate fluctuations,\nand the U.S. dollar value of our results of operations will continue to vary with exchange rate fluctuations. A fluctuation in the value\nof RMB relative to the U.S. dollar could reduce our profits from operations and the translated value of our net assets when reported\nin U.S. dollars in our financial statements. This could have a negative impact on our business, financial condition or results of operations\nas reported in U.S. dollars. In addition, fluctuations in currencies relative to the periods in which the earnings are generated may\nmake it more difficult to perform period-to-period comparisons of our reported results of operations.\n\n \n\nThe value of the RMB against the U.S. dollar and\nother currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign\nexchange policies. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi\ninternationalization, the PRC government may in the future announce further changes to the exchange rate system and we cannot assure\nyou that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult\nto predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in\nthe future. There remains significant international pressure on the PRC government to adopt a flexible currency policy.\n\n \n\nAny significant appreciation or depreciation of\nthe RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable\non, our ordinary shares in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from our initial\npublic offering into RMB to pay our operating expenses, appreciation of the RMB against the U.S. dollar would have an adverse effect\non the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may\nsignificantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ordinary shares.\nIf we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other\nbusiness purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to\nus.\n\n \n\nLimited hedging options are available in China\nto reduce our exposure to exchange rate fluctuations. While we may decide to enter into hedging transactions in the future, the availability\nand effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our\ncurrency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency.\nAs a result, fluctuations in exchange rates may have a material adverse effect on the price of our ordinary shares.\n\n \n\n35\n\n \n\n \n\n**Our Ordinary Shares may be prohibited from being traded on a\nnational exchange under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditors. The delisting of\nour Ordinary Shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.**\n\n \n\nThe joint statement by the SEC and the PCAOB,\nNasdaq listing rules, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied\nto emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected\nby the PCAOB. These developments could add uncertainties to our listing and future offerings. Furthermore, the Holding Foreign Companies\nAccountable Act, or HFCA Act, which requires that the PCAOB be permitted to inspect the issuer’s public accounting firm, may result\nin the delisting of our Company in the future if the PCAOB is unable to inspect our accounting firm at such future time. In addition,\non June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), which requires\nthe SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections\nfor two consecutive years instead of three consecutive years. On September 22, 2021, the PCAOB adopted a final rule implementing the\nHFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the PCAOB is\nunable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position\ntaken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued a Determination Report which found that\nthe PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China, and\n(2) Hong Kong.\n\n \n\nThe lack of access to the PCAOB inspection\nin China could prevent the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result,\nthe investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors\nin China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures\nas compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors\nin our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.\n\n \n\nOur auditor, HTL International, LLC, headquartered\nin Houston, Texas, is also an independent registered public accounting firm with the PCAOB, subject to laws in the United States\npursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. HTL is\nsubject to inspection by the PCAOB on a regular basis, and HTL is not subject to the PCAOB determinations as of the date of this annual\nreport.\n\n \n\nOn August 26, 2022, the CSRC, the Ministry of\nFinance of the PRC, and PCAOB signed a Statement of Protocol, or the Protocol, governing inspections and investigations of audit firms\nbased in China and Hong Kong. Pursuant to the Protocol, the PCAOB has independent discretion to select any issuer audits for inspection\nor investigation and has the unfettered ability to transfer information to the SEC. The PCAOB was required to reassess these determinations\nby the end of 2022. Under the PCAOB’s rules, a reassessment of a determination under the HFCA Act may result in the PCAOB reaffirming,\nmodifying or vacating the determination.\n\n \n\n36\n\n \n\n \n\nOn December 15, 2022, the PCAOB determined that\nthe PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland\nChina and Hong Kong and voted to vacate its previous determinations to the contrary. However, whether the PCAOB will continue to be able\nto satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject\nto uncertainty and depends on a number of factors out of our, and our auditor’s, control. The PCAOB is continuing to demand complete\naccess in mainland China and Hong Kong moving forward and resumed regular inspections in early 2023, as well as to continue pursuing\nongoing investigations and initiate new investigations as needed. The PCAOB has indicated that it will act immediately to consider the\nneed to issue new determinations with the HFCA Act if needed and does not have to wait another year to reassess its determinations.\n\n \n\nHowever, the recent developments would add uncertainties\nto our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria\nto us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel\nand training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.\n\n \n\nAny uncertainty related to our auditor and related\nregulatory developments could cause the market price of our ordinary shares to be materially and adversely affected, and our securities\ncould be delisted or prohibited from being traded on the national securities exchange. If our Ordinary Shares are unable to be listed\non another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase our Ordinary Shares\nwhen you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price\nof our Ordinary Shares.\n\n \n\n**The M&A Rules and certain other PRC regulations establish\ncomplex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue\ngrowth through acquisitions in China.**\n\n \n\nThe Regulations on Mergers and Acquisitions of\nDomestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009,\nand some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could\nmake merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances\nthat the Ministry of Commerce of China (“MOFCOM”) be notified in advance of any change-of-control transaction in which a\nforeign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOFCOM shall be notified\nin advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by\nthe MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national\ndefense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic\nenterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any\nactivities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement.\nIn the future, we and the PRC operating entities may grow our business by acquiring complementary businesses. Complying with the requirements\nof the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval\nprocesses, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our and the PRC operating entities’\nability to complete such transactions, which could affect the ability to expand the business of the PRC operating entities or maintain\ntheir market share.\n\n** **\n\n37\n\n \n\n** **\n\n**Failure to make adequate contributions to various employee benefit\nplans as required by PRC regulations may subject us to penalties.**\n\n \n\nWe are required under PRC laws and regulations\nto participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented\npayment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances,\nof our employees up to a maximum amount specified by the local government from time to time at locations where the PRC operating entities\noperate their businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in\nChina given the different levels of economic development in different locations. If the local governments deem our contribution to be\nnot sufficient, we may be subject to late contribution fees or fines in relation to any underpaid employee benefits, our financial condition\nand results of operations may be adversely affected.\n\n \n\nCurrently, we are making contributions to the\nplans based on the minimum standards although the PRC laws requires such contributions to be based on the actual employee salaries up\nto a maximum amount specified by the local government. If we are subject to late contribution fees or fines in relation to the underpaid\nemployee benefits, our financial condition and results of operations may be adversely affected.\n\n \n\n**Any failure to comply with PRC regulations regarding the registration\nrequirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative\nsanctions.**\n\n \n\nIn February 2012, SAFE promulgated the Notices\non Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas\nPublicly-Listed Companies, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens\nwho reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly\nlisted company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the\nPRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution\nmust be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests.\nWe and our executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not\nless than one year and who are granted options or other awards under the share compensation plan will be subject to these regulations.\nFailure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute\nadditional capital into our subsidiaries and limit our subsidiaries’ ability to distribute dividends to us. We also face regulatory\nuncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees\nunder PRC law.\n\n \n\n**We face uncertainty regarding the PRC tax reporting obligations\nand consequences for certain indirect transfers of our operating company’s equity interests. Enhanced scrutiny over acquisition\ntransactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.**\n\n \n\nThe PRC tax authorities have enhanced their scrutiny\nover the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise,\nby a non-resident enterprise by promulgating and implementing the SAT Circular of Further Improving and Adjusting Foreign Exchange Administration\nPolicies on Foreign Direct Investment, or Circular 59, and Circular of Strengthening Administration of Corporate Income Tax on Income\nfrom Transfer of Equity by Non-resident Enterprises, or Circular 698, which became effective in January 2008, and the SAT issued the\nCircular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Circular 7, in replacement\nof some of the existing rules in Circular 698, which became effective in February 2015.\n\n \n\n38\n\n \n\n \n\nUnder Circular 698, where a non-resident enterprise\nconducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly\nby disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject\nto PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial\npurposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also\nprovides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties\nat a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable\nincome of the transaction.\n\n \n\nIn February 2015, the SAT issued Circular 7 to\nreplace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different\nfrom that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but\nalso transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company.\nIn addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced\nsafe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also\nbrings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable\nassets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by\ndisposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee,\nor the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance\nover form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable\ncommercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such\nindirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer\nis obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.\n\n \n\nOn October 17, 2017, the SAT promulgated the Circular\non Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or SAT Circular 37, which became effective on\nDecember 1, 2017, and Circular 698 was then replaced effective December 1, 2017. Certain provisions of the SAT Circular 37 were revised\nby the Announcement of the State Administration of Taxation on Revising Certain Taxation Normative Documents issued on June 15, 2018.\nCircular 37, among other things, simplified procedures of withholding and payment of income tax levied on non-resident enterprises.\n\n \n\nWe face uncertainties on the reporting and consequences\non future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company\nby investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to\na filing or the transferees with respect to withholding obligation, and request our subsidiaries to assist in the filing. As a result,\nwe and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under\nCircular 59 or Circular 7 and Circular 37, and may be required to expend valuable resources to comply with Circular 59, Circular 7 and\nCircular 37 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material\nadverse effect on our financial condition and results of operations.\n\n \n\nThe PRC tax authorities have the discretion under\nSAT Circular 59, Circular 7 and Circular 37 to make adjustments to the taxable capital gains based on the difference between the fair\nvalue of the taxable assets transferred and the cost of investment. Although we currently have no plans to pursue any acquisitions in\nChina or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered\na non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income\nof the transactions under SAT Circular 59 or Circular 7 and Circular 37, our income tax costs associated with such potential acquisitions\nwill be increased, which may have an adverse effect on our financial condition and results of operations.\n\n \n\n39\n\n \n\n \n\nIn addition, in accordance with the Individual\nIncome Tax Law promulgated by the Standing Committee of the National People’s Congress, later amended on August 31, 2018 and effective\nJanuary 1, 2019, where an individual carries out other arrangements without reasonable business purpose and obtains improper tax gains,\nthe tax authorities shall have the right to make tax adjustments based on a reasonable method, and levy additional tax and collect interest\nif there is a need to levy additional tax after making tax adjustments. As a result, our beneficial owners, who are PRC residents, may\nbe deemed to have carried out other arrangements without reasonable business purpose and obtained improper tax gains for such indirect\ntransfer, and thus be levied tax.\n\n \n\n**In light of recent events indicating greater oversight by the\nCyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange, though such\noversight is not applicable to us, we may be subject to a variety of PRC laws and other obligations regarding data protection and any\nother rules, and any failure to comply with applicable laws and obligations could have a material and adverse effect on the business\nof the PRC operating entities, our listing on the Nasdaq Capital Market, financial condition, and results of operations.**\n\n \n\nEven though, currently, we are not subject to\nPRC laws relating to the collection, use, sharing, retention, security, and transfer of confidential and private information, such as\npersonal information and other data, these laws continue to develop, and the PRC government may adopt other rules and restrictions in\nthe future. Non-compliance could result in penalties or other significant legal liabilities.\n\n \n\nThe Cybersecurity Law, which was adopted by the\nNational People’s Congress on November 7, 2016 and came into force on June 1, 2017, and the Cybersecurity Review Measures, or the\n“Review Measures,” which were promulgated on April 13, 2020, provide that personal information and important data collected\nand generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and\nif a critical information infrastructure operator purchases internet products and services that affect or may affect national security,\nit should be subject to cybersecurity review by the CAC. In addition, a cybersecurity review is required where critical information infrastructure\noperators, or the “CIIOs,” purchase network-related products and services, which products and services affect or may affect\nnational security. Due to the lack of further interpretations, the exact scope of what constitute a “CIIO” remains unclear.\nFurther, the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws.\n\n \n\nOn June 10, 2021, the Standing Committee of the\nNational People’s Congress promulgated the Data Security Law which took effect on September 1, 2021. The Data Security Law requires\nthat data shall not be collected by theft or other illegal means, and it also provides that a data classification and hierarchical protection\nsystem. The data classification and hierarchical protection system protects data according to its importance in economic and social development,\nand the damages it may cause to national security, public interests, or the legitimate rights and interests of individuals and organizations\nif the data is falsified, damaged, disclosed, illegally obtained or illegally used, which protection system is expected to be built by\nthe state for data security in the near future. In addition, on December 28, 2021, the Cyberspace Administration of China, or the CAC,\ntogether with certain other PRC governmental authorities, promulgated the revised Cybersecurity Review Measures, which became effective\non February 15, 2022, superseding the previous version promulgated on April 13, 2020. Pursuant to the Cybersecurity Review Measures,\ncritical information infrastructure operators purchasing network products and services are required to apply for cybersecurity review\nif such products and services, after being put into use, affect or may affect national security. Online platform operators carrying out\ndata processing activities are also required to apply for cybersecurity review if such activities affect or may affect national security.\nThe Cybersecurity Review Measures further require any online platform operator holding personal information of more than one million\nusers to apply to the Cybersecurity Review Office for cybersecurity review before listing abroad. There remain uncertainties as to the\ninterpretation and implementation of the Cybersecurity Review Measures in certain respects.\n\n \n\n40\n\n \n\n \n\nOn July 7, 2022, the CAC promulgated the Security\nAssessment Measures for Outbound Data Transfers which became effective on September 1, 2022. The Security Assessment Measures for Outbound\nData Transfers requires that a data processor to declare security assessment for its outbound data transfer to the competent authority\nof cyberspace administration through the local cyberspace administration at the provincial level, in the circumstances where (1) the\ndata processor provides important data abroad; (2) the critical information infrastructure operator or the data processor processing\nthe personal information of more than one million people provides personal information abroad; (3) the data processor that has provided\nthe personal information of over 100,000 individuals or the sensitive personal information of over 10,000 individuals cumulatively since\nJanuary 1 of the previous year or (4) other circumstances prescribed by the CAC for which declaration for security assessment for outbound\ndata transfers is require. Since the Security Assessment Measures for Outbound Data Transfers became into force very recently, the “other\ncircumstances” thereof are not yet clear. The “important data” under the Security Assessment Measures for Outbound\nData Transfers refers to any data that, once tampered with, destroyed, leaked, illegally obtained or illegally used, may endanger national\nsecurity, economic operation, social stability, public health and security, etc.\n\n \n\nThe PRC operating entities’ business is\nengaged in CRF profile manufacturing in China and do not engage in any operation of information in infrastructure or involve the collection\nof personal data of at least 1,000,000 users, or implicate cybersecurity, do not involve the process of more than 1,000,000 individual’s\npersonal information, have not provided over 100,000 individual’s personal information or over 10,000 individual’s sensitive\npersonal information since January 1 of the last years abroad, and have not involved the “important data” under the Security\nAssessment Measures for Outbound Data Transfer. Therefore, we believe that we, our subsidiaries, or the VIE are not subject to the cybersecurity\nreview of the CAC under the Cybersecurity Review Measure and the security assessment of outbound data transfer under the Security Assessment\nMeasures for Outbound Data Transfers. As of the date of this Annual Report, we have not received any notice from any authorities identifying\nus as a CIIO or requiring us to undertake a cybersecurity review by the CAC. Further, we have not been subject to any penalties, fines,\nsuspensions, investigations from any competent authorities for violation of the regulations or policies that have been issued by the\nCAC to date. However, there remains uncertainty as to how the Cybersecurity Review Measure will be interpreted or implemented and whether\nthe PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation\nrelated to the Cybersecurity Review Measure. If any such new laws, regulations, rules, or implementation and interpretation come into\neffect, we expect to take all reasonable measures and actions to comply. We cannot assure you that PRC regulatory agencies, including\nthe CAC, would take the same view as we do, and there is no assurance that we can fully or timely comply with such laws should they be\ndeemed applicable to our operations. There is no certainty as to how such review or prescribed actions would impact our operations and\nwe cannot guarantee that any clearance can be obtained or any actions that may be required for our listing on the Nasdaq capital market\nand the offering as well can be taken in a timely manner, or at all.\n\n \n\n**PRC regulations relating to the establishment of offshore special\npurpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our ability to acquire PRC\ncompanies or to inject capital into our subsidiaries, limit our subsidiaries’ ability to distribute profits to us, or otherwise\nmaterially and adversely affect us.**\n\n \n\nIn July 2014, SAFE has promulgated the Circular\non Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment\nThrough Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration\nfor Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which\nceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals\nand PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose)\nto register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular\n37 further requires amendment to the SAFE registrations in the event of any changes with respect to the basic information of the offshore\nspecial purpose vehicle, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect\nto the offshore special purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or mergers\nor divisions. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions\nthat we make in the future.\n\n \n\n41\n\n \n\n \n\nIf any PRC shareholder who makes direct or indirect\ninvestments in offshore special purpose vehicles, or SPV, fails to make the required registration or to update the previously filed registration,\nthe subsidiaries of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share\ntransfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contribution into its subsidiary\nin China. On February 28, 2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy\non Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange\nregistration of inbound foreign direct investment and outbound overseas direct investment, including those required under the SAFE Circular\n37, will be filed with qualified banks instead of the SAFE. The qualified banks will directly examine the applications and accept registrations\nunder the supervision of the SAFE.\n\n \n\nWe have requested our shareholders that we know\nare PRC residents and hold direct or indirect interests in us to make the necessary applications, filings and amendments as required\nunder SAFE Circular 37 and other related rules. To our knowledge, all of our shareholders who are subject to the SAFE Circular 37 have\ncompleted the initial registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. However, we cannot\nguarantee that all or any of those shareholders will complete the SAFE Circular 37 registration in a timely manner. In addition, we may\nnot at all times be fully aware or informed of the identities of all our beneficial owners who are PRC residents, and we may not always\nbe able to compel our beneficial owners to comply with the SAFE Circular 37 requirements. As a result, we cannot assure you that all\nof our shareholders or beneficial owners who are PRC residents will at all times comply with, or in the future make or obtain any applicable\nregistrations or approvals required by, SAFE Circular 37 or other related regulations. Failure by any such shareholders or beneficial\nowners to comply with SAFE Circular 37 could subject us to fines or legal sanctions, restrict our overseas or cross-border investment\nactivities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could\nadversely affect our business and prospects.\n\n \n\nFurthermore, as the interpretation and implementation\nof these foreign exchange regulations has been constantly evolving, it is unclear how these regulations, and any future regulation concerning\noffshore or cross-border transactions, will be interpreted, amended and implemented by the relevant governmental authorities. For example,\nwe may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance\nof dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations.\nIn addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case\nmay be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange\nregulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.\n\n \n\nRisks Related to Our Ordinary Shares\n\n \n\n**If we cannot continue to satisfy the continued listing requirements\nand other rules of Nasdaq Capital Market, although we exempt from certain corporate governance standards applicable to U.S. issuers as\na Foreign Private Issuer, our securities may be delisted, which could negatively impact the price of our securities and your ability\nto sell them.**\n\n \n\nEven though our securities are listed on the Nasdaq\nCapital Market, we cannot assure you that our securities will continue to be listed on the Nasdaq Capital Market.\n\n \n\nIn addition, in order to maintain our listing\non the Nasdaq Capital Market, we will be required to comply with certain rules of Nasdaq Capital Market, including those regarding minimum\nshareholders’ equity, minimum share price and certain corporate governance requirements. Even if we have initially met the listing\nrequirements and other applicable rules of the Nasdaq Capital Market, we may not be able to continue to satisfy these requirements and\napplicable rules. On July 10, 2025, the Company received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”)\nof The Nasdaq Stock Market LLC (“Nasdaq”). The KETTER informed the Company that, based upon the closing bid price of the\nCompany’s Ordinary Shares over the 30 consecutive business day period between May 27, 2025 and July 9, 2025, the Company is not\nin compliance with the requirement to maintain a minimum bid price of $1.00 per share of its Ordinary Shares for continued listing on\nThe Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). On October\n3, 2025, the Company received a notification letter from Nasdaq, dated October 2, 2025, stating that the Company has regained compliance\nwith the Minimum Bid Price Requirement. Nasdaq made this determination of compliance after the closing bid price of the Ordinary Shares\nhas been trading at $1.00 per share or greater for the last 12 consecutive business days from September 16, 2025 to October 1, 2025.\nAccordingly, Nasdaq has considered that the Company has regained compliance with the Minimum Bid Price Requirement and this matter is\nnow closed.\n\n \n\n42\n\n \n\n \n\nHowever, if we are unable to satisfy the Nasdaq\nCapital Market criteria for maintaining our listing in the future, our securities could be subject to delisting.\n\n \n\nIf the Nasdaq Capital Market subsequently delists\nour securities from trading, we could face significant consequences, including:\n\n \n\n \n●\na limited availability for\nmarket quotations for our securities;\n\n \n\n \n●\nreduced liquidity with respect\nto our securities;\n\n \n\n \n●\na determination that our Ordinary\nShare is a “penny stock,” which will require brokers trading in our Ordinary Share to adhere to more stringent rules\nand possibly result in a reduced level of trading activity in the secondary trading market for our Ordinary Share;\n\n \n\n \n●\nlimited amount of news and\nanalyst coverage; and\n\n \n\n \n●\na decreased ability to issue\nadditional securities or obtain additional financing in the future.\n\n \n\nIn addition, the stock markets have experienced\nextreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.\nStock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies.\nIn the past, shareholders have filed securities class action litigation following periods of market volatility. If we were to become\ninvolved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our\nbusiness, and adversely affect our business.\n\n \n\n**Nasdaq may apply additional and more stringent criteria for\nour continued listing because insiders will hold a large portion of the company’s listed securities.**\n\n \n\nNasdaq Listing Rule 5101 provides Nasdaq with broad\ndiscretionary authority over the initial and continued listing of securities on Nasdaq and Nasdaq may use such discretion to deny initial\nlisting, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist\nparticular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of\nthe securities on Nasdaq inadvisable or unwarranted in the opinion of Nasdaq, even though the securities meet all enumerated criteria\nfor initial or continued listing on Nasdaq. In addition, Nasdaq has used its discretion to deny initial or continued listing or to apply\nadditional and more stringent criteria in the instances, including but not limited to: (i) where the company engaged an auditor that has\nnot been subject to an inspection by the PCAOB, an auditor that PCAOB cannot inspect, or an auditor that has not demonstrated sufficient\nresources, geographic reach, or experience to adequately perform the company’s audit; (ii) where the company planned a small public\noffering, which would result in insiders holding a large portion of the company’s listed securities; and (iii) where the company\ndid not demonstrate sufficient nexus to the U.S. capital market, including having no U.S. shareholders, operations, or members of the\nboard of directors or management. Our initial public offering was relatively small and the insiders of our Company hold a large portion\nof the company’s listed securities. Nasdaq might apply the additional and more stringent criteria for our continued listing, which\nmay affect our continued listing on Nasdaq and the trading prices and liquidity of our shares.\n\n \n\n**We are a “foreign private issuer,” and our disclosure\nobligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S.\ndomestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our\nperformance and prospects.**\n\n \n\nWe are a foreign private issuer and, as a result,\nwe are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations\nthat, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be\nrequired to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation\ninformation. Furthermore, our directors and executive officers will not be subject to the insider short-swing profit disclosure and recovery\nregime. As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally,\nare meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However,\nwe will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many\nof the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies,\nyou should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting\ncompanies.\n\n \n\n43\n\n \n\n \n\n**Because we are a foreign private issuer and are exempt from\ncertain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were\na domestic issuer.**\n\n \n\nNasdaq Listing Rules require listed companies\nto have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to,\nand we may follow home country practice in lieu of the above requirements, or we may choose to comply with the above requirement within\none year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board\nto consist of independent directors. Thus, although a director must act in the best interests of the Company, it is possible that fewer\nboard members will be exercising independent judgment and the level of board oversight on the management of our company may decrease\nas a result. In addition, the Nasdaq Listing Rules also require U.S. domestic issuers to have a compensation committee, a nominating/corporate\ngovernance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign\nprivate issuer, are not subject to these requirements. The Nasdaq Listing Rules may require shareholder approval for certain corporate\nmatters, such as requiring that shareholders be given the opportunity to vote on all equity compensation plans and material revisions\nto those plans, certain ordinary share issuances. However, we currently rely on home country practice in lieu of the requirements under\nNasdaq Listing Rules with respect to certain corporate governance standards which may afford less protection to investors.\n\n \n\n**For as long as we are an emerging growth company, we will not\nbe required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our\nexecutive compensation, that apply to other public companies.**\n\n \n\nWe are classified as an “emerging growth\ncompany” under the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years of the\nclosing of the initial offering, unlike other public companies, we will not be required to, among other things, (i) provide an auditor’s\nattestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant\nto Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm\nrotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about\nthe audit and the financial statements of the issuer, (iii) provide certain disclosure regarding executive compensation required of larger\npublic companies or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company for up to\nfive years from our IPO in March 2023, although we will lose that status sooner if we have more than $1.235 billion of revenues in a\nfiscal year, have more than $700 million in market value of our Ordinary Shares held by non-affiliates, or issue more than $1.0 billion\nof non-convertible debt over a three-year period.\n\n \n\nTo the extent that we rely on any of the exemptions\navailable to emerging growth companies, you will receive less information about our executive compensation and internal control over\nfinancial reporting than issuers that are not emerging growth companies. If some investors find our Ordinary Shares to be less attractive\nas a result, there may be a less active trading market for our Ordinary Shares and our share price may be more volatile.\n\n** **\n\n**We are an “emerging growth company” within the meaning\nof the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies,\nthis will make it more difficult to compare our performance with other public companies.**\n\n \n\nWe are an “emerging growth company”\nwithin the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth companies\nfrom being required to comply with new or revised financial accounting standards until private companies (that is, those that have not\nhad a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act)\nare required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt\nout of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election\nto opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued\nor revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new\nor revised standard at the time private companies adopt the new or revised standard. This will make comparison of our financial statements\nwith another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the\nextended transition period difficult or impossible because of the potential differences in accounting standards used.\n\n \n\n44\n\n \n\n \n\n**We may experience extreme share price volatility unrelated to\nour actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess\nthe rapidly changing value of our Ordinary Shares.**\n\n \n\nRecently, there have been instances of extreme\nstock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings,\nespecially among companies with relatively smaller public floats. As a relatively small-capitalization company with relatively small\npublic float, we may experience greater share price volatility, extreme price run-ups, lower trading volume and less liquidity than large-capitalization\ncompanies. In particular, our Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades and large\nspreads in bid and ask prices. Such volatility, including any share-run up, may be unrelated to our actual or expected operating performance,\nfinancial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary\nShares.\n\n \n\nIn addition, if the trading volumes of our Ordinary\nShares are low, persons buying or selling in relatively small quantities may easily influence prices of our Ordinary Shares. This low\nvolume of trades could also cause the price of our Ordinary Shares to fluctuate greatly, with large percentage changes in price occurring\nin any trading day session. Holders of our Ordinary Shares may also not be able to readily liquidate their investment or may be forced\nto sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also\nadversely affect the market price of our Ordinary Shares. As a result of this volatility, investors may experience losses on their investment\nin our Ordinary Shares. A decline in the market price of our Ordinary Shares also could adversely affect our ability to issue additional\nshares of Ordinary Shares or other securities and our ability to obtain additional financing in the future. No assurance can be given\nthat an active market in our Ordinary Shares will develop or be sustained. If an active market does not develop, holders of our Ordinary\nShares may be unable to readily sell the shares they hold or may not be able to sell their shares at all.\n\n \n\n**Shares eligible for future sale may adversely affect the market\nprice of our ordinary shares, as the future sale of a substantial amount of outstanding ordinary shares in the public marketplace could\nreduce the price of our Ordinary Shares.**\n\n \n\nThe market price of our shares could decline as\na result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition,\nthese factors could make it more difficult for us to raise funds through future offerings of our ordinary shares. All of the shares sold\nin our initial public offering are freely transferable without restriction or further registration under the Securities Act. The remaining\nshares are “restricted securities” as defined in Rule 144. These shares may be sold in the future without registration under\nthe Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.\n\n \n\n**Our Management has broad discretion in the use of the net proceeds\nfrom our financing activities and may not use them effectively.**\n\n \n\nOur management has broad discretion in the application of the net proceeds\nfrom our initial public offering and any future financing, including working capital, possible acquisitions, and other general corporate\npurposes, and we may spend or invest these proceeds in a way with which our shareholders disagree. The failure by our management to apply\nthese funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from our financing\nin a manner that does not produce income or that loses value.\n\n \n\n45\n\n \n\n \n\n**We do not intend to pay dividends for the foreseeable future.**\n\n \n\nWe currently intend to retain any future earnings\nto finance the operation and expansion of the business of the PRC operating entities, and we do not expect to declare or pay any dividends\nin the foreseeable future. As a result, you may only receive a return on your investment in our ordinary shares if the market price of\nour ordinary shares increases.\n\n \n\n**We have incurred and will incur additional costs as a result\nof being a public company, which could negatively impact our net income and liquidity.**\n\n \n\nWe incurred professional service expenses of\napproximately $1.21 million for the year ended December 31, 2024 and $0.84 million for the year ended December 31, 2025.\nProfessional fees, including payments to attorneys, auditors, and consultants, were primarily incurred in connection with our\nefforts to prepare for our initial public offering and ongoing SEC filings. As a public company, we expect to incur significant\nlegal, accounting, and other professional expenses that were not required while operating as a private company. In addition,\nSarbanes-Oxley and rules and regulations implemented by the SEC and the Nasdaq Capital Market require significantly heightened\ncorporate governance practices for public companies. We expect that these rules and regulations will increase our legal, accounting\nand financial compliance costs and will make many corporate activities more time-consuming and costly.\n\n \n\nWe do not expect to incur materially greater costs\nas a result of being a public company than those incurred by similarly sized U.S. public companies. If we fail to comply with these rules\nand regulations, we could become the subject of a governmental enforcement action, investors may lose confidence in us and the market\nprice of our ordinary shares could decline.\n\n \n\n**The obligation to disclose information publicly may put us at\na disadvantage to competitors that are private companies.**\n\n \n\nAs a publicly listed company, we will be required\nto file annual reports with the Securities and Exchange Commission. In some cases, we will need to disclose material agreements or the\nresults of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access\nto this information, which would otherwise be confidential. This may give them advantages in competing with our company. Similarly, as\na U.S.-listed public company, we will be governed by U.S. laws that our competitors, which are mostly private Chinese companies, are\nnot required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such\ncompanies, our public listing could affect our results of operations.\n\n \n\n**There can be no assurance that we will not be a passive foreign\ninvestment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income\ntax consequences to U.S. holders of our Ordinary Shares.**\n\n \n\nA non-U.S. corporation will be a PFIC for any\ntaxable year if either (1) at least 75% of its gross income for such year consists of certain types of “passive” income;\nor (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable\nto assets that produce passive income or are held for the production of passive income, or the asset test. Based on our current and expected\nincome and assets, we do not presently expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance\ncan be given in this regard because the determination of whether we are or will become a PFIC is a fact-intensive inquiry made on an\nannual basis that depends, in part, upon the composition of our income and assets. In addition, there can be no assurance that the Internal\nRevenue Service, or IRS, will agree with our conclusion or that the IRS would not successfully challenge our position. Fluctuations in\nthe market price of our Ordinary Shares may cause us to become a PFIC for the current or subsequent taxable years because the value of\nour assets for the purpose of the asset test may be determined by reference to the market price of our Ordinary Shares. The composition\nof our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised from the initial\noffering. If we were to be or become a PFIC for any taxable year during which a U.S. Holder holds our Ordinary Shares, certain adverse\nU.S. federal income tax consequences could apply to such U.S. Holder and such U.S. Holder may be subject to additional reporting requirements\n\n \n\n46"}