{"url_path":"/sec/hlp/10-k/2026/item-4","section_key":"item-4","section_title":"Item 4 INFORMATION ON THE COMPANY","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":20115,"has_tables":true,"body_markdown":"Item 4. INFORMATION ON THE COMPANY\n\n \n\nA. History and Development of the Company\n\n \n\nOur Corporate History and Structure\n\n \n\nHongli Cayman is an exempted company incorporated\non February 9, 2021, under the laws of the Cayman Islands. We have no substantive operations other than holding all of the issued and\noutstanding shares of Hongli Hong Kong Limited, or Hongli HK, which was established in Hong Kong on March 5, 2021. Hongli HK is also\na holding company holding all of the outstanding equity of Shandong Xiangfeng Heavy Industry Co., Ltd., or Hongli WFOE, which was established\non April 8, 2021 under the laws of the PRC.\n\n \n\nAs a holding company with no material operations of our own, pursuant\nto certain Contractual Arrangements, we consolidate financial results of VIE, Shandong Hongli Special Section Tube Co., Ltd., or Hongli\nShandong, a PRC company, and through its 97% owned subsidiary, Beijing Haozhen Heavy Industry Technology Co., Ltd., or Haozhen Beijing,\na PRC company; its wholly owned subsidiary, Shandong Maituo Heavy Industry Co., Ltd., or Maitou Shandong, a PRC company; and its 70% owned\nsubsidiary Shandong Haozhen Heavy Industry Technology Co., Ltd., or Haozhen Shandong, a PRC company. The VIE was incorporated on September\n13, 1999 and commenced our operations under the name Shandong Changle Hongli Steel Tube Co., Ltd. to provide industrial pipes and tubes\nproducts.\n\n \n\nOn September 13, 1999, Hongli Shandong was incorporated\nas a PRC limited liability company. It engages in production and sales of steel profile product; import and export business of mechanical\nprocessing, sales and above products (for items subject to approval according to law, business activities may be carried out only after\napproval by relevant departments.\n\n \n\nOn May 23, 2019, Hongli Shandong established its\nwholly owned subsidiary Maituo Shandong. Maituo Shandong’s registered business scope includes production of special-shaped steel pipe, construction machinery processing;\nmining machinery and agricultural machinery steel, stainless steel and corrosion-resistant alloy, automotive parts steel production,\nsales; CRF technology research and development and technical services; goods import and export (for projects subject to approval according\nto law, business activities may be carried out only after approval by relevant departments). As of the date of this annual report, Maituo Shandong has not commenced\noperations.\n\n \n\nOn September 18, 2020, Hongli Shandong and Shengda\nTechnology Co. Ltd, a South Korean company, established Haozhen Shandong. Hongli Shandong owns a 70% equity interest in Haozhen Shandong.\nHaozhen Shandong’s registered business scope includes metal chain and other metal products manufacturing; metal chain and other metal products sales; metal structure\nmanufacturing; metal structure dales; general parts manufacturing; high-quality special steel materials sales; steel calendering processing\n(except for items subject to approval according to law, and operating activities independently according to law with business license);\ngoods import and export (for items subject to approval according to law, business activities may be carried out only after approval by\nrelevant departments, and the specific business items shall be subject to the approval result). Haozhen Shandong has not commenced its\noperation as of today.\n\n \n\nOn February 4, 2021, Hongli Shandong established its 97% owned subsidiary\nHaozhen Beijing. Its registered business scope includes technology development, technology promotion, technology transfer, technology consulting, technical services;\nproduct design; model design; sales of self-developed products, metal materials, metal products, non-metal ore, metal ore, building materials;\nimport and export of goods. Haozhen Beijing has not commenced its operation as of today.\n\n \n\nWe were advised by our PRC counsel that our holding\ncompany, its subsidiaries, and the VIE, Hongli Shandong and its subsidiaries, are not required to obtain permission or approvals from\nPRC authorities or agencies to list on the U.S. exchange markets, because the PRC operating entities fall outside the sectors subject\nto key restrictions by the PRC government.\n\n \n\n47\n\n \n\n \n\nAs of May 13, 2026 and December 31, 2025, we have\n74,738,750 and 73,438,750 Ordinary Shares issued and outstanding, respectively, of which Hongli Development holds 6,787,517 Ordinary Shares.\n\n \n\nThe following chart summarizes our corporate legal\nstructure and identifies our subsidiaries and the PRC operating entities as of the date of this Annual Report.\n\n \n\n \n\n*\nMr. Yuanqing Liu is the initial\nfounder of the Company and the father of Mr. Jie Liu. Ms. Ronglan Sun is the spouse of Mr. Yuanqing Liu and the mother of Mr. Jie\nLiu. Mr. Yuanqing Liu and Ms. Ronglan Sun have granted their proxy to Mr. Jie Liu to vote their shares in Hongli Development for\nall corporate transactions requiring shareholders’ approval and Mr. Jie Liu as such may be deemed to have sole voting and investment\ndiscretion with respect to the Ordinary Shares held by Hongli Development.\n\n \n\nHongli WFOE, a wholly subsidiary of Hongli Cayman,\nHongli Shandong and its shareholders, and Hongli HK entered into a series of Contractual Arrangements in April 2021. Such Contractual\nArrangements consist of a series of three agreements, along with shareholders’ powers of attorney (“POAs”) and irrevocable\nspousal consent letters. Hongli Shandong, the VIE, and its PRC subsidiaries are the entities conducting the operation in the PRC. Neither\nHongli 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\n48\n\n \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 direct foreign investment in, some China-based operating companies, as well as Hongli Shandong, at the discretion\nof the management, still selected to utilize such VIE structure to list overseas to avoid the substantial costs and time. If Hongli Shandong\nhad selected to directly list on a U.S. exchange without such Contractual Arrangements, Hongli Shandong would be required to obtain certain\nregulatory approvals in connection with the conversion of the PRC operating entities into wholly foreign owned entities which would take\nthe Company approximately 3-6 months to complete, without certainty when the conversion would be completed successfully. As a result,\nmanagement elected to pursue the VIE structure, at which time that the PRC government did not initiate a series of regulatory actions\nand statements to regulate business operations in China including enhancing supervision over the use of variable interest entities for\noverseas 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-D.\nRisk Factors - *We rely on Contractual Arrangements with the VIE and the shareholders of the VIE to consolidate the financial results\nof the PRC operating entities. We do not have an equity ownership in, direct foreign investment in, or control of, through such ownership\nor investment, the VIE.*” We, as a Cayman Islands holding company, may have difficulty in enforcing any rights we may have under\nthe Contractual Arrangements with Hongli Shandong, its founders and owners, in PRC because all of our Contractual Arrangements are governed\nby the mainland China laws and provide for the resolution of disputes through arbitration in the PRC, where the legal environment is\nnot as developed as in the United States. See “Item 3. Key Information-D. Risk Factors - *Any failure by the VIE or its shareholders\nto perform their obligations under our Contractual Arrangements with them would have a material adverse effect on our results of operation.*”\nFurthermore, these Contractual Arrangements may not be enforceable in China if PRC government authorities or courts take a view that\nsuch Contractual Arrangements contravene applicable PRC laws and regulations or are otherwise not enforceable for public policy reasons.\nSee “Item 3. Key Information-D. Risk Factors - *The Chinese government exerts substantial influence over the manner in which\nwe and the PRC operating entities must conduct business activities.*” In the event we are unable to enforce these Contractual\nArrangements, we may not be able to consolidate the financial results of Hongli Shandong, and our results of operation may be materially\nand adversely affected. For more information, see “Item 3. Key Information-D. Risk Factors - Risks Related to Our Corporate Structure”\nand “Item 3. Key Information-D. Risk Factors - Risks Related to Doing Business in China.”\n\n \n\nBecause we do not hold equity interests in Hongli\nShandong, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including\nbut not limited to regulatory review of overseas listing of mainland China companies through a special purpose vehicle and the validity\nand enforcement of the Contractual Arrangements. As of the date hereof, the agreements under the Contractual Arrangements have not been\ntested in any courts of law. We are also subject to the risks of uncertainty about any future actions of the mainland China government\nin this regard that could disallow the VIE structure, which would likely result in a material change in our operations and cause the\nvalue of Ordinary Shares to decrease significantly or become worthless. We may also be subject to sanctions imposed by PRC regulatory\nagencies including Chinese Securities Regulatory Commission, or CSRC, if we fail to comply with their rules and regulations.\n\n \n\n49\n\n \n\n \n\nThe significant terms of the Contractual Arrangements\nare as follows:\n\n \n\nExclusive Business Cooperation and Management Agreement\n\n \n\nPursuant to the exclusive business cooperation\nand management agreement between Hongli WFOE and Hongli Shandong dated as of April 12, 2021, Hongli WFOE has the exclusive right to provide\nHongli Shandong with complete business support, operational management, and technical and consulting services, including all services\nwithin the business scope of Hongli Shandong as may be determined from time to time by Hongli WFOE, such as but not limited to technical\nservices, business consultations, and marketing consultancy. Additionally, Hongli WFOE has the full and exclusive right to manage and\ndirect all cash flow and assets of Hongli Shandong and to direct and administrate the financial affairs and daily operation of Hongli\nShandong. In exchange, Hongli WFOE is entitled to an annual service fee that equals the audited total amount of the net income of such\nfiscal year of Hongli Shandong. If Hongli Shandong’s annual net income is zero, Hongli Shandong is not required to pay the service\nfee. If Hongli Shandong sustained losses in any fiscal year, all such losses will be carried over to the next year and deducted from\nthe service fee of the next year.\n\n \n\nThe exclusive business cooperation agreement remains\nin effect, unless terminated pursuant to the agreement or upon the mutual consent of the parties thereto. Hongli Shandong may not unilaterally\nterminate this agreement unless Hongli WFOE commits gross negligence or a fraudulent act against Hongli Shandong. However, Hongli WFOE\nhas the right to terminate this agreement upon giving 30 days’ prior written notice to Hongli Shandong at any time.\n\n \n\n*Exclusive Option Agreements*\n\n \n\nPursuant to the exclusive option agreement among\nHongli HK, Hongli Shandong and the shareholders who collectively own all of Hongli Shandong dated as of April 12, 2021, such shareholders\nhave jointly and severally granted Hongli HK an option to purchase their equity interests in Hongli Shandong. The purchase price shall\nbe equal to the actual capital contributions paid in the registered capital of Hongli Shandong by the shareholders for the portion of\nequity interests to be purchased by Hongli HK or the lowest price allowed by the applicable PRC laws and regulations. Hongli HK or its\ndesignated person may exercise such option at any time to purchase all or part of the equity interests in Hongli Shandong until it has\nacquired all equity interests of Hongli Shandong, which is irrevocable during the term of the agreements.\n\n \n\nThe exclusive option agreement remains in effect for 10 years, and\nHongli HK has the right to extend it for an additional 10 years.\n\n \n\n*Equity Interest Pledge Agreement*\n\n \n\nPursuant to the equity interest pledge agreement among Hongli WFOE,\nHongli Shandong, and the shareholders who collectively own all of Hongli Shandong dated as of April 12, 2021, such shareholders have pledged\nall of the equity interests in Hongli Shandong to Hongli WFOE as collateral to secure the obligations of Hongli Shandong under the exclusive\nbusiness cooperation and management agreement and the exclusive option agreement. These shareholders are prohibited or may not transfer\nthe pledged equity interests without prior written consent of Hongli WFOE unless transferring the equity interests in accordance with\nthe performance of the exclusive option agreement.\n\n \n\nThe equity interest pledge agreement shall be terminated upon the full\npayment of the consulting and service fees under the exclusive business cooperation and management agreement and upon the fulfillment\nof Hongli Shandong’s obligation under the exclusive business cooperation and management agreement. Additionally, Hongli WFOE shall\ncancel or terminate this equity interest pledge agreement as soon as reasonably practicable.\n\n \n\n50\n\n \n\n \n\nShareholders’ POAs\n\n \n\nPursuant to the shareholders’ POAs dated\nas of April 12, 2021, the shareholders of Hongli Shandong have given Hongli HK or its subsidiary an irrevocable proxy to act on their\nbehalf on all matters pertaining to Hongli Shandong and to exercise all of their rights as shareholders of Hongli Shandong, including\nthe right to attend shareholders meetings, to exercise voting rights and all of the other rights, and to designate and appoint the legal\nrepresentative, the executive directors and/or director, supervisor, the chief executive officer and other senior management members\nof Hongli Shandong, and to sign and execute transfer documents and any other documents pursuant to the exclusive option agreement and\nthe equity interest pledge agreement. The POAs shall remain in effect while the shareholders of Hongli Shandong hold the equity interests\nin Hongli Shandong.\n\n \n\n*Irrevocable Spousal Consent Letters*\n\n \n\nPursuant to the irrevocable spousal consent letters\ndated as of April 12, 2021, the spouses of all the shareholders of Hongli Shandong consent to the execution of the exclusive business\ncooperation and management agreement, equity interest pledge agreement, exclusive option agreement, and the power of attorneys signed\nby their spouse. The spouses of the shareholders of Hongli Shandong further undertake not to make any assertions in connection with the\nequity interests of Hongli Shandong held by the shareholders and confirm no authorization or consent will be required from them for the\nshareholders’ performance of any transaction documents in connection with these agreements. However, if the spouse of any shareholder\nobtains any equity interest held by the shareholders for any reason, they commit to be bound by these agreements and comply with the\nobligation of the shareholders of Hongli Shandong thereunder.\n\n \n\nBased on the foregoing Contractual Arrangements,\nHongli Cayman is allowed to consolidate Hongli Shandong’s operations and financial results in Hongli Cayman’s financial statements\nfor the periods presented herein as if the current corporate structure (“restructuring” or “reorganization”)\nhad been in existence throughout the periods presented under common control in accordance with Regulation S-X-3A-02 promulgated by the\nSEC and Accounting Standards Codification (“ASC”) 810-10, Consolidation.\n\n \n\nRecent Developments \n\n \n\nApril 2026 Private Placement\n\n \n\nOn April 11, 2026, the Company entered into a Securities Purchase Agreement\n(the “Securities Purchase Agreement”) with a U.S. investor (the “Investor”) for a private placement offering,\nproviding the sale and issuance of 1,300,000 ordinary shares of the Company, par value $0.0001 per share (the “Shares”), at\na purchase price of $0.25 per Share, for aggregate gross proceeds of $325,000. The Securities Purchase Agreement contains customary representations\nand warranties of the Company and the Investor and customary indemnification and obligations of the parties. The closing of the private\nplacement occurred on April 24, 2026. The offer and sale of the Shares were made in reliance upon the exemption from registration provided\nby Section 4(a)(2) of the Securities Act of 1933 and/or Regulation D promulgated thereunder.\n\n \n\nNasdaq Notice of Deficiency and Regained Compliance \n\n** ** \n\nOn July 10, 2025, the Company received a deficiency\nletter (the “Notice”) from the Staff of Nasdaq. The Notice informed the Company that, based upon the closing bid price of\nthe Ordinary Shares over the 30 consecutive business day period between May 27, 2025 and July 9, 2025, the Company was not in compliance\nwith the requirement to maintain a minimum bid price of $1.00 per share of its Ordinary Shares for continued listing on The Nasdaq Capital\nMarket, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).\n\n \n\n51\n\n \n\n \n\nOn October 3, 2025, the Company received a notification\nletter from Nasdaq, dated October 2, 2025, stating that the Company has regained compliance with the Minimum Bid Price Requirement. Nasdaq\nmade this determination of compliance after the closing bid price of the Ordinary Shares has been trading at $1.00 per share or greater\nfor the last 12 consecutive business days from September 16, 2025 to October 1, 2025. Accordingly, Nasdaq has considered that the Company\nhas regained compliance with the Minimum Bid Price Requirement and this matter is now closed.\n\n \n\nInvestment Framework Agreement with Zhongke Beijing\n\n \n\nOn March 10, 2025, Hongli WFOE entered into an\ninvestment framework agreement (“Framework Agreement”) with Zhongke Hongyuan (Beijing) Holding Co. Ltd. (“Zhongke Beijing”),\nunder which Hongli WFOE and Zhongke Beijing proposed to establish a new company, Jinan Langchi Heavy Industry Co., Ltd (“Jinan Langchi”),\nin Jinan, Shandong Province, China, for the purpose of potentially establishing a new factory in Xuzhou, Jiangsu Province, China. Pursuant\nto the Framework Agreement, Zhongke Beijing agreed to invest approximately $41.1 million (RMB 300 million), along with relevant patented\nprocesses and equipment and obligation to purchase land in Xuzhou for no more than RMB100,000 per mu (1 mu = approximately 0.165 acre),\nin exchange for a 60% equity interest in Jinan Langchi; and Hongli WFOE agreed to invest approximately $32.9 million (RMB 239.98 million),\nalong with its customer base and market resources, in exchange for a 40% equity interest in Jinan Langchi. Hongli WFOE was expected to\nserve as the managing entity while Zhongke Beijing was expected to act as the investing shareholder of Jinan Langchi. The parties further\nagreed that the Company’s VIE entity, Hongli Shandong, would not participate in Jinan Langchi’s operations or management.\nThe respective capital contributions were to be made no later than the end of June 2025. The term of the Framework Agreement commenced\non March 10, 2025 and expired on December 31, 2025. Under the Framework Agreement, Zhongke Beijing was required to complete the\nland purchase in Xuzhou and obtain the relevant land certificate by the due date; otherwise, the project cooperation would terminate and\nthe joint investment funds would be returned to the respective accounts.\n\n \n\nOn December 6, 2024, in anticipation of the proposed\ninvestment, Hongli WFOE deposited approximately $32.9 million (RMB 239,979,300) with Jinan Langchi. Because Zhongke Beijing\ndid not complete the land purchase in Xuzhou and obtain the relevant land certificate before December 31, 2025, the Framework Agreement\nterminated in accordance with its terms.\n\n \n\nOn December 31, 2025, Hongli WFOE, Jinan Langchi\nand Shanghai Zhuofan Industrial Co., Ltd. (“Shanghai Zhuofan”) entered into an agreement confirming the termination of the\nFramework Agreement and providing for the transfer of the investment amount of approximately $32.9 million (RMB239.98 million) previously\ninvested by Hongli WFOE from Jinan Langchi to an account designated by Shanghai Zhuofan. Hongli WFOE appointed Shanghai Zhuofan as the\nnew entrusted party in connection with a potential investment project relating to such investment amount, for a term from December 31,\n2025 to December 31, 2026.\n\n \n\nIn connection with that arrangement, on December\n31, 2025, Shanghai Zhuofan, as the entrusting party, SBI China Mega Asset Management Limited, as the entrusted party, and Hongli WFOE,\nas the ultimate investor, entered into a project investment entrustment service agreement, pursuant to which Shanghai Zhuofan entrusted\nSBI China Mega Asset Management Limited to source and screen investment projects that satisfy Shanghai Zhuofan’s specified investment\nrequirements. Under the agreement, Hongli WFOE is entitled to receive project-related information and exercise supervision rights. The\ncontemplated investment amount is approximately $32.9 million (RMB239.98 million), and the agreement has a term from December 15, 2025\nto December 14, 2026.\n\n \n\nAs of the date of this annual report, no investment\nproject had been completed.\n\n \n\n**Corporate Information**\n\n \n\nOur principal executive office is located at 777\nDaiyi Road, Changle County, Weifang City, Shandong Province, China, 262400. Our telephone number is +86 0536-2180886. Our website is\n*hongliprofile.com*. The information on our website does not form part of this Annual Report. Our registered office is situated\nat the office of Ogier Global (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman, KY1-9009, Cayman Islands or at such other place\nin the Cayman Islands as the directors may at any time decide.\n\n \n\nB. Business Overview\n\n \n\nOverview\n\n \n\nHongli Cayman is an offshore holding company incorporated\nin the Cayman Islands as an exempted company with limited liability. As a holding company with no material operations of our own, we\nconsolidate financial results of Hongli Shandong, the VIE and its subsidiaries through Contractual Arrangements. Neither we nor our subsidiaries\nown any equity interests in the PRC operating entities. Instead, we consolidate financial results of Hongli Shandong through a series\nof Contractual Arrangements dated April 12, 2021.\n\n \n\n52\n\n \n\n \n\nThe PRC operating entities are a cold roll formed\nsteel profile manufacturer in China with respect to function innovation, performance improvement, and customized manufacturing of their\nproducts. The PRC operating entities’ main business operation focuses on the design, production, deep processing, and sales of\ncustom-made profile for machinery and equipment in a variety of sectors, including but not limited in mining and excavation, construction,\nagriculture, and transportation industries.\n\n \n\nIn addition to the manufacturing techniques, the\nPRC operating entities employ deformed flower designing in their product design which enables visualization of the formation process\nof the materials, and further ensures the high success rate of their research, development, and design.\n\n \n\nIn May 2022, the PRC operating entities started\nto provide CRF profiles with additional electrocoating services to meet their customers’ additional demands. Electrocoating is\na method of painting that uses electrical current to deposit paint on a part surface, which is widely used for products, including but\nnot limited to, hardware, sporting equipment, business appliance, and automotive. As of the date of this Annual Report, the PRC operating\nentities have produced various electrocoated products, among excavator cabs, safety frames for tractors, and weld-on brackets, generating\na total revenue of approximately $1.81 million (RMB13.18 million). As of the date hereof, the PRC operating entities have received approximately\n56,346 new orders of different types of electrocoated products with an estimated revenue of $1.81 million (RMB1318 million). Additionally,\nas the management is in negotiation with other existing and potential customers, the management of the PRC operating entities estimates\nthat this newly added electrocoating service could generate additional income from the PRC operating entities in the future.\n\n \n\nWith more than 25 years of operating history,\nthe PRC operating entities have developed customers in more than 30 cities in China and a global network covering South Korea, Japan,\nand the U.S.. The customers of the PRC operating entities include large corporations and international enterprises such as Weichai LOVOL\nHeavy Industry Co. Ltd. (“LOVOL”), SUNGJIN TECH CO., LTD (“South Korean VOLVO”), XCMG Group (“XCMG”),\nand some new customers associated with Katsushiro Machinery Co., Ltd. (“Japan Katsushiro”). The majority of the customers\nof our PRC operating entities have maintained business with us for an average of 10 years. In 2025, orders from both domestic and foreign\ncustomers increased. We expect to maintain positive relationships with our principal customers going forward. We anticipate that XCMG\nwill serve as a key driver of our business growth over the next five years. Currently, we have ongoing business relationships with several\nof its subsidiaries, including XCMG Loader Co., Ltd., XCMG Road Machinery Co., Ltd., XCMG Agricultural Equipment Co., Ltd., and XCMG\nForklift Co., Ltd. Orders from XCMG are projected to grow by approximately 50% on a continuing basis.\n\n \n\nInnovations of the PRC Operating Entities\n\n \n\nThe PRC operating entities employ a broad array\nof manufacturing techniques, most importantly cold roll forming (“CRF”) which is the technique used for manufacturing all\ntheir products that differentiates the PRC operating entities from other steel pipe manufacturers that employ alternative forming techniques\nsuch as extrusion or pull-trusion. Cold roll formed steel pipe/tubing is widely used for applications where precise dimension and mechanical\ntolerances are required.\n\n \n\nCRF reduces the cost of the material and improves\nthe quality of the product in terms of its surface and size, and allows the PRC operating entities to both customize their products in\naccordance with customers’ request and deliver products with high quality, increase mechanical properties and strength. CRF expands\ntheir product applications to a variety of industries that have demands for roll forming profiles with high precision and low processing\ncost.\n\n \n\nCurrently, the PRC operating entities have applied\nfor more than 73 patents for this technique, 67 of which have been approved, including 59 registered utility patents and 8 invention\npatents. Among these approved patents, there are especially two patents that the management of the PRC operating entities believes are\nmaterial to the operations and business of the PRC operating entities. One is a repair treatment method of CRF profiles, providing solutions\nto fix H-shaped profiles during polish process. This patented technology requires less labor and increases the polish efficiency, and\nthe management of Hongli Shandong has not seen other similar patents in the market as of the date of this report. The other one is a\nfine machining method for profile production and manufacturing, which realizes the automatic and fine machining of customized profiles,\nreduces the labor requirements, and decreases the cost. These approved patents have been applied to the PRC operating entities’\nproductions.\n\n** **\n\n53\n\n \n\n \n\nProduct Applications\n\n \n\nThe PRC operating entities produce a comprehensive\nrange of well-designed and customized profile products applied to different kinds of machineries and equipment that are widely used in\na variety of sectors, including but not limited to, mining and excavation, construction, agriculture, and transportation industries.\n\n \n\n \n\nApplications \nPercent of sales\n(LTM Period)  \nMajor Application/Uses\n\nMining/Excavation \n 45% \n● \nWidely used in mining industry as key components of excavation cabs\n\nConstruction - Doors and windows category \n 2% \n● \nPrimarily used as key components of construction cabs. Depending on demand, we manufacture products as significant components of windows, door, and walls with certain thermotolerance and extensibility.\n\nAgricultural \n 52% \n● \nPrimarily for agricultural machinery used as significant components of cabs and ROPs.\n\nTransportation \n 1% \n● \nUsed as key component of forklift for material transportation industry.\n\n** **\n\n54\n\n \n\n \n\n**●**\n**Mining/Excavation**\n\n** **\n\n \n\n55\n\n \n\n \n\n \n\n56\n\n \n\n \n\n \n\n57\n\n \n\n \n\nProducts of the PRC Operating Entities\n\n \n\nThe PRC operating entities currently produce over\n2,000 distinct profile products in a broad range of materials, sizes and shapes. Their outstanding CRF experience and technics enable\nthem to design and produce different shapes and dimensions of profile products based on each specific project demand from different customers.\nThe PRC operating entities have always striven to provide product offerings with high quality, precise manufacturing, and on-time delivery.\n\n \n\nBelow are the selective profile products the PRC\noperating entities have produced for their customers:\n\n \n\n \n\nThe PRC operating entities’ cold roll formed\nsteel profile products have various forms of shapes, including but not limited to, angles, bows, beams, brackets, channels, cross-members,\nflanges, hats, panels, plates, posts, rails, stakes, tracks. Below are the cross-sections of the selective profile products they have\nproduced for their customers:\n\n \n\n \n\n58\n\n \n\n \n\n \n\nSales and Marketing\n\n** **\n\n \n\n*Domestic and International Footprint\nof the PRC Operating Entities*\n\n \n\n59\n\n \n\n \n\nThe PRC operating entities’ customers are\nmainly concentrated in the Chinese market. The customers of the PRC operating entities cover more than 30 cities in China, covering the\nmajor heavy industry machinery and agricultural machinery industry enterprises. The PRC operating entities provide their products directly\nto, or indirectly to suppliers of, some of the world’s leading original equipment manufacturers, such as XCMG and Komatsu Ltd.\nEnterprises.\n\n \n\nHongli Shandong has been devoting to its international\nexpansion opportunities. As a part of their international expansion and to facilitate the relationship with the existing South Korean\ncustomers, Hongli Shandong designated two employees who speak Korean to constantly visit customers in South Korea to assist with logistics,\nadvertisement, collecting or furnishing of information of the services and products of Hongli Shandong.\n\n \n\nHongli Shandong also plans to open a new sales\noffice in Wisconsin, U.S. to be supported with two local salesmen to develop local business in the U.S. However, this plan has been delayed\nor might even be postponed due to the impact of ongoing geopolitical tensions around the world, the development of U.S. tariff policy\nand the potential market opportunities in the U.S., which may have a material adverse effect on our business, financial condition, and\nresults of operations. Hongli Shandong currently has one independent contractor who works closely with Hongli Shandong to conduct market\nresearch and development in the U.S. market and respond to inquiry and quotes from potential U.S. customers. In May 2021, Hongli Shandong\nreceived an order from a customer in the U.S., for 600 units of D-shaped cold roll formed tubes which were delivered to such customer\nin November 2021.\n\n \n\nHongli Shandong also explored the market in\nJapan in collaboration with Japan Katsushiro who later purchased from the PRC operating entities through its PRC affiliated\nentities. In addition, on March 29, 2024, Hongli Shandong entered into a Basic Transaction Contract and Quality Assurance Contract\nwith Shengdai Machinery (Shandong) Co., Ltd. (“Shengdai Shandong”), pursuant to which Hongli Shandong supplies profile\nmaterials, ancillary materials, components, semi-finished products and assemblies to Shengdai Shandong under individual purchase\norders, to be exported to Japan. The agreement has a term of one year and automatically renews for successive one-year periods\nunless either party provides written notice of termination at least three months prior to the expiration of the then-current term.\nAs of the date of this Annual Report, Hongli Shandong has provided 73,182 pieces of products, an increase of 10,581 pieces from\n62,601 pieces in 2024, to Shengdai Shandong.\n\n \n\nThe chart below details our revenue by percentage\ngenerated from PRC and international markets.\n\n \n\n  \nFor the Years Ended December 31,  \n   \n  \n\n  \n2025  \n2024  \n   \n  \n\n  \nRevenue  \n% of total\nRevenue  \nRevenue  \n% of total\nRevenue  \nVariance  \nVariance % \n\nPRC \n$16,581,343  \n 84.6% \n$12,196,548  \n 86.5% \n$4,384,795  \n 36.0%\n\nInternational \n$3,019,348  \n 15.4% \n$1,909,072  \n 13.5% \n$1,110,276  \n 58.2%\n\nTotal \n$19,600,691  \n 100% \n$14,105,620  \n 100% \n$5,495,071  \n 39.0%\n\n \n\n  \nFor the Years Ended December 31,  \n   \n  \n\n  \n2024  \n2023  \n   \n  \n\n  \nRevenue  \n% of total\nRevenue  \nRevenue  \n% of total\nRevenue  \nVariance  \nVariance % \n\nPRC \n$12,196,548  \n 86.5% \n$12,117,240  \n 75.7% \n$79,308  \n 0.7%\n\nInternational \n$1,909,072  \n 13.5% \n$3,880,714  \n 24.3% \n$(1,971,642) \n (50.8)%\n\nTotal \n$14,105,620  \n 100% \n$15,997,954  \n 100% \n$(1,892,334) \n (11.8)%\n\n** **\n\n60\n\n \n\n \n\nThe major customers of the PRC operating entities accounted for approximately\n$13.9 million, or 71%, $9.5 million, or 67% and $12.0 million, or 75% of sales for the fiscal years ended December 31, 2025, 2024 and\n2023, respectively. The following table set forth the top customers each of which we generated more than 10% of sales from during the\nfiscal years ended December 31, 2025, 2024 and 2023:\n\n \n\n  \n2025  \n2024  \n2023 \n\n  \nSale  \n%  \nSales  \n%  \nSales  \n% \n\nWeichai LOVOL Heavy Industry Co. Ltd (“LOVOL”) \n$6,839,280  \n 35% \n$6,056,622  \n 43% \n$7,707,045  \n 48%\n\nSUNGJIN TECH CO., LTD (“South Korean VOLVO”) \n 2,598,767  \n 13% \n 1,654,578  \n 12% \n 3,441,899  \n 22%\n\nShandong Lingong Construction Machinery Co., Ltd. (“SDLG”) * \n -  \n -  \n -  \n -  \n 839,058  \n 5%\n\nXCMG Group. ** \n 4,478,023  \n 23% \n 2,389,467  \n 17% \n -  \n - \n\nTotal \n$13,916,070  \n 71% \n$10,100,667  \n 72% \n$11,988,002  \n 75%\n\n \n\n*\nSales to SDLG less than 10% of revenue in 2025 and 2024\n\n \n \n\n**\nSales to XCMG exceeded 10% of total revenues for the first time in\n2024.\n\n \n\nThe PRC operating entities are one of the core\nstrategic suppliers to LOVOL. The PRC operating entities started to provide raw materials to LOVOL in 2002 and began to provide various\nprofile products since 2008, primarily used for cabs of excavator and structural parts for agricultural machinery, some of which are\ncab side, safety frame, axial-roller, and U frame. Under the current sales agreement with LOVOL, Hongli Shandong\nagrees to provide certain products to LOVOL based the price, amount and quality set forth on a certain procurement list. Hongli Shandong\nagrees to deliver the demanded products to LOVOL at its factory, the expense of which, as well as the risk during the transportation\nare bore by Hongli Shandong. Payment is made in accordance with LOVOL’s financial policies and the agreed account period arrangements. The contract is long-term\neffective unless superseded by a new contract or appendix or otherwise terminated in accordance with its terms, and it also contains detailed\nprovisions regarding quality assurance, after-sales service, indemnification and liquidated damages.\n\n \n\nSouth Korean VOLVO, as the controlling\nshareholder of SDLG, reached to the PRC operating entities in 2014 for profile product used for its loaders and then continued to\nengage them in its excavator productions, further, its South Korean and Sweden projects. Based on the 12-year business\nrelationships, Hongli Shandong’s profile products satisfied South Korean VOLVO’s demands and made Hongli Shandong become\nits global strategic partner, providing certain profile products for all the excavators. Under the current supply agreement Hongli\nShandong entered in to with South Korean VOLVO, Hongli Shandong agrees to deliver on time the correct quantity and identification in\naccordance with the agreed deliver terms or special supply instructions, and to comply with South Korean VOLVO’s transport,\npackaging and labeling requirements. South Korean VOLVO agreed to make payment in U.S. dollars to Hongli Shandong three months after\nthe end of the month in which the invoice was received by South Korean VOLVO or the order products were delivered.\n\n \n\nThe PRC operating entities have worked with\nSDLG for more than a decade. Hongli Shandong is engaged in the design and production of profile product, as well as deep processing,\nincluding but not limited to, formation, laser cutting, and welding. Hongli Shandong was recognized as the outstanding supplier and\nquality suppliers by SDLG and expect to have increasing orders from SDLG. Pursuant to the current sales agreement with SDLG, Hongli Shandong agrees to provide products to SDLG based on the mutually-agreed relevant technics, drawing, technic\nstandard, and other quality related documents. Additionally, Hongli Shandong agrees to deliver the demanded products to SDLG and\nbear the delivery fees, as well as any loss incurred during the delivery due to delay, products damages and any other related loss.\nAfter the receipt and inspection of the products, SDLG should make payments within 60 days upon the receipt of the invoices from\nHongli Shandong. This sales agreement remains effective until it is terminated by any party therein upon three-month written notice\nor email, or new sales agreement becomes effective.\n\n \n\n61\n\n \n\n \n\nAdditionally, the PRC operating entities started\nto directly and indirectly provide their products to XCMG from 2017. In 2025, orders from XCMG Group for loaders, agricultural machinery,\nroad machinery, and forklifts have continued to increase, which generated approximately $3.4 million in sales. The revenue from XCMG\namounted to $3,4 million, $1.8 million, and $1.1 million for the year ended December 31, 2025, 2024 and 2023, respectively. As a supplier\nof XCMG, we have established long-term cooperative relationships with four business units under XCMG. Currently, this is one of our key\nfocus areas for the marketing and brand-building efforts of our operating entities in China.\n\n \n\nWe believe that Hongli Shandong will maintain\nclose relationships with these long-term business partners, while developing new customers in the new market in the future.\n\n** **\n\nSuppliers of the PRC Operating Entities\n\n \n\nThe PRC operating entities’ primary raw\nmaterial input is strip steel. Depending on each client’s specific needs, the PRC operating entities purchase specific type of\nstainless steel billet and different manufacturing techniques are used for processing raw materials into finished goods to make sure\nthe products meet the customer’s quality standard.\n\n \n\nThe PRC operating entities purchase their raw\nmaterials from a variety of sources and consolidate purchases among their top suppliers to improve cost and delivery terms. The PRC operating\nentities maintain flexibility to purchase raw materials from a variety of sources based on price, availability and end-user specifications.\nFor example, they maintain active relationships with other suppliers to ensure alternative sources of supply. The PRC operating entities\nhave also developed supply programs with certain of their key suppliers that they believe provide them with reduced lead times for steel\npurchases relative to their competitors. We believe the PRC operating entities’ scale is a key competitive advantage, as they are\nable to leverage our purchasing volume and market insights to obtain more favorable terms from their suppliers and drive procurement\nsavings.\n\n \n\nThe following table sets forth the top suppliers,\neach of which the PRC operating entities purchased more than 10% of total purchases during the fiscal years ended December 31, 2025, 2024\nand 2023:\n\n \n\n  \n2025  \n2024  \n2023 \n\nName \nPurchase  \n% of\nTotal\nPurchase  \nPurchase  \n% of\nTotal\nPurchase  \nPurchase  \n% of\nTotal\nPurchase \n\n  \nUS$  \n   \nUS$  \n   \nUS$  \n  \n\nJinan Lainuo Heavy Industry Co., Ltd.* \n 3,175,707  \n 33% \n -  \n -  \n -  \n - \n\nShandong Daming Xiehe Metal Technology Co., Ltd.* \n 1,188,398  \n 12% \n -  \n -  \n -  \n - \n\nShanghai Wanhe Supply Chain Management Co., Ltd.** \n -  \n -  \n 1,095,406  \n 15% \n 3,585,131  \n 48%\n\nShandong Jixi Pipe Industry Co., Ltd.*** \n -  \n -  \n 1,421,490  \n 20% \n -  \n - \n\nTotal \n 4,364,106  \n 45% \n 2,516,896  \n 35% \n 3,585,131  \n 48%\n\n \n\n*\n2025 was the first year in which purchases from Jinan Lainuo Heavy\nIndustry Co., Ltd. and Shandong Daming Xiehe Metal Technology Co., Ltd. exceeded 10% of total purchases.\n\n**\nPurchase from Shanghai Wanhe Supply Chain Management Co., Ltd. less\nthan 10% of purchase in 2025.\n\n***\nPurchase from Shandong Jixi Pipe Industry Co., Ltd. less than 10% of\npurchase in 2023 and 2025.\n\n \n\nDuring 2025, Hongli Shandong established a supply\nrelationship with Jinan Lainuo Heavy Industry Co., Ltd. (“Jinan Lainuo”) and purchased steel coils and slit steel strip products\nfrom Jinan Lainuo under a series of individual purchase contracts. Under these contracts, the applicable products, including their material,\nplace of origin, width, weight, quantity, unit price and total amount, are specified in the relevant contract. The contract price is the\nprice for pickup by Hongli Shandong and includes value-added tax at a rate of 13%. Jinan Lainuo is required to provide the certificate\nof conformity and relevant material quality certificate for each batch of goods. Hongli Shandong may conduct sampling tests upon receipt\nand must raise any quality objection within seven days. The goods are accepted by weight, with the original mill weighbridge slip serving\nas the basis for inspection. Jinan Lainuo is required to supply goods that meet national quality standards and, if the goods fail to meet\nsuch standards, Jinan Lainuo is responsible for returns or replacement. The contracts generally provide for delivery within 25 to 40 days\nafter the contract date, and payment is made by wire transfer, with prepayment required for orders and final settlement based on the actual\ndelivered quantity.\n\n  \n\n62\n\n \n\n \n\nDuring 2025, Hongli Shandong also purchased steel\nmaterials from Shandong Daming Xiehe Metal Technology Co., Ltd. (“Daming Xiehe”) under a series of individual sales contracts.\nUnder these contracts, the applicable steel grade, surface treatment, specifications, width, quantity, weight, unit price and total contract\namount are set forth in the relevant contract, and the contract price includes value-added tax at a rate of 13%. Daming Xiehe is required\nto provide product quality certificates, and acceptance is based on the applicable quality certificates and agreed technical standards.\nDelivery dates and delivery locations are specified in the relevant contracts. Daming Xiehe is responsible for arranging transportation\nand bearing the freight cost, as well as unloading at the delivery location. Where applicable, Hongli Shandong may also entrust Daming\nXiehe to process the materials in accordance with drawings and dimensions provided by Hongli Shandong. Hongli Shandong may raise written\nquality objections within 180 days after taking delivery with respect to quality issues discovered after processing, although losses resulting\nfrom improper storage by Hongli Shandong are borne by Hongli Shandong. Payment is made by wire transfer in accordance with the schedule\nset forth in the relevant contract, title to the goods remains with Daming Xiehe until full payment is received, and Hongli Shandong is\nrequired to take delivery within the applicable pickup period or may become responsible for related risks and storage charges.\n\n  \n\nHongli Shandong has established a stable, long-term\nsupply relationship with Shanghai Wanhe Supply Chain Management Co., Ltd. (“Shanghai Wanhe”). Hongli Shandong purchases\nthe raw materials from Shanghai Wanhe under specific purchase contracts. Under these contracts, the specifications, quantity, unit price and total amount of the raw materials are set forth in the relevant contract,\nand the actual quantity delivered is determined based on the delivery note, with settlement made on an actual basis. Shanghai Wanhe is\nresponsible for arranging transportation of the goods to Hongli Shandong, and the contract price includes value-added tax, processing\nfees, loading charges and transportation costs. Quantity or packaging objections must be raised upon arrival, and quality objections must\nbe raised within seven days after arrival.\n\n \n\nThe PRC operating entities do not have irreplaceable\nreliance on these suppliers. Their suppliers are all distributors, who source the raw materials from the raw material manufactories, so\nthere are many other distributors in the market with the same sources of raw material. The PRC operating entities can always find other\nsuppliers as a substitute to meet their purchase requirements of, including but not limited to, quality, volume, price, and delivery.\n\n \n\nFacilities and Equipment of the PRC Operating Entities\n\n \n\nThe headquarter and executive office of the PRC\noperating entities is located in Weifang, China. On September 14, 2022, Hongli Shandong obtained the property ownership certificates\nfor Yingxuan Assets, which are located at 777 Dayi Road, Building 1, 2, 3, and 4, Changle County, Weifang, Shandong, for approximately\n70,186 square meters (755,476 square feet).\n\n \n\nThe PRC operating entities have a total of 8 facilities\nwell-equipped with advanced manufacturing equipment, complex production lines, and experienced in-house R&D teams, enable them to\nfacilitate their customers’ orders as a “custom-made profile shop” including designing, customizing, manufacturing,\nand delivery.\n\n \n\nThe PRC operating entities currently have 11 lines\nof CRF production lines, 3 units of laser welding coupled with inspection equipment, 3 units for high frequency welding coupled with\ninspection equipment, 5 units for welding robots, 5 units for 3D laser cutting machines, 3 units for 3D CNC bending machines, a hydraulic\npress, 2 units of CNC machining and 2D laser cutting machines.\n\n \n\nIn connection with the electrocoating services,\nthe PRC operating entities purchased relevant equipment through leasing financing, including 1 unit of dust removal machine, 1 unit of\npipe system, 1 unit of electrocoating machine, and 1 unit of Zeolite runner and regenerative catalytic oxidation machine. ** **\n\n** **\n\nThe PRC operating entities intend to further expand their production\ncapacity by purchasing a new facility in Economic Development Zone, Changle County, Weifang, Shandong, the same location as the current\nfactories of Hongli Shandong, in order to cope with the anticipated increase in demand in the future. See “Business Strategies\nof the PRC Operating Entities - Expand the Production Capacity of the PRC Operating Entities.”\n\n \n\nYingxuan Assets Purchase\n\n \n\nDue to the rapid development of our company in\nthe past several years, the PRC operating entities find that the existing manufacturing capacities have been unable to meet their customers’\ndemands, especially their long-term development. In order to develop the business, Hongli Shandong has been working to expand our manufacturing\ncapability by (i) purchasing a use right of three parcels of land with a factory building and associated infrastructure on one parcel\nof the land ; and (ii) purchasing new production facilities for the four workshops (“Expansion Plan”).\n\n \n\n(i)A\npurchase of use right of three parcels of land with a factory building and associated infrastructure on one parcel of the land from Yingxuan\n\n \n\nIn\nNovember 2020, Hongli Shandong signed a letter of intent with Yingxuan Heavy Industry Co., Ltd. (“Yingxuan”) for the planned\npurchase of all of Yingxuan’s assets located in an industrial area, including its use rights of three parcels of industrial land,\nbuilding, facilities and infrastructure (collectively, the “Yingxuan Assets”) for a total consideration of approximately\nRMB125.0 million (approximately $17.1 million, the “Purchase Price for Yingxuan Assets”).\n\n \n\nOn January 1, 2021, Hongli Shandong and Yingxuan\nentered into three asset transfer agreements (the “YX Asset Transfer Agreements”), under which Hongli Shandong made various\npayments towards the Purchase Price in accordance with the payment schedule.\n\n \n\n63\n\n \n\n \n\nOn May 5, 2023, Hongli Shandong entered into a\nsupplementary agreement (the “YX Supplementary Agreement”) to the YX Asset Transfer Agreements with Yingxuan, pursuant to\nwhich Hongli Shandong, on one hand, agreed to increase the Purchase Price for Yingxuan Assets to RMB151.4 million (approximately $21.9\nmillion) (the “Amended Purchase Price for Yingxuan Assets”) taking into account of the anticipated demolition reimbursement\nto be assigned to and received by Hongli Shandong from the local government, and on the other hand, Yingxuan agreed to waive all interest\npayments accrued and to be accrued based on the annual interest rate of 7% for the Purchase Price as set forth in the YX Asset Transfer\nAgreements. Hongli Shandong believes that the amount of the demolition compensation is estimated to be RMB21.6 million ($3.1 million)\nand such governmental reimbursement is expected to be available within the next 5 years.\n\n \n\nAs of the date of this report, legal title to\ntwo parcels of the Yingxuan Assets has been transferred to Hongli Shandong. The remaining balance of the Purchase Price is\ncontractually payable only upon completion of the legal title transfers for the remaining Yingxuan Assets. Hongli Shandong believes\nthat this parcel along with the building, facilities and infrastructure will satisfy its expansion needs in the next 5 years or\nmore. In addition, the local government has certain allowance on the maximum amount of industrial land that they can grant use\nrights to, which results in that the transferor has not obtained the use rights for the other parcel of the land (approximately 31\nacres). Hongli Shandong plans to apply the use right for such parcel on an as-needed basis and within the annual allowance by the\nlocal government.\n\n \n\nAs of December 31, 2025, Hongli has cumulatively\npaid Yingxuan approximately $18.9 million (equivalent to RMB132.1 million) towards the Amended Purchase Price for Yingxuan Assets, and\nreceived the real estate and land use rights transferred from Yingxuan of the corresponding Purchase Price in the amount of approximately\n$13.9 million (RMB97.5 million). The remaining assets, valued at approximately $7.7 million (RMB 53.9 million), have not yet been transferred\nas of the filing date of this report. A remaining balance of approximately $2.8 million (RMB19.3 million) is contractually payable only\nupon the completion of the transfer of legal titles for the remaining real estate and land use rights.\n\n \n\n(ii)Yingxuan\nproduction facilities.\n\n \n\nThere are four workshops inside the factory building\nthat Hongli Shandong is purchasing from Yingxuan, for which we have certain manufacturing plans. The following table lists certain features\nand manufacturing capacity of each workshop we have acquired or are in the process of acquiring from Yingxuan.\n\n \n\nWork Shop No. \nSize\n(square feet)  \nProduction\nLine \nUsage \nApplication\nin Industry \nCosts\n(in millions) \nCapacity\n\n1 \n 105,379  \nAutomatic welding production line \nStructural welding production \nEvacuation Agriculture \n$1.79  \n20,000 Evacuation structural parts and 30,000 Agricultural structural parts\n\n2 \n 98,107  \nCold roll formed steel profile line \nCold roll forming \nConstruction Transportation \n$1.67  \n50,000 tons\n\n3 \n 164,419  \nComponents of cabs \nMachinery cabs \nEvacuation Agriculture \n$2.80 (1) \n10,000 Evacuation machinery cabs and 10,000 Agricultural machinery cabs\n\n4 \n 171,690  \nCold roll formed steel profile line \nCold roll forming \nConstruction and Transportation \n$  2.70  \n50,000 tons\n\nTotal \n 539,595  \n- \n- \n- \n$8.96(RMB65M) \n-\n\n \n\nAs of December 31, 2025, Hongli Shandong had purchased a total of 407\npieces of facilities for these workshops, for a total amount of approximately $3.2 million (RMB23.3 million). Hongli Shandong has made\ntotal payments of these facilities for $3.2 million (RMB23.3 million).\n\n \n\nCompetitive Strengths of the PRC Operating Entities\n\n** **\n\n**Solutions provider to customers, committed to one-stop service**\n\n \n\nThe PRC operating entities are committed to offering\ntheir customers one-stop services with wide product diversity, high quality and reliability. The PRC operating entities serve as a “custom-made\nprofile shop” for many of their customers. Differentiating from many other suppliers in China who either manufacture very limited\nprofiles, or produce raw material steel, or solely engage in trading profiles, the PRC operating entities have not only an experienced\nR&D team understanding customers’ needs and specifications but also extensive and diversified manufacturing techniques and\nfacilities to test, design and customize products based on the customers’ demands including bending, cutting, welding, assembling\nand coating.\n\n \n\n64\n\n \n\n** **\n\n**Stable customer base**\n\n \n\nWith more than 25 years of operating history,\nthe PRC operating entities have developed a solid and stable customer base domestically and internationally. Their customers including\nlarge corporations and international enterprises such as South Korea VOLVO, LOVOL, and SDLG, and have developed new customers which are\nfour factories set up by Japanese Katsushiro in China, XCMG Group, Weifang Hengxin Machinery Co., Ltd., Volvo Brazil and Heilongjiang\nBeidahuang Lovol. Most of the customers have been with the PRC operating entities for an average of 10 years and most of the main customers\nhave been increasing their orders with the PRC operating entities.\n\n \n\n** Diversified market and territory outreach**\n\n \n\nWe believe the PRC operating entities have diversified a customer\nportfolio and territory outreach to mitigate impact by economic and industry cycles. The PRC operating entities’ customers spread\nover are in more than 8 industries in more than 4 countries, and the PRC operating entities are still expanding to new areas, and this\ngives them protection against recession of one industry or one country.\n\n \n\n**Deep domain knowledge and industry expertise**\n\n \n\nThe PRC operating entities have gained and developed\ndeep domain knowledge and industry expertise from over 25 years of experience in service and production, which is built into and will\ncontinue to contribute to the robust and differentiated capabilities of their products. In addition to the strong support from their\nin-house R&D, the PRC operating entities collaborate with domestic and foreign universities who provide technique assistance, offer\nadvice and guidance, conduct certain research, and develop innovative techniques based on the PRC operating entities’ demands.\nThe PRC operating entities established the school-enterprise cooperative research and development center with Beijing Institute of Technology.\nAdditionally, the PRC operating entities established good cooperative relations with domestic and foreign molding equipment companies.\nWith such support, the PRC operating entities address the continuous innovation demands of their customers.\n\n** **\n\n**Rigorous quality Control**\n\n \n\nThe PRC operating entities established a comprehensive\nquality management system, implemented by a quality management system (QMS) in compliance with ISO14001 quality management systems. The\nPRC operating entities have applied for the IATF16949, which is an international standard for automotive quality management systems.\nThe PRC operating entities apply national standards of product quality testing system to ensure that the products manufactured have a\npass rate of 95% to provide their customers with high-quality, highly reliable products.\n\n \n\n**Experienced and proven Management Team**\n\n \n\nOur senior management team, as well as the senior\nmanagement team of the VIE, Hongli Shandong, has decades of leadership experience in the industrial custom-made profile industry, transportation\nand logistics and other relevant industrial sectors. Our management team and senior management intend to remain with us in the capacity\nof officers and/or directors, which will provide helpful continuity in advancing our strategic and growth goals.\n\n** **\n\nBusiness Strategies of the PRC Operating Entities\n\n \n\nThe primary objective of the PRC operating entities\nis to expand their production capacity and customer base. In addition, the PRC operating entities will remain flexible in their product\nportfolio and intend to increase sale volume in newly developed markets or less competitive markets. At the same time, the PRC operating\nentities consider their relationship with their existing customers important in sustaining growth in earnings and cash flows from operating\nactivities over various economic cycles. To achieve this objective, the PRC operating entities strive to expand their capacity, improve\ntheir cost structure, provide high quality service and products, expand their product offerings and increase their market share.\n\n \n\n**Expand Market Positions**\n\n \n\nWe believe that the market position and scale\nof the PRC operating entities are their most compelling competitive strengths. The PRC operating entities’ management team is focused\non expanding market share, which they believe will generate operating leverage and improved financial performance. The PRC operating\nentities believe this can be accomplished through acquisitions and organic initiatives, including offering new products, serving additional\nend markets and increasing customer penetration and geographic coverage.\n\n \n\n65\n\n \n\n \n\nAs a part of the global sales layout of the PRC\noperating entities and to facilitate the relationship with the existing South Korean customers, Hongli Shandong designated two employees\nwho speak Korean to constantly visit customers in South Korea to assist with logistics, advertisement, collecting or furnishing of information\nof the services and products of Hongli Shandong.\n\n \n\nHongli Shandong also plans to open a new sales\noffice in Wisconsin, U.S. to be supported with two local salesmen to develop local business in the U.S. However, this plan has been delayed\nor might even be postponed due to the impact of ongoing geopolitical tensions around the world, the development of U.S. tariff policy\nand the potential market opportunities in the U.S., which may have a material adverse effect on our business, financial condition, and\nresults of operations. Hongli Shandong currently has one independent contractor who works closely with Hongli Shandong to conduct market\nresearch and development in the U.S. market and respond to inquiry and quotes from potential U.S. customers. In May 2021, Hongli Shandong\nreceived an order from a customer in the U.S., for 600 units of D-shaped cold roll formed tubes which were delivered to such customer\nin November 2021. The long-term goal of the PRC operating entities is to become an independent custom-made profile supplier in the heavy\nmachinery industry market, as well as construction industry in the U.S. As part of their business strategy, the PRC operating entities\nwill also evaluate acquisition opportunities from time to time.\n\n \n\nHongli\nShandong also explored the market in Japan in collaboration with Japan Katsushiro who later purchased from the PRC operating entities\nthrough its PRC affiliated entities. In addition, in November 2021, Hongli Shandong has entered into a one-year cooperation agreement\nwith Shengdai Shandong to produce and supply S-shaped plates and C-shaped profiles, the accessories of Shengdai Shandong products to be\nexported to Japan. Such cooperation agreement automatically extended to an additional one-year term after the expiration of the initial\none-year term pursuant to the agreement. As of the date of this Annual Report, Hongli Shandong has provided 73,182 pieces\nof products, an increase of 10,581 pieces from 62,601 pieces in 2024, to Shengdai Shandong. \n\n \n\n**Expand the product portfolio the PRC operating entities to be\nresponsive to market conditions**\n\n \n\nThe PRC operating entities seek to maintain flexibility\nto adjust their product pipeline and rapidly respond to changing market conditions. While prioritizing their high margin products, the\nPRC operating entities regularly evaluate their portfolio of assets to ensure that their offerings are responsive to prevailing market\nconditions. The PRC operating entities expect to see an increase in the sales volume of our construction machinery parts in the construction\nindustry in the face of the domestic market trends to replace aluminum profiles for fire protection by steel structure curtain walls.\nHowever, the domestic market for steel structure curtain walls is currently dominated by imports. In the near future, it is a part of\ntheir business plan to cooperate with architectural design institute to promote domestic steel structure curtain walls. The PRC operating\nentities have been keeping interested customers in contact and expect to see an increase in their related annual sales in connection\nwith the construction machinery parts. The PRC operating entities will continue to assess and pursue opportunities to utilize, optimize\nand grow production capacity to capitalize on market opportunities.\n\n** **\n\n**Expand the Production Capacity of the PRC Operating Entities**\n\n \n\nThe PRC operating entities intend to further expand\ntheir production capacity by purchasing a new facility in Economic Development Zone, Changle County, Weifang, Shandong, the same location\nas the current factories of Hongli Shandong, in order to cope with the anticipated increase in demand in the future. As of December 31,\n2025, Hongli Shandong had purchased a total of 425 pieces of facilities for these workshops, for a total amount of approximately $4.0\nmillion (RMB27.9 million). The remaining payments balance is approximately $1.9 million (RMB13.0 million) are expected to be fully paid\nby using Hongli Shandong’s working capital. For the additional phase of the new facility, the PRC operating entities expect to\ninstall more production lines. This will allow them to produce more of their products in-house rather than through third-party contractors,\nwhich they believe will help increase their profit margin overall and give them more control and better oversight over our production\ntimeline.\n\n \n\n**Provide Superior Quality Products and Customer Service**\n\n \n\nThe products of the PRC operating entities play\na critical role in a variety of construction, infrastructure, equipment and safety applications. The PRC operating entities’ emphasis\non manufacturing processes, quality control testing and product development helps them deliver a high-quality product to their customers.\nThe PRC operating entities focus on providing superior customer service through our geographic manufacturing footprint and continued\ndevelopment of their proprietary, vendor managed system, as well as their experienced sales forces. They also seek to provide high-quality\ncustomer service through continued warehouse optimization, including increased digitization and automation of certain systems to debottleneck\nloading and dispatch logistics and improve truck availability. They believe that warehouse, transportation and shipping logistics and\nspeed of delivery represents a key area of commercial differentiation relative to their competitors.\n\n** **\n\n66\n\n \n\n** **\n\n**Focus on Efficient Manufacturing and Cost Management**\n\n \n\nThe PRC operating entities strive for continued\noperational excellence with the goal of providing high-quality products at competitive prices. The PRC operating entities has adopted\nsingle minute exchange of die (“SMED”) to supplement their laser welding at the beginning of 2022. SMED is a tool used in\nthe roll forming manufacture to equip the machines and enable rapid and efficient adjustment of the machines to different manufacture\nprocess, or changeover, which can substantially reduce the raw material waste and reduce the adjustment frequency. They have also purchased,\nand expect to continue purchasing, automation equipment to improve the automation of the assembly and installation of certain products.\nThe operating personnel of the PRC operating entities continually examine costs and profitability by product, plant and region. Their\ngoal is to maximize operational benchmarks by leveraging skilled manufacturing and supply chain management processes.\n\n \n\n**Focus on key customer relationships**\n\n \n\nThe PRC operating entities believe that their\nrelationships with key customers provide them with a competitive advantage. Based on each customer’s demands, the PRC operating\nentities actively engage in the design and development of new profile of each project. They always ensure the quality and delivery of\ntheir product provided for their customers. In addition, they maintain close correspondence with their customers to update any new and\ncost-efficient techniques and adjust the price accordingly, and timely collect customers’ feedback through their sales, quality,\nand technique staff. It is their mission to continuously improve their equipment, techniques, and production to satisfy their customers’\nwide variety of product demands.\n\n** **\n\n**Execute Pricing Strategy to Pass Through Underlying Costs**\n\n \n\nThe PRC operating entities believe they have a\ntrack record of managing underlying commodity price exposure through their price negotiation, raw material procurement and inventory\nmanagement program. In addition to managing underlying commodity prices, more recently they have had success in sharing transportation\ncosts with their customers through their product pricing strategies. We believe there are opportunities to implement this pricing strategy\nfor their other products as well.\n\n** ** \n\nResearch and Development\n\n \n\nThe PRC operating entities maintain an internal\ndedicated engineering and technology team, consisting of design engineers who are responsible for die forming, process engineers who\nare responsible for production processes, university professors who are responsible for material properties, quality engineers who are\nresponsible for production quality control, technical administrators who are responsible for projection development, and others who are\nresponsible for process technology. As of April 20, 2026, the team of the PRC operating entities consisted of 31 full-time R&D personnel,\nwhich accounted for 18% of total employee headcounts. The PRC operating entities incurred R&D expenses of approximately $1.0 million,\n$0.8 million, $1.0 million during the fiscal years ended December 31, 2025, 2024 and 2023, respectively, which were included in the selling,\ngeneral and administrative expenses in the statements of operations and comprehensive income for the corresponding fiscal years.\n\n \n\nIn June 2018, the PRC operating entities established\na laboratory center, focusing on the research and development of roll forming profile. The PRC operating entities strive to further develop\nand improve their forming process by 1) developing more collaborative application products and services to improve the customer’s\nservice experience; 2) updating their processing equipment to meet the personalized needs of enterprise customers; and 3) strengthening\nthe latest theory and technology research of roll forming profile, to promote the technology development of roll forming profile to a\nhigher level.\n\n \n\nIntellectual Property\n\n \n\nThe PRC operating entities regard their trademarks,\ncopyrights, patents, domain names, know-how, proprietary technologies, and similar intellectual property as critical to their success,\nand they rely on copyright, trademark and patent law in the PRC, as well as confidentiality procedures and contractual provisions with\ntheir employees, contractors and others to protect their proprietary rights.\n\n \n\nAs of the date of this annual report, the PRC\noperating entities currently own 67 patents, including 59 registered utility patents and 8 invention patents, which are valuable and\nimportant assets for their operations.\n\n \n\n67\n\n \n\n \n\nThe intellectual property of the PRC operating\nentities is subject to risks of theft and other unauthorized use, and their ability to protect their intellectual property from unauthorized\nuse is limited. In addition, the PRC operating entities may be subject to claims that they have infringed the intellectual property rights\nof others. See “Item 3. Key Information-D. Risk Factors - Risks Relating to the Business of the PRC Operating Entities **-***The PRC operating entities may not be able to prevent others from unauthorized use of their intellectual property, which could\ncause a loss of customers, reduce our revenues and harm their competitive position*” and “Item 3. Key Information-D. Risk\nFactors - Risks Relating to the Business of the PRC Operating Entities *- The PRC operating entities may face intellectual property\ninfringement claims that could be time-consuming and costly to defend. If the PRC operating entities fail to defend themselves against\nsuch claims, we may lose significant intellectual property rights and may be unable to continue providing their existing products.”*\n\n \n\nPursuant to the Patent Law of PRC, a patent is\nvalid for a ten-year term for a utility model and a twenty-year term for an invention, respectively, starting from the registration date.\nThe following is a list of our patents that have been authorized in PRC:\n\n \n\n**No.**\n \n**Current\nOwner**\n \n**Patent Name**\n \n**Patent Number**\n \n**Category**\n \n**Registration\nDate**\n\n1\n \nHongli Shandong\n \nA new hydraulic system of\npush bending machine\n \nzl2016212539544\n \nUtility Model\n \n7/4/2017\n\n2\n \nHongli Shandong\n \nA new type of automatic shearing\nButt Welder\n \nzl2016212539493\n \nUtility Model\n \n7/4/2017\n\n3\n \nHongli Shandong\n \nA new type of step feeding\ndevice\n \nzl2016212538700\n \nUtility Model\n \n7/4/2017\n\n4\n \nHongli Shandong\n \nAn excavator in the cab with\na cold forming profile\n \nzl2016212539506\n \nUtility Model\n \n8/4/2017\n\n5\n \nHongli Shandong\n \nAn improved transmission system\nfor cold forming profile\n \nzl2016212529152\n \nUtility Model\n \n8/18/2017\n\n6\n \nHongli Shandong\n \nA new type of push bending\nmachine\n \nzl2016212539559\n \nUtility Model\n \n7/4/2017\n\n7\n \nHongli Shandong\n \nA profile for excavator door\nframe\n \nzl2019205793309\n \nUtility Model\n \n12/6/2019\n\n8\n \nHongli Shandong\n \nA profile for forklift truck\ncab door\n \nzl2019205793347\n \nUtility Model\n \n12/6/2019\n\n9\n \nHongli Shandong\n \nA back post of an excavator\ncab\n \nzl2019205793370\n \nUtility Model\n \n12/27/2019\n\n10\n \nHongli Shandong\n \nA profile for the front post\nof the cab of an excavator\n \nzl2019205793366\n \nUtility Model\n \n12/27/2019\n\n11\n \nHongli Shandong\n \nA middle supporting column\nin the cab of an excavator\n \nzl2019205793313\n \nUtility Model\n \n12/27/2019\n\n12\n \nHongli Shandong\n \nA profile for the framework\nof an excavator\n \nzl2019205793296\n \nUtility Model\n \n12/27/2019\n\n13\n \nHongli Shandong\n \nA profile for the front column\nof the cab of a forklift truck\n \nzl2019205793332\n \nUtility Model\n \n12/27/2019\n\n14\n \nHongli Shandong\n \nA profile for the front crossbeam\non the top of a tractor cab\n \nzl2019205793328\n \nUtility Model\n \n12/31/2019\n\n15\n \nHongli Shandong\n \nA special-shaped profile for\nfront column of loader cab\n \nzl2020225376679\n \nUtility Model\n \n11/6/2020\n\n16\n \nHongli Shandong\n \nA special-shaped profile for\n14H excavator cab\n \nzl2020226805544\n \nUtility Model\n \n11/19/2020\n\n17\n \nHongli Shandong\n \nA profile of V05 excavator\ncab\n \nzl2020228145799\n \nUtility Model\n \n11/30/2020\n\n18\n \nHongli Shandong\n \nA profile structure of track\nmachine cab\n \nzl2020228145784\n \nUtility Model\n \n11/30/2020\n\n19\n \nHongli Shandong\n \nA profile structure of front\ncolumn of forklift\n \nzl2021201139036\n \nUtility Model\n \n1/16/2021\n\n20\n \nHongli Shandong\n \nA profile structure of straight\nout rear column of forklift\n \nzl2021201139002\n \nUtility Model\n \n1/16/2021\n\n \n\n68\n\n \n\n \n\n**No.**\n \n**Current\nOwner**\n \n**Patent Name**\n \n**Patent Number**\n \n**Category**\n \n**Registration\nDate**\n\n21\n \nHongli Shandong\n \nA special-shaped profile for\ndoor frame of loader cab and loader cab\n \nZL2020228146170\n \nUtility Model\n \n11/30/2021\n\n22\n \nHongli Shandong\n \nA special-shaped structure\nof excavator side beam\n \nZL2021201138993\n \nUtility Model\n \n1/16/2021\n\n23\n \nHongli Shandong\n \nA special-shaped profile for\nthe right front leg of a forklift\n \nZL2021201139021\n \nUtility Model\n \n1/16/2021\n\n24\n \nHongli Shandong\n \nA type of road machinery profile\n \nZL2022232244264\n \nUtility Model\n \n3/7/2023\n\n25\n \nHongli Shandong\n \nA type of side S-type plate\nfor construction machinery\n \nZL2022232902235\n \nUtility Model\n \n3/7/2023\n\n26\n \nHongli Shandong\n \nA type of agricultural machinery\ncab profile\n \nZL2022232234991\n \nUtility Model\n \n6/9/2023\n\n27\n \nHongli Shandong\n \nA type of panoramic cab profile\nstructure for road machinery\n \nZL2023202771520\n \nUtility Model\n \n8/1/2023\n\n28\n \nHongli Shandong\n \nA type of rail structure for\nsubway door\n \nZL2023202771516\n \nUtility Model\n \n8/1/2023\n\n29\n \nHongli Shandong\n \nA type of new anti-roll column\nstructure\n \nZL2023202771427\n \nUtility Model\n \n11/10/2023\n\n30\n \nHongli Shandong\n \nA type of bracket structure\nfor rice machine\n \nZL202320277154X\n \nUtility Model\n \n1/16/2024\n\n31\n \nHongli Shandong\n \nA type of cab profile for\nrice machine\n \nZL2023204901590\n \nUtility Model\n \n7/21/2023\n\n32\n \nHongli Shandong\n \nA type of frame structure\nfor construction machinery\n \nZL2023204901567\n \nUtility Model\n \n7/7/2023\n\n33\n \nHongli Shandong\n \nA type of electric vehicle\nbattery pack profile structure\n \nZL2023204901514\n \nUtility Model\n \n7/7/2023\n\n34\n \nHongli Shandong\n \nA type of new energy construction\nmachinery cab profile\n \nZL202223366020X\n \nUtility Model\n \n3/7/2023\n\n35\n \nHongli Shandong\n \nA type of road machinery cab\nskeleton structure\n \nZL2023205034225\n \nUtility Model\n \n8/1/2023\n\n36\n \nHongli Shandong\n \nA type of new shaped steel\npipe\n \nZL2023222139533\n \nUtility Model\n \n1/22/2024\n\n37\n \nHongli Shandong\n \nA type of steel pipe internal\npolishing device\n \nZL2023221433638\n \nUtility Model\n \n1/19/2024\n\n38\n \nHongli Shandong\n \nA type of descaling device\nfor steel pipe processing\n \nZL2023223894709\n \nUtility Model\n \n3/29/2024\n\n39\n \nHongli Shandong\n \nA type of steel pipe automatic\npacking device\n \nZL2023221433623\n \nUtility Model\n \n4/9/2024\n\n40\n \nHongli Shandong\n \nA type of steel pipe oiling\ntreatment equipment\n \nZL2023222934164\n \nUtility Model\n \n3/26/2024\n\n41\n \nHongli Shandong\n \nA type of seamless steel pipe\nperforation processing equipment\n \nZL2023223893918\n \nUtility Model\n \n4/5/2024\n\n42\n \nHongli Shandong\n \nA type of skid steer loader\ncab door frame\n \nZL202322500650X\n \nUtility Model\n \n3/22/2024\n\n43\n \nHongli Shandong\n \nA type of steel pipe cutting machine\n \nZL2023225205151\n \nUtility Model\n \n05/10/2024\n\n44\n \nHongli Shandong\n \nA type of steel pipe positioning mechanism\n \nZL2023226077697\n \nUtility Model\n \n06/07/2024\n\n45\n \nHongli Shandong\n \nA type of automatic stacking device for special-shaped steel pipes\n \nZL2023226645765\n \nUtility Model\n \n06/25/2024\n\n46\n \nHongli Shandong\n \nA type of weld seam inspection device for special-shaped steel pipes\n \nZL2023226796093\n \nUtility Model\n \n05/03/2024\n\n47\n \nHongli Shandong\n \nA type of skid steer loader cab door frame\n \nZL2023225004260\n \nUtility Model\n \n03/16/2024\n\n48\n \nHongli Shandong\n \nA type of right-side frame for skid steer loader cab\n \nZL2023225004311\n \nUtility Model\n \n03/15/2024\n\n49\n \nHongli Shandong\n \nA type of pillar profile for skid steer loader cab\n \nZL2024207992609\n \nUtility Model\n \n12/13/2024\n\n50\n \nHongli Shandong\n \nA type of special-shaped pickled steel plate\n \nZL2024207601484\n \nUtility Model\n \n12/13/2024\n\n51\n \nHongli Shandong\n \nA type of special-shaped tube for skid steer loader cab\n \nZL2024207601499\n \nUtility Model\n \n12/13/2024\n\n52\n \nHongli Shandong\n \nA type of cross-sectional structure of the right-side frame of loader\ncab\n \nZL2024206967050\n \nUtility Model\n \n12/13/2024\n\n53\n \nHongli Shandong\n \nA type of hollow frame cross-section structure for pickled steel plates\n \nZL2024206967065\n \nUtility Model\n \n12/13/2024\n\n54\n \nHongli Shandong\n \nA type of special-shaped tube for skid steer loader cab pillar\n \nZL2024206967597\n \nUtility Model\n \n12/13/2024\n\n55\n \nHongli Shandong\n \nA repair treatment method\nof cold roll-forming profile\n \nZL2020114281114\n \nInvention\n \n12/9/2020\n\n56\n \nHongli Shandong\n \nA fine machining method for\nreducing profile production and manufacturing\n \nZL2021104365103\n \nInvention\n \n4/22/2021\n\n57\n \nHongli Shandong\n \nA type of stamping equipment\nfor the production and processing of reducer pipe\n \nZL2023109870377\n \nInvention\n \n10/27/2023\n\n58\n \nHongli Shandong\n \nA type of profiled steel pipe\nforming mold for easy replacement\n \nZL2023112128819\n \nInvention\n \n12/26/2023\n\n59\n \nHongli Shandong\n \nA type of profiled steel pipe\nforming and positioning structure\n \nZL2023111878254\n \nInvention\n \n12/12/2023\n\n60\n \nHongli Shandong\n \nA type of automatic push-bending\nmolding machine\n \nZL2023115946119\n \nInvention\n \n2/13/2023\n\n61\n \nHongli Shandong\n \nA type of profiled steel pipe\npolishing device\n \nZL2023115946392\n \nInvention\n \n2/23/2023\n\n62\n \nHongli Shandong\n \nA special-shaped profile for the front pillar of\na work equipment loader safety cab\n \nZL2025210000000\n \nUtility Model\n \n4/14/2026\n\n63\n \nHongli Shandong\n \nA special-shaped profile for the rear pillar of\na work equipment safety cab\n \nZL2025211385834\n \nUtility Model\n \n4/14/2026\n\n64\n \nHongli\nShandong\n \nA special-shaped steel pipe polishing device\n \nZL2025108036476\n \nInvention\n \n9/23/2025\n\n65\n \nHongli Shandong\n \nA seamless special-shaped profile for a skid steer\nloader cab\n \nZL2024207601501\n \nInvention\n \n1/21/2025\n\n66\n \nHongli Shandong\n \nA special-shaped door frame profile with built-in sealing strip for industrial loaders\n \nZL2025210798219\n \nUtility Model\n \n4/29/2026\n\n67\n \nHongli Shandong\n \nA high-sealing door frame profile for construction machinery\n \nZL2025210798168\n \nUtility Model\n \n4/29/2026\n\n \n\n69\n\n \n\n \n\n**REGULATIONS**\n\n \n\nHongli Cayman is a holding company incorporated\nand registered under the laws of the Cayman Islands. We have no substantive operations other than holding all of the issued and outstanding\nshares of Hongli HK, which was established in Hong Kong. Hongli HK is a holding company all of the outstanding equity of Hongli WFOE,\nwhich was established under the laws of the PRC. We consolidate the financial results of the PRC operating entities through the Contractual\nArrangements. We do not have any business or operations in Taiwan or Macau or Hong Kong. However, we will be dependent on receipt of\nfunds from Hongli HK, which will be dependent on receipt of dividends or payments (if any) from Hongli WFOE, which will be dependent\non payments from the VIE in accordance with the laws and regulations of the PRC and the Contractual Arrangements between them.\n\n \n\nUnless the context otherwise requires, all references\nin this subsection to the “PRC” or “China” refer to mainland China, excluding, for the purpose of this section\nonly, Taiwan and Macau and Hong Kong.\n\n \n\nRegulations Related to Foreign Investment\n\n** **\n\n**Foreign Investment Law**\n\n \n\nOn March 15, 2019, the National People’s\nCongress approved the Foreign Investment Law of the PRC, or the Foreign Investment Law, which came into effect on January 1, 2020 and\nreplaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law,\nthe Sino-foreign Cooperative Joint Venture Enterprise Law of the PRC and the Wholly Foreign-invested Enterprise Law of the PRC, together\nwith their implementation rules and ancillary regulations. On December 26, 2019, the State Council promulgated the Implementing Regulations\nof the PRC Foreign Investment Law, which became effective on January 1, 2020. The organization form, organization and activities of foreign-invested\nenterprises shall be governed, among others, by the PRC Company Law and the PRC Partnership Enterprise Law. Foreign-invested enterprises\nestablished before the implementation of the Foreign Investment Law may retain the original business organization and so on within five\nyears after the implementation of this Law.\n\n \n\nThe Foreign Investment Law is formulated to further\nexpand opening-up, vigorously promote foreign investment and protect the legitimate rights and interests of foreign investors. According\nto the Foreign Investment Law, foreign investments are entitled to pre-entry national treatment and are subject to a negative list management\nsystem. The pre-entry national treatment means that the treatment given to foreign investors and their investments at the stage of investment\naccess shall not be less favorable than that of domestic investors and their investments. The negative list management system means that\nthe state implements special administrative measures for access of foreign investment in specific fields. The Foreign Investment Law\ndoes not mention the relevant concept and regulatory regime of VIE structures. However, since it is relatively new, uncertainties still\nexist in relation to its interpretation and implementation.\n\n \n\nForeign investors’ investment, earnings\nand other legitimate rights and interests within the territory of China shall be protected in accordance with the law, and all national\npolicies on supporting the development of enterprises shall equally apply to foreign-invested enterprises. Among others, the state guarantees\nthat foreign-invested enterprises participate in the formulation of standards in an equal manner and that foreign-invested enterprises\nparticipate in government procurement activities through fair competition in accordance with the law. Further, the state shall not expropriate\nany foreign investment except under special circumstances. In special circumstances, the state may levy or expropriate the investment\nof foreign investors in accordance with the law for the needs of the public interest. The expropriation and requisition shall be conducted\nin accordance with legal procedures and timely and reasonable compensation shall be given. In carrying out business activities, foreign-invested\nenterprises shall comply with relevant provisions on labor protection.\n\n \n\n70\n\n \n\n** **\n\n**Negative List Relating to Foreign Investment**\n\n \n\nInvestment activities in the PRC by foreign\ninvestors are principally governed by the Guidance Catalog of Industries for Foreign Investment promulgated and as amended from time\nto time by the MOFCOM and National Development and Reform Commission (the “NDRC”). In June 2017, MOFCOM and the NDRC\npromulgated the Catalog (2017 Revision), which became effective in July 2017 and was amended in June 2018. In June 2018, the\nGuidance Catalog of Industries for Foreign Investment (2017 Revision) was replaced by the Special Administrative Measures (Negative\nList) for Foreign Investment Access (2018 Version). In June 2019, Special Administrative Measures (Negative List) for Admission of\nForeign Investment (2019 Version) or the Negative List, replaced 2018 Version of the Negative List. In June 2020, the MOFCOM and the\nNDRC promulgated the Special Administrative Measures (Negative List) for Foreign Investment Access (2020 Version), or the Negative\nList, which became effective on July 23, 2020. In December 2021, the MOFCOM and the NDRC promulgated the Special Administrative\nMeasures (Negative List) for Foreign Investment Access (2021 Version), which became effective on January 1, 2022. The 2021 version\nof the Negative list replaced the 2020 version of the Negative list. In September 2024, the NDRC and the MOFCOM promulgated the\nSpecial Administrative Measures (Negative List) for Foreign Investment Access (2024 Version), which became effective on November 1,\n2024. The 2024 version of the Negative List replaced the 2021 version of the Negative List. Industries listed in the Negative List\nare divided into two categories: restricted and prohibited. Industries not listed in the Negative List are generally deemed as\nconstituting a third “permitted” category. Establishment of wholly foreign-owned enterprises is generally allowed in\npermitted industries. Some restricted industries are limited to equity or contractual joint ventures, while in some cases Chinese\npartners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject\nto higher-level government approvals. Foreign investors are not allowed to invest in industries in the prohibited category.\nIndustries not listed in the Negative List are generally open to foreign investment unless specifically restricted by other PRC\nregulations.\n\n** **\n\nRegulations Related to Intellectual Property Rights\n\n** **\n\n**Copyright**\n\n \n\nPursuant to the Copyright Law of the PRC, which\nwas first promulgated by the Standing Committee of the National People’s Congress, or the SCNPC on September 7, 1990 and became\neffective from June 1, 1991, and was last amended on November 11, 2020 and effected on June 1, 2021, copyrights include personal rights\nsuch as the right of publication and that of attribution as well as property rights such as the right of reproduction and that of distribution.\nReproducing, distributing, performing, projecting, broadcasting or compiling a work or communicating the same to the public via an information\nnetwork without permission from the owner of the copyright therein, unless otherwise provided in the Copyright Law of the PRC, shall\nconstitute infringements of copyrights. The infringer shall, according to the circumstances of the case, undertake to cease the infringement,\ntake remedial action, and offer an apology, pay damages, etc.\n\n** **\n\n**Trademark**\n\n \n\nTrademarks are protected by the Trademark Law\nof the PRC, which was adopted in 1982 and subsequently amended in 1993, 2001, 2013 and 2019 as well as by the Implementation Regulations\nof the PRC Trademark Law adopted by the State Council in 1983 and as most recently amended on April 29, 2014. The Trademark Office of\nChina National Intellectual Property Administration handles trademark registrations. The Trademark Office grants a 10-year term to registered\ntrademarks and the term may be renewed for another 10-year period upon request by the trademark owner. A trademark registrant may license\nits registered trademarks to another party by entering into trademark license agreements, which must be filed with the Trademark Office\nfor its record. As with patents, the Trademark Law has adopted a first-to-file principle with respect to trademark registration. If a\ntrademark applied for is identical or similar to another trademark which has already been registered or subject to a preliminary examination\nand approval for use on the same or similar kinds of products or services, such trademark application may be rejected. Any person applying\nfor the registration of a trademark may not injure existing trademark rights first obtained by others, nor may any person register in\nadvance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation”\nthrough such party’s use.\n\n** **\n\n**Patent**\n\n \n\nThe Patent Law of the PRC promulgated on\nMarch 12, 1984, which became effective on April 1, 1985 and was recently revised by China National Intellectual Property\nAdministrations is on October 17, 2020 (which revision became effective on June 1, 2021), provides for patentable inventions,\nutility models and designs. An invention or utility model for which patents may be granted shall have novelty, creativity and\npractical applicability. China National Intellectual Property Administration is responsible for examining and approving\npatent applications. The protection period is 20 years for inventions, 10 years for utility models and 15 years for designs, all of\nwhich commence from the date of application of patent rights under the current Patent Law of the PRC. In addition, for invention patents, in situations where a patent is only granted after 4 years or more\nfrom its filing date and 3 years or more after a request for substantive examination date, the patentee can request for an extension\nof protection term for any unreasonable delay.\n\n \n\n71\n\n \n\n \n\n**Domain name**\n\n \n\nThe domain names are protected under the Administrative\nMeasures on the Internet Domain Names, or the Domain Name Measures, which was promulgated by the PRC Ministry of Industry and Information\nTechnology, or the MIIT, on August 24, 2017, which became effective on November 1, 2017 and replaced the Administrative Measures on China\nInternet Domain Names promulgated by the MIIT on November 5, 2004. Pursuant to these measures, the MIIT is in charge of the administration\nof PRC internet domain names. The domain name registration follows a first-to-file principle. Applicants for registration of domain names\nmust provide the true, accurate, and complete information of their identities to domain name registration service institutions. The applicants\nwill become the holder of such domain names upon the completion of the registration procedure.\n\n** **\n\nRegulations Related to Foreign Exchange\n\n \n\nThe principal regulations governing foreign currency\nexchange in China are the Foreign Exchange Administration Regulations, promulgated by the State Council in 1996 and most recently amended\nin 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related\nforeign exchange transactions, can be made in foreign currencies without prior approval from State Administration of Foreign Exchange\nor SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate governmental authorities\nis required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment\nof foreign currency-denominated loans.\n\n \n\nIn November 2012, SAFE promulgated the Circular\nof Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, or SAFE Circular 59, which\nwas most recently amended in 2019 and substantially amends and simplifies the current foreign exchange procedures. Pursuant to SAFE Circular\n59, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital\naccounts, and guarantee accounts, the reinvestment of Renminbi proceeds derived by foreign investors in China, and remittance of foreign\nexchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification\nof SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously.\n\n \n\nIn February 2015, SAFE promulgated the Notice\non Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Circular 13, pursuant\nto which, instead of applying for approval regarding foreign exchange registrations of foreign direct investment and overseas direct\ninvestment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified\nbanks, under the supervision of SAFE, may directly review the applications and conduct the registration.\n\n \n\nIn March 2015, SAFE issued the Circular of the\nState Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested\nEnterprises, or SAFE Circular 19. Pursuant to SAFE Circular 19, a foreign-invested enterprise may, according to its actual business needs,\nsettle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration\nhas confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary\ncapital contribution into the account). In addition, for the time being, foreign-invested enterprises are allowed to settle 100% of their\nforeign exchange capital on a discretionary basis. A foreign-invested enterprise shall truthfully use its capital for its own operational\npurposes within the scope of business. Where an ordinary foreign-invested enterprise makes domestic equity investment with the amount\nof foreign exchanges settled, the invested enterprise must first go through domestic re-investment registration and open a corresponding\naccount for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is\nregistered.\n\n \n\nIn June 2016, SAFE promulgated Circular on Reforming\nand Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, pursuant to which,\nin addition to foreign currency capital, enterprises registered in China may also convert their foreign debts, as well as repatriated\nfund raised through overseas listing, from foreign currency to Renminbi on a discretional basis. SAFE Circular 16 also reiterates that\nthe use of capital so converted shall follow “the principle of authenticity and self-use” within the business scope of the\nenterprise. According to SAFE Circular 16, the Renminbi funds so converted shall not be used for the purposes of, whether directly or\nindirectly, (i) paying expenditures beyond the business scope of the enterprises or prohibited by laws and regulations; (ii) making securities\ninvestment or other investments (except for banks’ principal-secured products); (iii) granting loans to non-affiliated enterprises,\nexcept as expressly permitted in the business license; and (iv) purchasing non-self-used real estate (except for the foreign-invested\nreal estate enterprises).\n\n \n\n72\n\n \n\n \n\nIn January 2017, SAFE promulgated the Circular\non Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or SAFE Circular\n3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore\nentities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution,\nthe original version of tax filing records, and audited financial statements; and (ii) domestic entities shall hold income to account\nfor previous years’ losses before remitting the profits. Further, pursuant to SAFE Circular 3, domestic entities shall make detailed\nexplanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing\nthe registration procedures in connection with an outbound investment.\n\n \n\nIn October 2019, SAFE promulgated the Notice for\nFurther Advancing the Facilitation of Cross-border Trade and Investment, or SAFE Circular 28, which, among other things, allows all foreign-invested\nenterprises, or FIEs, to use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as\nthe equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. However,\nsince this circular is newly promulgated, it is unclear how the SAFE and competent banks will carry it out in practice.\n\n** **\n\nOn April 10, 2020, SAFE issued the Notice of the\nState Administration of Foreign Exchange on Optimizing Foreign Exchange Administration to Support the Development of Foreign-related\nBusiness. This notice provides that under the condition that the use of funds is genuine and compliant with current administrative provisions\non use of income relating to capital account, enterprises are allowed to use income under capital account such as capital funds, foreign\ndebts and overseas listings for domestic payment, without submission to the bank prior to each transaction of materials evidencing the\nveracity of such payment.\n\n** **\n\nRegulations Related to Dividend Distribution\n\n \n\nThe principal laws and regulations regulating\nthe distribution of dividends by FIEs in China include the PRC Company Law, which was adopted in 1993, amended in 1999, 2004, 2013 and 2018, and\nmost recently revised in 2023, and the PRC Foreign Investment Law and its Implementation Regulations, which came into effect on January\n1, 2020. Under the current regulatory framework in China, FIEs in China may pay dividends only\nout of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is required\nto set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches\n50% of its registered capital unless otherwise provided by applicable PRC laws. A PRC company cannot distribute any profits\nuntil any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with\ndistributable profits from the current fiscal year.\n\n** **\n\nRegulations Related to Foreign Exchange Registration of Offshore\nInvestment by PRC Residents\n\n \n\nIn July 2014, SAFE issued the Circular of the\nState Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing\nand Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37 and has replaced the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’\nFinancing and Roundtrip Investment Through Offshore Special Purpose Vehicles (known as Circular 75). SAFE Circular 37 regulates foreign\nexchange matters in relation to the use of special purpose vehicles, or “SPVs,” by PRC residents, including PRC institutions and PRC resident individuals, to seek offshore\ninvestment and financing or conduct round trip investment in China. Under SAFE Circular 37, an SPV refers to an offshore entity established\nor controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore\ninvestment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct\ninvestment in China by PRC residents or entities through SPVs, including the establishment or acquisition of foreign-invested enterprises\nor projects in China to obtain ownership, control rights, management rights and other interests. Circular 37 requires that, before making contribution into an SPV, PRC residents or entities are\nrequired to complete foreign exchange registration with SAFE or its local branch.\n\n \n\nIn February 2015, SAFE promulgated the SAFE Circular\n13. SAFE Circular 13 has amended SAFE Circular 37 by requiring PRC residents, including PRC institutions and PRC resident individuals to register with qualified banks instead of\nSAFE or its local branch in connection with their establishment or control of an SPV.\n\n \n\nIn addition, pursuant to SAFE Circular 37, an\namendment to registration or subsequent filing with qualified banks by such PRC resident is also required if there is a material change\nwith respect to the capital of the offshore company, such as any change of basic information (including change of such PRC residents,\nchange of name and operation term of the SPV), increases or decreases in investment amount, transfers or exchanges of shares, or mergers\nor divisions. Failure to comply with the registration requirements as set forth in SAFE Circular 37 and SAFE Circular 13, misrepresentation\nor failure to disclose controllers of foreign-invested enterprises that are established by round-trip investment may result in bans\non the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its\noffshore parent or affiliates, and may also subject relevant PRC residents to penalties under the Foreign Exchange Administration Regulations\nof the PRC.\n\n \n\n73\n\n \n\n \n\nAll of our shareholders who are subject to the\nSAFE Circular 37 have completed the initial registrations with the local SAFE branch or qualified banks as required by SAFE Circular\n37.\n\n** **\n\nRegulations Related to Foreign Debt\n\n \n\nA loan made by foreign investors as shareholders\nin an FIE is considered foreign debt in China and is regulated by various laws and regulations, including the PRC Regulation on Foreign\nExchange Administration, the Interim Provisions on the Management of Foreign Debts, the Statistical Monitoring of Foreign Debt Tentative\nProvisions, the Detailed Rules for the Implementation of Provisional Regulations on Statistics and Supervision of Foreign Debt, and the\nAdministrative Measures for Registration of Foreign Debt. Under these rules and regulations, a shareholder loan in the form of foreign\ndebt made to a PRC entity does not require the prior approval of the SAFE. However, such foreign debt must be registered with and recorded\nby the SAFE or its local branches within fifteen business days after the entering of the foreign debt contract. Pursuant to these rules\nand regulations, the balance of the foreign debts of an FIE cannot exceed the difference between the total investment and the registered\ncapital of the FIE.\n\n \n\nOn January 12, 2017, the People’s Bank of\nChina, or the PBOC, promulgated the Notice of the People’s Bank of China on Matters concerning the Macro-Prudential Management\nof Full-Covered Cross-Border Financing, or PBOC Notice No. 9. Pursuant to PBOC Notice No. 9, within a transition period of one year from\nJanuary 12, 2017, FIEs may adopt the currently valid foreign debt management mechanism, or the mechanism as provided in PBOC Notice No.\n9 at their own discretions. PBOC Notice No. 9 provides that enterprises may conduct independent cross-border financing in Renminbi or\nforeign currencies as required. Pursuant to PBOC Notice No. 9, the outstanding cross-border financing of an enterprise (the outstanding\nbalance drawn, here and below) will be calculated using a risk-weighted approach and cannot exceed certain specified upper limits. PBOC\nNotice No. 9 further provides that the upper limit of risk-weighted outstanding cross-border financing for enterprises is 350% of its\nnet assets, or the Net Asset Limits. Enterprises must file with the SAFE in its capital item information system after entering into the\nrelevant cross-border financing contracts and prior to three business days before drawing any money from the foreign debts.\n\n \n\nIn 2024, SAFE promulgated the Guidelines on Capital\nAccount Foreign Exchange Operations, which cover, among other things, the operational procedures for capital account foreign exchange\nregistration, account opening, inward and outward remittance of funds, foreign exchange settlement, and the utilization of funds by enterprises.\n\n \n\nBased on the foregoing, if we provide funding\nto our wholly foreign-owned subsidiaries or the PRC operating entities through shareholder loans, the balance of such loans cannot exceed\nthe difference between the total investment and the registered capital of the subsidiaries and we will need to register such loans with\nthe SAFE or its local branches in the event that the currently valid foreign debt management mechanism applies, or the balance of such\nloans will be subject to the risk-weighted approach and the Net Asset Limits and we will need to file the loans with the SAFE in its\ninformation system in the event that the mechanism as provided in PBOC Notice No. 9 applies. Pursuant to PBOC Notice No. 9, after a transition\nperiod of one year from January 11, 2017, the PBOC and the SAFE would determine the cross-border financing administration mechanism for\nthe FIEs after evaluating the overall implementation of PBOC Notice No. 9. As of the date hereof, neither the PBOC nor the SAFE has promulgated\nand made public any further rules, regulations, notices, or circulars in this regard. It is uncertain which mechanism will be adopted\nby the PBOC and the SAFE in the future and what statutory limits will be imposed on us when providing loans to the PRC subsidiaries.\n\n \n\nRegulation Related to M&A Regulations and Overseas Listings\n\n \n\nOn August 8, 2006, six PRC regulatory agencies,\nincluding the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation,\nthe State Administration for Industry and Commerce, the China Securities Regulatory Commission, or the CSRC, and SAFE, jointly issued\nthe Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective\non September 8, 2006 and was amended on June 22, 2009. The M&A Rules, among other things, require that (i) PRC entities or individuals\nobtain MOFCOM approval before they establish or control an SPV overseas, provided that they intend to use the SPV to acquire their equity\ninterests in a PRC company at the consideration of newly issued share of the SPV, or Share Swap, and list their equity interests in the\nPRC company overseas by listing the SPV in an overseas market; (ii) the SPV obtains MOFCOM’s approval before it acquires the equity\ninterests held by the PRC entities or PRC individual in the PRC company by Share Swap; and (iii) the SPV obtains CSRC approval before\nit lists overseas.\n\n \n\n74\n\n \n\n \n\nThe Anti-Monopoly Law promulgated by the\nSCNPC on August 30, 2007 and effective on August 1, 2008 requires that concentrations of undertakings meeting the applicable\nturnover thresholds be notified to the PRC anti-monopoly enforcement authority, currently the State Administration for Market\nRegulation, before they are implemented. In addition, on February 3, 2011, the General Office of the State Council promulgated a\nNotice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or\nCircular 6, which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign\ninvestors. Further, on August 25, 2011, MOFCOM promulgated the Regulations on Implementation of Security Review System for the\nMerger and Acquisition of Domestic Enterprises by Foreign Investors, or the MOFCOM Security Review Regulations, which became\neffective on September 1, 2011, to implement Circular 6. Under Circular 6, a security review is required for mergers and\nacquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which\nforeign investors may acquire the “de facto control” of domestic enterprises with “national security”\nconcerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the substance and actual impact of the transaction when\ndeciding whether a specific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or\nacquisition is subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established under the\nCircular 6 led by the NDRC and MOFCOM under the leadership of the State Council, to carry out the security review. The regulations\nprohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments,\nleases, loans, control through Contractual Arrangements or offshore transactions. In addition, the current principal rules governing national security review of foreign investment are the Measures\nfor the Security Review of Foreign Investment promulgated by the NDRC and MOFCOM on December 19, 2020 and effective from January 18, 2021,\nunder which foreign investments that affect or may affect national security may be subject to security review.\n\n \n\nOn February 17, 2023, the CSRC promulgated the\nTrail Administrative Measures of the Overseas Securities Offering and Listing by Domestic Company, or the Trail Measures, and five support\nguidelines, which went effective on March 31, 2023. According to the Trail Measures, among other requirements, (1) domestic companies\nthat seek to offer or list securities overseas, both directly and indirectly, should fulfil the filing procedures with the CSRC; if a\ndomestic company fails to complete the filing procedure, such domestic company may be subject to administrative penalties; (2) if the\nissuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering\nand listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities of\nthe issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited consolidated\nfinancial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business\nare located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled\nin China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate\na major domestic operating entity responsible for all filing procedures with the CSRC, and such filings shall be submitted to the CSRC\nwithin three business days after the submission of the overseas offering and listing application.\n\n \n\nAccording to the CSRC Notice, the domestic companies\nthat have already been listed overseas before the effective date of the Trial Measures (namely, March 31, 2023) shall be deemed as Existing\nIssuers. Existing Issuers are not required to complete the filing procedures immediately, but they shall be required to file with the\nCSRC 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\nFollowing the completion of the Company’s private placement of\n1,300,000 ordinary shares on April 24, 2026, the Company has been evaluating the applicable filing requirements and actively preparing\nthe relevant filing documents. Given that the filing submitted by the Company to the China Securities Regulatory Commission in connection\nwith its private placement conducted in December 2024 remains under review by the CSRC, the Company will proceed with the relevant filing\nprocedures for this transaction as soon as practicable.\n\n \n\nRegulations Related to Private Lending\n\n \n\nThe transfer of funds among companies are subject\nto the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending\nCases, (“the Provisions on Private Lending Cases”), which was issued by the Supreme People’s Court of the People’s\nRepublic of China on August 25, 2015 and amended on August 19, 2020 and December 29, 2020, respectively, to regulate the private lending\nactivities between natural persons, legal persons and unincorporated organizations. The Provisions on Private Lending Cases do not apply\nto the disputes arising from relevant financial services such as loan disbursement by financial institutions and their branches established\nupon approval by the financial regulatory authorities to engage in lending business.\n\n \n\nThe Provisions on Private Lending Cases set forth\nthat private lending contracts will be upheld as invalid under the circumstance that (i) the lender swindles loans from financial institutions\nfor relending; (ii) the lender relends the funds obtained by means of a loan from another profit-making legal person, raising funds from\nits employees, illegally taking deposits from the public; (iii) the lender who has not obtained the lending qualification according to\nthe law lends money to any unspecified object of the society for the purpose of making profits; (iv) the lender lends funds to a borrower\nwhen the lender knows or should have known that the borrower intended to use the borrowed funds for illegal or criminal purposes; (v)\nthe lending is in violations of mandatory provisions of laws or administrative regulations; or (vi) the lending is violations of public\norders or good morals.\n\n \n\nIn addition, the Provisions on Private Lending\nCases set forth that the People’s Court shall support the interest rates not exceeding four times of the market interest rate quoted\nfor one-year loan at the time the private lending contracts were entered into.\n\n** **\n\n75\n\n \n\n** **\n\nRegulations Related to Tax\n\n** **\n\n**Enterprise Income Tax**\n\n \n\nEnterprise Income Tax Law, or the EIT Law,* *which\nwas recently amended on December 29, 2018. On December 6, 2007, the State Council enacted the Regulations for the Implementation of the\nEnterprise Income Tax Law. Under the EIT Law and relevant implementation regulations, both resident enterprises and non-resident enterprises\nare subject to the enterprise income tax so long as their income is generated within the territory of PRC. “Resident enterprises”\nare defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the\nlaws of foreign countries but are actually or in effect controlled from within the PRC. “Non-resident enterprises” are defined\nas enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside the PRC, but have\nestablished institutions or premises in the PRC, or have no such established institutions or premises but have income generated from\ninside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. If non-resident\nenterprises have not formed permanent establishments or premises in the PRC, or if they have formed permanent establishment or premises\nin the PRC but there is no actual relationship between the relevant income derived in the PRC and the established institutions or premises\nset up by them, however, enterprise income tax is set at the rate of 10% with respect to their income sourced from inside the PRC.\n\n \n\nThe EIT Law and its implementation rules permit\ncertain “high and new technology enterprises strongly supported by the state” that independently own core intellectual property\nand meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate.\n\n \n\nAccording to the Administrative Rules for the\nCertification of High Tech Enterprises, effective on January 1, 2008 and amended on January 29, 2016 (effective as of January 1, 2016),\nfor each entity accredited as High Tech Enterprise, such status is valid for three years if it meets the qualifications for High Tech\nEnterprise on a continuing basis during such period.\n\n** **\n\n**Value-Added Tax (“VAT”)**\n\n \n\nThe Provisional Regulations of the PRC on\nValue-added Tax was promulgated by the State Council on December 13, 1993, and most recently amended on November 19, 2017. The\nDetailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) were\npromulgated by the MOF on December 25, 1993, and were recently amended on October 28, 2011 (collectively with the VAT Regulations,\nthe VAT Law). On April 4, 2018, MOF and the State Administration of Taxation, or the SAT jointly promulgated the Circular on\nAdjustment of Value-Added Tax Rates, or MOF and SAT Circular 32. On March 20, 2019, MOF, SAT and General Administration of Customs,\nor GAC, jointly issued a Circular on Relevant Polices for Deepening Value-added Tax Reform, or MOF, SAT and GAC Circular 39, which\nbecame effective from April 1, 2019. According to the abovementioned laws and circulars, all enterprises and individuals engaged in\nthe sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property\nand the importation of goods within the territory of the PRC are the taxpayers of VAT. The VAT tax rates generally applicable are\nsimplified as 13%, 9%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%. The Value-added Tax Law of the\nPRC, or the VAT Law, was adopted by the Standing Committee of the National People’s Congress on December 25, 2024 and came\ninto effect on January 1, 2026, the VAT tax rates are the same as stipulated in the currently valid VAT Law. The draft is in the\nlegislative procedure, and it will take time to become effective.\n\n** **\n\n**Withholding Tax**\n\n \n\nThe Implementing Rules of the Enterprise Income\nTax Law of the PRC provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to\nnon-PRC resident investors which do not have an establishment or place of business in the PRC, or which have such establishment or place\nof business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends\nare derived from sources within the PRC.\n\n \n\n76\n\n \n\n \n\nPursuant to an Arrangement Between the Mainland\nof China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with\nRespect to Taxes on Incomes, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise\nis determined by the competent mainland China tax authority to have satisfied the relevant conditions and requirements under such Double\nTax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives\nfrom a mainland China resident enterprise may be reduced to 5%. Based on the Circular on Certain Issues with Respect to the Enforcement\nof Dividend Provisions in Tax Treaties, or the SAT Circular 81, issued on February 20, 2009, by the SAT, however, if the relevant mainland\nChina tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or\narrangement that is primarily tax-driven, such mainland China tax authorities may adjust the preferential tax treatment. According to\nthe Circular on Several Questions regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018,\nby the SAT and took effect on April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding\ntax treatments in connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation,\nwhether the applicant is obligated to pay more than 50% of his or her income in 12 months to residents in third country or region, whether\nthe business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to\nthe tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken\ninto account, and it will be analyzed according to the actual circumstances of the specific cases. This circular further provides that\napplicants who intend to prove his or her status of the “beneficial owner” shall submit the relevant documents to the relevant\ntax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of\nthe Treatment under Tax Agreements.\n\n** **\n\n**Tax on Indirect Transfer**\n\n \n\nOn February 3, 2015, the SAT issued the Circular\non Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or SAT Circular 7. Pursuant to SAT\nCircular 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident\nenterprises, may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable\ncommercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from\nsuch indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial\npurpose” of the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of\nthe equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of\nthe relevant offshore enterprise mainly consist of direct or indirect investment in China or if its income is mainly derived from China;\nand whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature\nwhich is evidenced by their actual function and risk exposure. According to SAT Circular 7, where the transferee fails to withhold any\nor sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late\npayment of applicable tax will subject the transferor to default interest. SAT Circular 7 does not apply to transactions of sale of shares\nby investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT\nissued the Circular on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or SAT Circular 37, which\nfurther elaborates the relevant implemental rules regarding the calculation, reporting and payment obligations of the withholding tax\nby the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of SAT Circular 7.\nSAT Circular 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those\nof our offshore subsidiaries where non-resident enterprises, being the transferors, were involved.\n\n \n\nRegulations Related to Employment and Social Welfare\n\n** **\n\n**Employment**\n\n \n\nThe Labor Law of the PRC, which was promulgated\non July 5, 1994, effective since January 1, 1995, and most recently amended on December 29, 2018, the Labor Contract Law of the PRC,\nwhich was promulgated on June 29, 2007, and amended on December 28, 2012, and the Implementation Regulations of the Labor Contract Law\nof the PRC, which was promulgated on September 18, 2008, are the principal regulations that govern employment and labor matters in the\nPRC. Under the above regulations, labor contracts shall be concluded in writing if labor relationships are to be or have been established\nbetween employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall\npay employees for overtime work in accordance to national regulations. In addition, wages may not be lower than the local minimum wage.\nEmployers must establish a system for labor safety and sanitation, strictly abide by state standards, and provide relevant education\nto its employees. Employees are also required to work in safe and sanitary conditions.\n\n** **\n\n77\n\n \n\n** **\n\n**Social Insurance and Housing Fund**\n\n \n\nUnder the Social Insurance Law of the PRC that\nwas promulgated by the SCNPC on October 28, 2010, and came into force as of July 1, 2011, and was most recently amended on December 29,\n2018 (also the effective date), together with other laws and regulations, employers are required to pay basic pension insurance, unemployment\ninsurance, basic medical insurance, employment injury insurance, maternity insurance, and other social insurance for its employees at\nspecified percentages of the salaries of the employees, up to a maximum amount specified by the local government regulations from time\nto time. When an employer fails to fully pay social insurance premiums, relevant social insurance collection agency shall order it to\nmake up for any shortfall within a prescribed time limit, and may impose a late payment fee at the rate of 0.05% per day of the outstanding\namount from the due date. If such employer still fails to make up for the shortfalls within the prescribed time limit, the relevant administrative\nauthorities shall impose a fine of one to three times the outstanding amount upon such employer.\n\n \n\nIn accordance with the Regulations on the Management\nof Housing Fund which was promulgated by the State Council in 1999 and most recently amended in March 2019 (which became effective as\nof March 24th 2019), employers must register at the designated administrative centers and open bank accounts for depositing\nemployees’ housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than\n5% of the monthly average salary of the employee in the preceding year in full and on time.\n\n** **\n\n**Employee Stock Incentive Plans**\n\n \n\nPursuant to the Notice of Issues Related to the\nForeign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Companies, which was\nissued by the SAFE on February 15, 2012, employees, directors, supervisors, and other senior management who participate in any stock\nincentive plan of a publicly-listed overseas company and who are PRC citizens or non-PRC citizens residing in China for a continuous\nperiod of no less than one year, subject to a few exceptions, are required to register with the SAFE through a qualified domestic agent,\nwhich may be a PRC subsidiary of such overseas listed company, and complete certain other procedures.\n\n \n\nIn addition, the SAT has issued certain circulars\nconcerning employee stock options and restricted shares. Under these circulars, employees working in China who exercise stock options\nor are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company are\nrequired to file documents related to employee stock options and restricted shares with relevant tax authorities and to withhold individual\nincome taxes of employees who exercise their stock options or purchase restricted shares. If the employees fail to pay or the PRC subsidiaries\nfail to withhold income tax in accordance with relevant laws and regulations, the PRC subsidiaries may be subject to sanctions imposed\nby the tax authorities or other PRC governmental authorities.\n\n** **\n\nRegulations Related to Product Liability\n\n \n\nPursuant to the PRC Product Quality Law, which\nwas promulgated on February 22, 1993 and amended on July 8, 2000, August 27, 2009, and December 29, 2018, a manufacturer is prohibited\nfrom producing or selling products that do not meet applicable standards and requirements for safeguarding human health and ensuring\nhuman and property safety. Products must be free from unreasonable dangers threatening human and property safety. Where a defective product\ncauses personal injury or property damage, the aggrieved party may make a claim for compensation from the manufacturer or the seller\nof the product. Manufacturers and sellers of non-compliant products may be ordered to cease the production or sale of the products and\ncould be subject to confiscation of the products and fines. Earnings from sales in violation of such standards or requirements may also\nbe confiscated, and in severe cases, an offender’s business license may be revoked.\n\n** **\n\nRegulations Related to Environmental Protection and Work Safety\n\n** **\n\n**Environmental Protection**\n\n \n\nPursuant to the PRC Environmental Protection Law\npromulgated by the Standing Committee of the National People’s Congress on December 26, 1989, amended on April 24, 2014, and effective\non January 1, 2015, any entity which discharges or will discharge pollutants during the course of operations or other activities must\nimplement effective environmental protection safeguards and procedures to control and properly treat waste gas, waste water, waste residue,\ndust, malodorous gases, radioactive substances, noise, vibrations, electromagnetic radiation, and other hazards produced during such\nactivities.\n\n \n\n78\n\n \n\n \n\nEnvironmental protection authorities impose various\nadministrative penalties on persons or enterprises in violation of the Environmental Protection Law. Such penalties include warnings,\nfines, orders to rectify within a prescribed period, orders to cease construction, orders to restrict or suspend production, orders to\nmake recovery, orders to disclose relevant information or make an announcement, imposition of administrative action against relevant\nresponsible persons, and orders to shut down enterprises. Any person or entity that pollutes the environment or damages the ecology resulting in damage may also be held\nliable under the Civil Code of the PRC and other applicable laws and regulations. In addition, environmental organizations may also bring lawsuits against any entity that\ndischarges pollutants detrimental to the public welfare.\n\n** **\n\n**Work Safety**\n\n \n\nUnder relevant construction safety laws and regulations,\nincluding the PRC Work Safety Law, which was promulgated by the Standing Committee of the National People’s Congress on June 29,\n2002, amended on August 31, 2014 and June 10, 2021, and effective on September 1, 2021, production and operating business entities must\nestablish objectives and measures for work safety and improve the working environment and conditions for workers in a planned and systematic\nway. A work safety protection scheme must also be set up to implement the work safety job responsibility system. In addition, production\nand operating business entities must arrange work safety training and provide their employees with protective equipment that meets the\nnational or industrial standards.\n\n \n\nRegulations Related to Fire Control\n\n \n\nPursuant to the PRC Fire Protection Law,\nwhich was promulgated by the Standing Committee of the National People’s Congress on April 29, 1998, amended on October 28,\n2008, April 23, 2019, April 29, 2021, and effective on April 29, 2021, and the Interim Provisions on Administration of Fire Control\nDesign Review and Acceptance of Construction Project promulgated by the Ministry of Housing and Urban-Rural Development on April 1,\n2020, which became effective on June 1, 2020, and was amended by the Ministry of Housing and Urban-Rural Development on August 21,\n2023, with such amendment taking effect on October 30, 2023, the construction entity of a large-scale crowded venue (including the\nconstruction of a manufacturing plant whose size is over 2,500 square meters) and other special construction projects must apply for\nfire prevention design review with fire control authorities, and complete fire assessment inspection and acceptance procedures after\nthe construction project is completed. The construction entity of other construction projects must complete the filing for fire\nprevention design and the fire safety completion inspection and acceptance procedures within five business days after passing the\nconstruction completion inspection and acceptance. If the construction entity fails to pass the fire safety inspection before such\nvenue is put into use or fails to conform to the fire safety requirements after such inspection, it will be subject to (i) orders to\nsuspend the construction of projects, use of such projects, or operation of relevant business, and (ii) a fine between RMB30,000\n(approximately $4,000) and RMB300,000 (approximately $43,000).\n\n \n\nRegulations Related to Import and Export Trade\n\n** **\n\n**Customs Law**\n\n \n\nPursuant to the PRC Customs Law, which was promulgated\nby the Standing Committee of the National People’s Congress on January 22, 1987, amended on July 8, 2000, June 29, 2013, December\n28, 2013, November 7, 2016, November 4, 2017, and April 29, 2021 and effective on April 29, 2021, unless otherwise stipulated, the consignee\nor consignor of import and export goods may take import and export goods through Customs declaration procedures and pay duties themselves,\nand Customs clearing enterprises which are authorized by the consignee or consignor of import and export goods and have been granted\nregistration by Customs may also take import and export goods through Customs declaration procedures and pay duties. Where a consignee\nor consignor of import or export goods or a Customs clearing enterprise handles Customs declaration procedures, they shall be subject\nto registration by Customs in accordance with law. Where an enterprise has not been registered by Customs in accordance with law, and where personnel\nhave not obtained their professional qualifications for Customs clearances in accordance with law, they must not engage in Customs declarations.\n\n** **\n\n**Import and Export Commodity Inspection Law**\n\n \n\nPursuant to the PRC Import and Export Commodity\nInspection Law, which was promulgated by the Standing Committee of the National People’s Congress on February 21, 1989, amended\non April 28, 2002, June 29, 2013, April 27, 2018, December 29, 2018 and April 29, 2021 and effective on April 29, 2021, and the Implementing\nRegulation for the PRC Import and Export Commodity Inspection Law, which was promulgated by the State Council on August 31, 2005, amended\non February 6, 2016, March 1, 2017, March 2, 2019 and March 29, 2022 and effective on May 1, 2022, the General Administration of Customs\nof China is in charge of the inspection of import and export commodities nationwide, the formulation and adjustment of the catalogue\nof import and export commodities that must be inspected, and the announcement and implementation of the catalogue. The import and export\ncommodities listed in the catalogue must be inspected, otherwise the related bodies may be confiscated of their illegal income and subjected\nto a fine ranging from 5% to 20% of the value of the goods, where the case constitutes a criminal offence, criminal liability shall be\npursued in accordance with the law.\n\n \n\n79\n\n \n\n \n\n \n\nC. Organizational Structure\n\n \n\nSee “Item 4. Information on the Company\n- A. History and Development of the Company.”\n\n \n\nD. Property, plants and equipment.\n\n \n\nSee “Item 4. Information on the Company\n- B. Business Overview - Facilities and Equipment of the PRC Operating Entities.”"}