Li Bang directors, officers hold about 68.24% of votes
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Rhea-AI Filing Summary
Li Bang International Corp Inc. (LBGJ) filed its fiscal 2026 annual report as a Cayman Islands holding company operating in China through subsidiaries, not a variable interest entity. As of June 30, 2026, 14,499 Class A and 773 Class B ordinary shares were outstanding; the counts were retroactively adjusted for the 1-for-200 share consolidation effective August 3, 2026. Class A carries one vote per share and Class B 15; directors and officers held approximately 68.24% of voting power as of the report date.
The company says it and its operating subsidiaries hold all material PRC operating permissions and are not subject to CAC cybersecurity review because they do not possess personal information of more than one million users. It submitted an initial CSRC filing on March 10, 2026, for its at-the-market offering, which commenced in February 2026; a supplemental report is due within three working days after the initial sale, with another upon completion. The company identifies PRC cash-transfer rules, currency controls and evolving regulation as risks, and does not expect cash dividends in the foreseeable future. Its U.S.-based auditor is subject to PCAOB inspection, and the company does not currently expect an HFCAA trading prohibition.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- None.
Negative
- Moderate pointDirectors and officers hold approximately 68.24% of the company’s voting power.
Key Figures
Key Terms
at-the-market offering financial
Filing Rules regulatory
Cybersecurity Review Measures regulatory
Commission-Identified Issuer regulatory
HFCAA regulatory
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What CSRC filings does LBGJ need for its at-the-market offering?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
OR
For
the fiscal year ended
OR
OR
Date of event requiring this shell company report
For the transition period from to
Commission
file number:
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
People’s Republic of
(Address of principal executive offices)
People’s
Republic of
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| The
Nasdaq Stock Market LLC ( |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Class A ordinary shares, par value $ per share, and Class B ordinary shares, par value $ per share, were issued and outstanding as of June 30, 2026 (retroactively adjusted to reflect the 1-for-200 share consolidation effected on August 3, 2026; at the extraordinary general meeting held on September 22, 2026, the Company’s shareholders approved a share capital reorganization, pursuant to which the par value of each share of our issued and unissued Class A ordinary shares and Class B ordinary shares was reduced from $0.002 to $0.00001.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐
Yes ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐
Yes ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Emerging
growth company |
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided
pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| International Financial Reporting Standards as issued | Other ☐ | |||
| by the International Accounting Standards Board ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes
Table of Contents
| Page | ||
| PART I | 1 | |
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 1 |
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 1 |
| ITEM 3. | KEY INFORMATION | 1 |
| ITEM 4. | INFORMATION ON THE COMPANY | 40 |
| ITEM 4A. | UNRESOLVED STAFF COMMENTS | 58 |
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 59 |
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 72 |
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 80 |
| ITEM 8. | FINANCIAL INFORMATION | 81 |
| ITEM 9. | THE OFFER AND LISTING | 82 |
| ITEM 10. | ADDITIONAL INFORMATION | 83 |
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 103 |
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 104 |
| PART II | 105 | |
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 105 |
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 105 |
| ITEM 15. | CONTROLS AND PROCEDURES | 105 |
| ITEM 16. | [RESERVED] | 107 |
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | 107 |
| ITEM 16B. | CODE OF ETHICS | 107 |
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 107 |
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 107 |
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 107 |
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | 107 |
| ITEM 16G. | CORPORATE GOVERNANCE | 108 |
| ITEM 16H. | MINE SAFETY DISCLOSURE | 109 |
| ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 109 |
| ITEM 16J. | INSIDER TRADING POLICIES | 109 |
| ITEM 16K. | CYBERSECURITY | 109 |
| PART III | 110 | |
| ITEM 17. | FINANCIAL STATEMENTS | 110 |
| ITEM 18. | FINANCIAL STATEMENTS | 110 |
| ITEM 19. | EXHIBITS | 110 |
| i |
Conventions Used in this Annual Report
Unless otherwise indicated or the context requires otherwise, references in this annual report on Form 20-F to:
| ● | “Aike Robot” is to Jiangsu Aike Robot Technology Co., Ltd., a limited liability company organized under the laws of the PRC and a majority-owned subsidiary of Li Bang WFOE. | |
| ● | “China” or the “PRC” is to the People’s Republic of China; |
| ● | “Class A Ordinary Shares” are to the Class A ordinary shares of Li Bang International, par value $0.00001 per share as of the date of this annual report, each entitled to one (1) vote on all matters subject to vote at general meetings of Li Bang International; |
| ● | “Class B Ordinary Shares” are to the Class B ordinary shares of Li Bang International, par value $0.00001 per share as of the date of this annual report, each entitled to fifteen (15) votes on all matters subject to vote at general meetings of Li Bang International. |
| ● | “Leiluo Engineering Construction” is to Leiluo Engineering Construction (Jiangsu) Co., Ltd., a limited liability company organized under the laws of the PRC and a wholly-owned subsidiary of Li Bang WFOE. | |
| ● | “Li Bang HK” is to Li Bang International Hong Kong Holdings Limited, a Hong Kong limited company, which is a wholly-owned subsidiary of Li Bang International; |
| ● | “Li Bang International”, “our company”, the “Company”, “we”, “us”, or “our” is to Li Bang International Corporation Inc., an exempted company incorporated in the Cayman Islands with limited liability; |
| ● | “Li Bang Kitchen Appliance” is to Li Bang Kitchen Appliance Co., Limited, a limited liability company organized under the laws of the PRC and a wholly-owned subsidiary of Li Bang WFOE; | |
| ● | “Li Bang WFOE”, “WFOE”, or “Li Bang Intelligent Technology” is to Jiangsu Li Bang Intelligent Technology Co., Limited, a wholly foreign-owned enterprise in the PRC and a wholly owned subsidiary of Li Bang HK; |
| ● | “Nanjing Bangshijie” is to Nanjing Bangshijie Kitchen Appliance Co., Ltd, a limited liability company organized under the laws of the PRC and a subsidiary of Li Bang Kitchen Appliance; |
| ● | “Operating Subsidiaries” are to Li Bang WFOE, Suzhou Deji, Wuxi Li Bang, Li Bang Kitchen Appliance and its subsidiaries, Leiluo Engineering Construction, Shengwosi Cleaning Technology and Aike Robot; |
| ● | “Ordinary Shares” are to the Class A Ordinary Shares and Class B Ordinary Shares, taken together as a single class; |
| ● | “RMB” is to the legal currency of China; |
| ● | “SEC” is to the United States Securities and Exchange Commission; |
| ● | “Shengwosi Cleaning Technology” is to Shengwosi Cleaning Technology (Wuxi) Co., Ltd., a limited liability company organized under the laws of the PRC and a majority-owned subsidiary of Li Bang WFOE. |
| ● | “Suzhou Deji” is to Suzhou Deji Kitchen Engineering Co., Limited a limited liability company organized under the laws of the PRC and a wholly-owned subsidiary of Li Bang WFOE; |
| ● | “U.S. dollars,” “$,” “US$,” and “dollars” are to the legal currency of the United States. |
| ● | “Wuxi Li Bang” is to Wuxi Li Bang Kitchen Appliance Co., Limited, a limited liability company organized under the laws of the PRC and a wholly-owned subsidiary of Li Bang WFOE; |
| ● | “Yangzhou Bangshijie” is to Yangzhou Bangshijie Kitchen Appliance Co., Ltd, a limited liability company organized under the laws of the PRC and a subsidiary of Li Bang Kitchen Appliance; |
This annual report on 20-F contains translations of certain RMB amounts into U.S. dollar amounts at specified rates solely for the convenience of the reader. The relevant exchange rates are listed below. No representation is made that the RMB amounts referred to in this annual report could have been or could be converted into U.S. dollars at such rate:
| June 30, | For the Years Ended June 30, | |||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | 2024 | ||||||||||||||||
| Foreign currency | Balance Sheet | Balance Sheet | Profit/Loss | Profit/Loss | Profit/Loss | |||||||||||||||
| RMB:1USD | 6.8109 | 7.1586 | 7.0034 | 7.1599 | 7.1326 | |||||||||||||||
We have relied on statistics provided by a variety of publicly-available sources regarding the industry we are involved in. We have sought to provide current information in this annual report and believe that the statistics provided in this annual report remain up-to-date and reliable. We did not, directly or indirectly, sponsor or participate in the publication of such materials, and these materials are not incorporated in this annual report other than to the extent specifically cited in this annual report.
| ii |
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this annual report on Form 20-F may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “aim,” “will,” “project,” “target,” “plan,” “believe,” “seek,” “estimate,” and similar expressions are intended to identify such forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; and any statements regarding future economic conditions or performance, as well as all assumptions, expectations, predictions, intentions or beliefs about future events.
Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under “Item 3-Key Information-Risk Factors,” “Item 4-Information on the Company,” “Item 5-Operating and Financial Review and Prospects,” and elsewhere in this report, as well as factors which may be identified from time to time in our other filings with the SEC or in the documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. We would like to caution you not to place undue reliance on these forward-looking statements. We operate in a rapidly evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is signed. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law. Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects.
| iii |
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
OVERVIEW
Our Company Structure
Li Bang International Corporation Inc. (“Li Bang International”, “the Company”, “we”, “us”, “our” and similar terms) was incorporated in the Cayman Islands on July 8, 2021. Li Bang International is not a PRC operating company but a Cayman Islands holding company conducting operations in China primarily through its subsidiaries incorporated in the PRC, including Li Bang WFOE, Suzhou Deji, Wuxi Li Bang, Li Bang Kitchen Appliance and its subsidiaries, Leiluo Engineering Construction, Shengwosi Cleaning Technology and Aike Robot (collectively, the “Operating Subsidiaries”). Investors in our Class A Ordinary Shares should be aware that you do not directly hold equity interests in the Operating Subsidiaries. Investors can only purchase equity in Li Bang International, our Cayman Islands holding company, which indirectly owns majority equity interests in the PRC Operating Subsidiaries. We do not have or intend to have any contractual arrangements to establish a variable interest entity (“VIE”) structure with any entity in PRC.
We face various legal and operational risks and uncertainties associated with being based in or having our operations primarily in mainland China and the complex and evolving PRC laws and regulations. For example, we face risks associated with the fact that the PRC government has significant authority in regulating our operations and may influence or intervene in our operations at any time, regulatory approvals on offerings conducted overseas by, and foreign investment in, China-based issuers, anti-monopoly regulatory actions, and oversight on data security. These risks could result in a material adverse change in our operations and the value of our securities, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline or become of little or no value. For a detailed description of risks related to doing business in mainland China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”
The following chart shows our corporate structure as of the date of this annual report, including our majority-owned subsidiaries:
| 1 |
Adoption of Dual-Class Share Structure
On June 27, 2025, our shareholders approved an amendment and restatement of our memorandum and articles of association to adopt a dual-class share structure, pursuant to which our then-issued and outstanding ordinary shares were re-designated as Class A ordinary shares, each entitled to one (1) vote per share, and 50,000,000 then authorized but unissued ordinary shares were re-designated as Class B ordinary shares, each entitled to 15 votes per share. Following the adoption of the dual-class share structure, the Company repurchased an aggregate of then 15,436,000 Class A ordinary shares held by Maple Huang Holdings Limited and Funa Lee Holdings Limited and issued to those shareholders an equal number of Class B ordinary shares as consideration for the repurchase.
Mr. Feng HUANG, our Chief Executive Officer and Chairman of the Board of Directors, has the voting and dispositive power of all the shares held by Maple Huang Holdings Limited. Ms. Funa LI, our director and the spouse of Mr. Huang, has the voting and dispositive power of all the shares held by Funa Lee Holdings Limited. Mr. Huang and Ms. Li beneficially owned all of our then outstanding Class B ordinary shares following completion of the adoption of the dual-class share structure and the aforementioned repurchase and issuance transactions.
The Class A ordinary shares began trading on The Nasdaq Capital Market on November 21, 2025, under the same symbol “LGBJ” and the same CUSIP number of G5480M102. The Class B ordinary shares are not be listed and traded on The Nasdaq Capital Market or any other exchange.
The Holding Foreign Companies Accountable Act
Pursuant to the Holding Foreign Companies Accountable Act, which was enacted on December 18, 2020 and amended by the Consolidated Appropriations Act, 2023, signed into law on December 29, 2022, or the HFCAA, if the SEC determines we file audit reports issued by a registered public accounting firm that has not been subject to inspections by the Public Company Accounting Oversight Board, or the PCAOB, for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered or operating in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA.
| 2 |
As of the date of this annual report, Wei, Wei & Co., LLP, our auditor, is not subject to the determinations as to inability to inspect or investigate registered firms completely announced by the PCAOB on December 16, 2021.
However, we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. See “Item 3. Key Information—D. Risk Factors— Risks Related to Doing Business in China—The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the HFCAA all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering” on page 31 and “—Trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction” on page 33.
Regulatory Permissions Required from the PRC Authorities for Our Operations
We and our Operating Subsidiaries currently have all material permissions and approvals required for our operations in compliance with the relevant PRC laws and regulations in the PRC, including the business licenses of our Operating Subsidiaries and other permissions related to our business.
The business license is a permit issued by Market Supervision and Administration that allows the company to conduct specific business within the government’s geographical jurisdiction. Each of our PRC Subsidiaries received its business license. Wuxi Li Bang obtained National Industrial Product Production License (Gas Stoves) issued by the State General Administration of the PRC for Quality Supervision and Inspection and Quarantine, Gas Burner Installation and Maintenance Qualification Certificate issued by Wuxi Municipal and Landscape Bureau, and Construction Mechanical and Electrical Installation Engineering Professional Contractor Level 3 Certificate issued by Wuxi Administrative Examination and Approval Bureau. Li Bang Kitchen Appliance obtained National Industrial Product Production License (Electric Heating Food Processing Equipment) issued by Jiangsu Provincial Administration for Market Regulation, Work Safety License (Building Construction) issued by Department of Housing and Urban-Rural Development of Jiangsu Province, Sanitary License for Disinfection Product Manufacturers issued by Jiangsu Provincial Health Commission, Gas Burner Installation and Maintenance Qualification Certificate issued by Wuxi Municipal and Landscape Bureau, and Construction Mechanical and Electrical Installation Engineering Professional Contractor Level 3 Certificate issued by Wuxi Administrative Examination and Approval Bureau. Suzhou Deji obtained Gas Burner Installation and Maintenance Qualification Certificate issued by Suzhou Administrative Examination and Approval Bureau. Yangzhou Bangshijie obtained Gas Burner Installation and Maintenance Qualification Certificate issued by Yangzhou Housing and Urban-Rural Development Bureau. Nanjing Bangshijie obtained Gas Burner Installation and Maintenance Qualification Certificate issued by Nanjing Urban and Rural Construction Committee.
As of the date of this annual report, except for the business licenses and the permissions mentioned here, Li Bang International Corporation Inc. and our Operating Subsidiaries are not required to obtain any other permissions or approvals from any Chinese authorities to operate the business. However, applicable laws and regulations may be tightened, and new laws or regulations may be introduced to impose additional government approval, license, and permit requirements. If we or our subsidiaries fail to obtain and maintain such approvals, licenses, or permits required for our business, inadvertently conclude that such approval is not required, or respond to changes in the regulatory environment, we or our subsidiaries could be subject to liabilities, penalties, and operational disruption, which may materially and adversely affect our business, operating results, financial condition and the value of our ordinary shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless.
| 3 |
Regulatory Permissions Required from the PRC Authorities for Overseas Securities Offerings
On December 28, 2021, the Cyberspace Administration of China, or the CAC, together with certain other PRC governmental authorities, jointly released the Revised Cybersecurity Review Measures, which took effect on February 15, 2022. Pursuant to the Revised Cybersecurity Review Measures, (i) operators of critical information infrastructure that intend to purchase network products and services and online platform operators that conduct data processing activities, in each case that affect or may affect national security, and (ii) operators of network platforms seeking listing abroad that are in possession of more than one million users’ personal information must apply for a cybersecurity review. The Revised Cybersecurity Review Measures set out certain general factors which would be the focus in assessing the national security risk during a cybersecurity review, including without limitation, risks of influence, control or malicious use of critical information infrastructure, core data, important data or large amounts of personal information by foreign governments in relation to a listing abroad. If we are required to go through a cybersecurity review, we face uncertainties as to whether we will be able to timely complete the review, or at all, which may subject us to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, and materially and adversely affect our business and results of operations. As of the date of this annual report, we will not be subject to cybersecurity review with the CAC because we are not in possession of more than one million users’ personal information and we do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future due to the nature of our business.
On February 17, 2023, the CSRC, as approved by the State Council, released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies and five supporting guidelines, or the Filing Rules. The Filing Rules took effect on March 31, 2023, when the CSRC started to accept filing applications. Under the Filing Rules, a filing-based regulatory system will apply to “indirect overseas offering and listing” of PRC domestic enterprises, which refers to such securities offering and listing in an overseas market made by an offshore entity based on the underlying equity, assets, earnings or other similar rights of a domestic enterprise which operates its main business domestically in mainland China. The Filing Rules apply to all overseas equity financing and listing activities of PRC domestic enterprises, including initial and follow-on offerings of shares, depository receipts, convertible corporate bonds, or other equity instruments and trading of securities in overseas market.
We completed the required filings with the CSRC for our initial public offering (“IPO”) in accordance with the requirements under the Filing Rules, and the CSRC concluded the filing procedure and published the filing results on the CSRC website on April 22, 2024. Additionally, according to the Filing Rules, an issuer that issues securities in the same overseas market after its overseas offering and listing shall file with the CSRC within three (3) working days after the completion of the offering. In accordance with the requirements under the Filing Rules and in connection with our “at the market” offering commenced in February 2026, we submitted the requisite initial filing with the CSRC on March 10, 2026. As this “at the market” offering is regarded as a subsequent securities offering in the same overseas market under the Filing Rules, our PRC counsel, Beijing Kangda Law Firm Hangzhou Office, has advised us that we are required to submit a supplemental report with the CSRC within three (3) working days after the initial sale of our securities in this “at the market” offering and another supplemental report upon the completion of this “at the market” offering. As of the date of this annual report, neither we nor our subsidiaries have received any inquiry, notice, warning, or sanctions regarding our overseas listing from the CSRC or any other PRC governmental authorities. However, any future capital raising activities such as follow-on equity or debt offerings, listing on other stock exchanges and going private transactions, may also be subject to the filing requirement with the CSRC. Failure to complete such filing procedures as required under the Filing Rules, or a rescission of any such filings completed by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in mainland China, and other forms of sanctions that may materially and adversely affect our business, financial condition and results of operations. For detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in mainland China—We may be required to complete filing procedures with the China Securities Regulatory Commission in connection with our future offerings. We cannot predict whether we will be able to complete such filing on a timely manner, or at all.”
Transfers of Cash to and from Our Subsidiaries
As a holding company, Li Bang International may rely on dividends and other distributions on equity paid by its subsidiaries, including those based in the PRC, for our cash and financing requirements. If any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. Li Bang International is permitted under the laws of the Cayman Islands to provide funding to our subsidiary incorporated in Hong Kong through loans or capital contributions without restrictions on the amount of the funds. Our subsidiary in Hong Kong is permitted under the respective laws of Hong Kong to provide funding to Li Bang International through dividend distributions without restrictions on the amount of the funds. There are no restrictions on dividends transfers from Hong Kong to the Cayman Islands. Current PRC regulations permit our WFOE to pay dividends to the Company only out of its accumulated profits after allocation to the required statutory reserve, determined in accordance with Chinese accounting standards and regulations.
| 4 |
The PRC has currency and capital transfer regulations that require us to comply with certain requirements for the movement of capital. The Company is able to transfer cash (U.S. Dollars) to its PRC subsidiaries through an investment (by increasing the Company’s registered capital in a PRC subsidiary). As a result of PRC laws and regulations (noted below) that require annual appropriations of 10% of after-tax income to be set aside in a general reserve fund prior to payment of dividends, the Company’s PRC subsidiaries are restricted in that respect, as well as in other respects noted below, in their ability to transfer a portion of their net assets to the Company as a dividend. The Company’s subsidiaries within China can transfer funds to each other when necessary through the way of current lending. The transfer of funds among companies is subject to the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (2020 Revision, the “Provisions on Private Lending Cases”), which was implemented on August 20, 2020 to regulate the financing activities between natural persons, legal persons and unincorporated organizations. The Provisions on Private Lending Cases do not prohibit using cash generated from one subsidiary to fund another subsidiary’s operations. We have not been notified of any other restriction which could limit our PRC Subsidiaries’ ability to transfer cash between subsidiaries.
On or about June 8, 2022, the Company made dividend payments of RMB 6 million (approximately $941,073) to the shareholders of the Company. As of the date of this annual report, except for the previously mentioned dividend payments in June 2022, neither the Company nor its subsidiaries have made other transfers, dividends, or distributions to investors and no investors have made transfers or distributions to the Company or its subsidiaries. The Company’s business is primarily conducted through its subsidiaries.
With respect to transferring cash from the Company to its subsidiaries, increasing the Company’s registered capital in a PRC subsidiary requires the filing with the local commerce department, while a shareholder loan requires a filing with the State Administration of Foreign Exchange (“SAFE”) or its local bureau. Aside from the declaration to the SAFE, there is no restriction or limitations on such cash transfer or earnings distribution.
With respect to the payment of dividends, we note the following:
| 1. | PRC regulations currently permit the payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and PRC regulations (an in-depth description of the PRC regulations is set forth below); |
| 2. | Our PRC subsidiaries are required to set aside, at a minimum, 10% of their net income after taxes, based on PRC accounting standards, each year as a statutory surplus reserve until the cumulative amount of such reserve reaches 50% of their registered capital; |
| 3. | Such reserves may not be distributed as cash dividends; |
| 4. | Our PRC subsidiaries may also allocate a portion of their after-tax profits to fund their staff welfare and bonus funds; except in the event of a liquidation, these funds may also not be distributed to shareholders; the Company does not participate in a Common Welfare Fund; |
| 5. | The incurrence of debt, specifically the instruments governing such debt, may restrict a subsidiary’s ability to pay stockholder dividends or make other cash distributions; and |
| 6. | A withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. |
If, for the reasons noted above, our subsidiaries are unable to pay shareholder dividends and/or make other cash payments to the Company when needed, the Company’s ability to conduct operations, make investments, engage in acquisitions, or undertake other activities requiring working capital may be materially and adversely affected. However, our operations and business, including investment and/or acquisitions by our subsidiaries within China, will not be affected as long as the capital is not transferred in or out of the PRC.
We do not expect to pay any cash dividends in the foreseeable future. Also, as of the date of this annual report, we do not anticipate any difficulties or limitations on our ability to transfer cash between subsidiaries. We have not installed any cash management policies that dictate the amount of such funds and how such funds are transferred.
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PRC Regulations
In accordance with PRC regulations, a foreign-invested enterprise (“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit, as reported in the FIE’s PRC statutory accounts. A FIE is required to allocate at least 10% of its annual after-tax profit to the surplus reserve until such reserve has reached 50% of its respective registered capital (based on the FIE’s PRC statutory accounts). The aforementioned reserves may only be used for specific purposes and may not be distributed as cash dividends. Until the required 10% contribution of capital is satisfied, the FIE is not allowed to pay dividends or make other distributions to its shareholders, unless approved by the SAFE. After satisfaction of this requirement, the remaining funds may be appropriated at the discretion of the FIE’s board of directors. Our subsidiary, Li Bang WFOE, qualifies as a FIE and is therefore subject to the above-mandated regulations on distributable profits.
Additionally, in accordance with PRC corporate law, a domestic company is required to maintain a surplus reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and may not be distributed as cash dividends. Suzhou Deji, Wuxi Li Bang, Li Bang Kitchen Appliance and its subsidiaries, Leiluo Engineering Construction, Shengwosi Cleaning Technology and Aike Robot were established as domestic companies; therefore, each is subject to the above-mentioned restrictions on distributable profits.
As a result of PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside, prior to payment of dividends, in a general reserve fund, the Company’s PRC Subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company as a dividend or otherwise.
3.A. [Reserved]
3.B. Capitalization and Indebtedness
Not applicable.
3.C. Reasons for the Offer and Use of Proceeds
Not applicable.
3.D. Risk Factors
An investment in our Class A Ordinary Shares involves significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the United States Securities and Exchange Commission, including the following risk factors, in evaluating our business. If any of the following risks actually occur, our business, financial condition, operating results, and growth prospects would likely be materially and adversely affected. This annual report also contains forward-looking statements that involve risks and uncertainties. See “Special Cautionary Notice Regarding Forward-Looking Statements.”
Summary of Risk Factors
The following summary description sets forth an overview of the material risks we are exposed to in the normal course of our business activities. The summary does not purport to be complete and is qualified in its entirety by reference to the full risk factor discussion immediately following this summary description. We encourage you to read the full risk factor discussion carefully.
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Risks Related to Our Business and Industry
| ● | Our business is highly dependent on our brand strength and reputation, and if we fail to maintain and enhance our brand and reputation, consumer recognition of and trust in our products could be materially and adversely affected; |
| ● | Changes in the availability, quality, and cost of key raw materials, transportation, and other necessary supplies or services could have a material adverse effect on our business, financial condition, and results of operations; |
| ● | Our business is dependent on certain major customers and changes or difficulties in our relationships with our major customers may harm our business and financial results; |
| ● | We face intense competition, and if we fail to compete effectively, we may lose market share, and our results, prospects, and results of operations may be materially and adversely affected; |
| ● | We may fall behind in the race for research and development advancement, and our intelligent kitchen products and systems may not be the most competitive in the market; |
| ● | Our Operating Subsidiaries establish business relationship with our customers through governmental and open procurement platforms. If we are prevented from using any of the platforms, our numbers of customers may be decreased, and our business and results of operations may be materially and adversely affected; |
| ● | Our efforts and investments in technology development may not always produce the expected result; |
| ● | Our production may be subject to disruptions and delays; |
| ● | We are exposed to risks associated with the storage of the products we sell; |
| ● | Failure to maintain optimal inventory levels may increase the cost of holding inventory or cause us to lose sales; |
| ● | Any quality problems associated with our products may result in lost customers and sales, and we may face product liability claims if the problems are related to our products; |
| ● | Our facilities and operations may require significant investment and upgrades; |
| ● | Regulatory actions, legal proceedings, and customer complaints against us could harm our reputation and have a material adverse effect on our business, results of operations, financial condition, and prospects; |
| ● | We may fail to protect our intellectual properties; |
| ● | Our employees are at risk of serious injury from the use of production equipment and machinery; |
| ● | We may be subject to intellectual property infringement claims; |
| ● | We may fail to make necessary or desirable strategic alliances, acquisitions, or investments, and even where we pursue them, we may be unable to complete them, or to complete them on the terms we originally propose, and we may not be able to achieve the benefits we expect from the alliances, acquisitions, or investments we make; |
| ● | Our success depends on the continuing efforts of our senior management and key employees; |
| ● | Our subsidiaries are required to obtain and hold various licenses and permits in China, failure to do so could have a material adverse effect on us; |
| ● | If we fail to implement and maintain an effective system of internal controls to remediate our material weaknesses over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud; |
| ● | We have extended, and may continue to extend, loans to third parties, principally our business partners, and if these loans are not repaid on time or at all, our financial condition and results of operations, as well as our relationships with the affected partners, may be materially and adversely affected; and | |
| ● | There is substantial doubt about our ability to continue as a going concern. |
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Risks Related to Our Corporate Structure
| ● | We rely on dividends and other distributions on equity paid by the Operating Subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of the Operating Subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business; |
| ● | We are a Cayman Islands holding company with no operations of our own, and we conduct all of our operations through our PRC Operating Subsidiaries held indirectly through our Hong Kong holding company and our WFOE; investors hold equity in the offshore holding company and do not hold shares in our Operating Subsidiaries; and |
| ● | Because we are a Cayman Islands company that conducts substantially all of its operations and holds substantially all of its assets in China, it may be difficult for investors to enforce judgments or protect shareholder rights, and our layered offshore structure adds further complexity. |
Risks Related to Doing Business in China
| ● | Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations; |
| ● | Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us; |
| ● | You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in this report. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China; |
| ● | We rely on loans for our liquidity and we may not be able to continue to obtain financing from banks in China; |
| ● | PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of our recent offering to make loans or additional capital contributions to our PRC Subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business; |
| ● | The Chinese government exerts substantial influence over the manner in which we must conduct our business activities, which could result in a material change in our operations and/or the value of our Class A Ordinary Shares. The Chinese government may intervene or influence our operations at any time, which could result in a material change in our operations and the value of our Class A Ordinary Shares. Additionally, government and regulatory interference could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless; |
| ● | We may be required to complete filing procedures with the China Securities Regulatory Commission in connection with our future offerings. We cannot predict whether we will be able to complete such filing on a timely manner, or at all. |
| ● | Uncertainties exist with respect to the interpretation and implementation of the enacted Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations; |
| ● | We rely on dividends and other distributions on equity paid by our PRC Subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC Subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business; |
| ● | Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of our Class A Ordinary Shares; |
| ● | Governmental control of currency conversion may limit our ability to utilize our cash on hand effectively and affect the value of your investment. |
| ● | We must remit the proceeds of our future offerings to our Operating Subsidiaries in the PRC before they may be used to benefit our business, and this process may take a number of months; |
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| ● | Failure to make adequate contributions to various employee benefit plans and withhold individual income tax on employees’ salaries as required by PRC regulations may subject us to penalties. |
| ● | Increases in labor costs and enforcement of stricter labor laws and regulations in China may adversely affect our business and our profitability. |
| ● | PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law. |
| ● | If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders. |
| ● | We may not be able to obtain certain benefits under relevant tax treaties on dividends paid by our PRC subsidiaries to us through our Hong Kong subsidiary. |
| ● | Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future. |
| ● | The Holding Foreign Companies Accountable Act, and related SEC and PCAOB actions and Nasdaq rule changes, call for additional and more stringent criteria to be applied to companies with operations in emerging markets, including China. Although our auditor is a U.S.-based firm that is subject to PCAOB inspection, we cannot assure you that these developments will not adversely affect us. |
| ● | Trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction; and |
| ● | It is unclear whether we will be subject to the oversight of the CAC and how such oversight may impact us. Our business could be interrupted or we could be subject to liabilities which may materially and adversely affect the results of our operations and the value of your investment. |
| ● | If the custodians or authorized users of controlling non-tangible assets of our company, including our corporate chops and seals, fail to fulfil their responsibilities, or misappropriate or misuse these assets, our business and operations could be materially and adversely affected. |
| ● | A downturn in the Hong Kong, China or global economy, and economic and political policies of China could materially and adversely affect our business and financial condition. |
| ● | Changes in U.S. and Chinese regulations or in relations between the U.S. and China may adversely impact our business, our operating results, our ability to raise capital and the market price of our Class A Ordinary Shares. Any such changes may take place quickly and with very little notice. |
Risks Related to Our Class A Ordinary Shares
| ● | Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class B Ordinary Shares may view as beneficial; |
| ● | The trading price of the Class A Ordinary Shares is likely to be volatile, which could result in substantial losses to investors; |
| ● | We may experience extreme share price volatility, including any stock-run up, unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares. |
| ● | If securities or industry analysts cease to publish research or reports about our business, or if they adversely change their recommendations regarding our Class A Ordinary Shares, the market price for the Class A Ordinary Shares and trading volume could decline. |
| ● | We currently do not expect to pay dividends in the foreseeable future and you must rely on price appreciation of our Class A Ordinary Shares for return on your investment; |
| ● | You may experience dilution of your holdings due to the inability to participate in a rights offering. |
| ● | You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited because we are incorporated under Cayman Islands law. |
| ● | We have conducted equity financings and issued additional Class A Ordinary Shares and we may continue to raise capital through further issuances; these issuances are dilutive and have contributed to significant volatility in the price of our Class A Ordinary Shares. |
| ● | Certain judgments obtained against us by our shareholders may not be enforceable. |
| ● | As a “controlled company” under the rules of The Nasdaq Capital Market, we may choose to exempt our Company from certain corporate governance requirements that could have an adverse effect on our public shareholders; |
| ● | We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements; |
| ● | We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies. |
| ● | We have incurred increased costs as a result of being a public company. |
| ● | We may be deemed to be an investment company under the Investment Company Act of 1940 as a result of our loans and investments, which could require us to register as an investment company, impose substantial restrictions on our operations, render our contracts unenforceable, and expose us to regulatory enforcement and investor rescission claims. |
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Risks Related to Our Business and Industry
Our business is highly dependent on our brand strength and reputation, and if we fail to maintain and enhance our brand and reputation, consumer recognition of and trust in our products could be materially and adversely affected.
We rely heavily on our brand strength and reputation in the promotion and sale of our products and services. We believe that our corporate brand and our product brands are recognized by consumers for their quality and reliability. However, counterfeit products, product defects, inefficient customer service, product liability claims, consumer complaints, intellectual property infringement or negative publicity or media coverage may damage our brand and reputation. Any negative claims against us, even if unethical or unsuccessful, could distract our management’s attention and other resources from our day-to-day business operations, which could adversely affect our business, results of operations, and financial condition. Negative media coverage and resulting negative publicity regarding the safety, price levels or quality of our products could result in a material adverse effect on consumer acceptance of and trust in us and our products.
In addition, adverse publicity regarding any regulatory or legal action against us could damage our reputation and brand image, undermine consumer confidence in us and reduce long-term demand for our products, even if such regulatory or legal action is unfounded or insignificant to our business.
Changes in the availability, quality and cost of key raw materials, transportation and other necessary supplies or services could have a material adverse effect on our business, financial condition and results of operations.
Our raw materials consist primarily of stainless steel. The cost of raw material represented 40.2%, 51.0% and 50.8% of our total cost of revenues for the years ended June 30, 2026, 2025 and 2024, respectively. We are exposed to fluctuations in the prices of raw materials, transportation, and other necessary supplies or services due to factors beyond our control, such as policies, inflation, fluctuations in currency exchange rates, changes in weather, or changes in the supply and demand for such relevant raw materials, prices of bulk raw material products, which could result in higher costs of our products and services if prices of major raw materials continue to increase. We may not be able to offset the price increases by increasing our product prices, in which case our margins would decline and our financial condition and results of operations could be materially and adversely affected. In addition, if we significantly increase the prices of our products, we may lose our competitive advantage. This in turn could result in a loss of sales and customers. In either case, our business, financial condition, and results of operations could be materially and adversely affected.
Our business is dependent on certain major customers and changes or difficulties in our relationships with our major customers may harm our business and financial results.
We had certain customers whose revenue contribution individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:
For the year ended June 30, 2026, two customers accounted for approximately 52% of the Company’s total revenue. As of June 30, 2026, one customer accounted for more than 10% of the Company’s trade accounts receivable. For the year ended June 30, 2025, one customer accounted for approximately 15% of the Company’s total revenue. As of June 30, 2025, no customer accounted for more than 10% of the Company’s trade accounts receivable. For the year ended June 30, 2024, two customers accounted for approximately 38% of the Company’s total revenue. As of June 30, 2024, one customer accounted for approximately 11% of the Company’s trade accounts receivable. All of our customers are in China.
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If we cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the loss of such sales could have an adverse effect on our business, financial condition, and results of operations. In addition, we may not be able to properly identify trends or introduce new products and services to the market as quickly, efficiently, or competitively priced as our competitors. Existing customers may not generate new business for us or make our business uncompetitive with our competitors. If our customer base decreases, we may not be able to generate sufficient revenue to cover our increased costs and expenses. As a result, our business and results of operations may be materially and adversely affected.
We face intense competition, and if we fail to compete effectively, we may lose market share, and our results, prospects, and results of operations may be materially and adversely affected.
The market for our services is highly competitive. Our competitive factors are mainly reflected in the competition for comprehensive capabilities such as technology, research and development, quality, channels, brands, supporting capabilities, and after-sales services. Some of our competitors, including domestic and foreign companies, may have financial, research and development (“R&D”), and other resources that exceed ours. There can be no assurance that our current or potential competitors will not market products that rival or exceed ours or adapt more quickly than we do to changing industry trends or changing market demands. Our competitors in certain regional markets may also benefit from sources of raw materials or production facilities closer to those markets, and there may be upstream and downstream business consolidation or alliances between competitors, and as a result, our competitors may be able to quickly capture significant market share. Any of these events could adversely affect our market share, business, and results of operations.
In addition, competition may cause us to reduce prices, lower margins and lose market share, any of which could adversely affect our results of operations. We also cannot assure you that competitors will not actively engage in legal or illegal activities designed to undermine our brand and product quality or affect consumer confidence in our products.
We may fall behind in the race for research and development advancement, and our intelligent kitchen products and systems may not be the most competitive in the market.
A significant part of our strategy and future growth depends on our ability to continue to develop intelligent commercial kitchen equipment, including our intelligent stoves, intelligent pressure and soup cookers, energy-saving steam cabinets, cooking robots, and integrated and networked kitchen systems. The market for these products is characterized by rapid technological change, evolving industry standards, frequent introductions of new and enhanced products, and changing customer requirements. Our competitors, some of which have greater financial, technical, research, and marketing resources than we do, are also investing in intelligent and automated kitchen technologies. As a result, the technologies, features, or performance of our intelligent products and systems may not keep pace with, or may be surpassed by, those of our competitors.
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Our R&D efforts may be costly, and there is no assurance that they will succeed. We may fail to anticipate customer preferences, to select the right technologies to pursue, to develop products that achieve market acceptance, or to bring new products to market as quickly or at as low a cost as our competitors. Even where our products are technically advanced, they may not be perceived by customers as the most competitive in terms of intelligence, reliability, energy efficiency, price, or functionality, and customers may choose competing products instead. If our intelligent cookware, appliances, or systems are not, or are not perceived to be, the most competitive available, we may lose existing and potential customers, experience declining sales and margins, and be required to increase our research and development or marketing expenditures to remain competitive. Any of the foregoing could materially and adversely affect our business, prospects, financial condition, and results of operations.
Our Operating Subsidiaries establish business relationship with our customers through governmental and open procurement platforms. If we are prevented from using any of the platforms, our numbers of customers may be decreased, and our business and results of operations may be materially and adversely affected.
Due to product specificity, professionalism, and scale of commercial kitchen equipment, it is difficult to access a large volume of customer resources through traditional social networking and e-commerce platforms. In addition, according to the Government Procurement Law of the PRC, organizations such as government agencies, schools, hospitals, public enterprises and institutions, can only establish business relationship with us through governmental and open procurement platforms. Potential customers set procurement requirements on these procurement platforms to attract enterprises to participate in fair competition, and through evaluation by experts, finally select high-quality enterprises with good performance and brand reputation. Therefore, our business depends partly on the successful bidding through the provincial government procurement websites and provincial and municipal public resource trading platforms, and if we are prevented from using any of the platforms, our numbers of customers may be decreased, and our business and results of operations may be materially and adversely affected.
Our efforts and investments in technology development may not always produce the expected results.
We are continually developing and seeking to develop technologies that are closely related to the commercial kitchen products that will be used in our products. As of the date of this Annual Report, our core R&D team consisted of three (3) employees who have a proven track record of launching new products or product upgrades. Currently, our R&D team has been working on the development of large soup pots, food waste processors and related intelligent products with some success. However, we cannot assure you that our future efforts to develop related technologies will be successful, in which case our products may lose their competitive edge.
In addition, we cannot assure you the technologies we develop will be well accepted by consumers, in which case our business, financial condition, results of operations and prospects may be materially and adversely affected.
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Our production may be subject to disruptions and delays.
Currently, we have a production site in Jiangyin, Jiangsu Province. We are not on the US Department of Commerce Bureau of Industry and Security “Entity List” or “Military End User List.” Natural or man-made disasters (such as severe weather, fire, technical or mechanical failures, storms, explosions, earthquakes, strikes, terrorist activities, wars, and outbreaks of epidemics) or other disruptions (such as power and water outages) could cause significant damage to our production facilities, and resuming production could be costly and time-consuming and could cause significant disruption to our operations. Until the affected production facilities are available and operational, we may incur additional costs and may face disruptions in the supply of our products.
In addition, we depend on the timely supply of raw materials, such as stainless steel, in order to meet our production schedules. Any delays or interruptions in the supply of raw materials from our suppliers could have a material adverse effect on our ability to meet our contractual obligations to our customers. In addition, any natural or man-made disasters or other unexpected catastrophic events, including severe weather, fires, technical or mechanical failures, storms, explosions, earthquakes, strikes, terrorist activities, wars and outbreaks of epidemics, could disrupt our transportation channels, harm our suppliers’ operations and impede our ability to manufacture and deliver products to our customers on a timely basis. For example, events such as the COVID-19 outbreak in the first quarter of 2020 could place additional stress on our supply chain. Although we have not experienced significant production interruptions during the track record period or as of the latest practicable date, any interruptions or delays after our production date could adversely affect our ability to produce sufficient quantities of our products and, in turn, our ability to meet customer demand. Under such circumstances, our business, financial condition, results of operations and prospects could be materially and adversely affected.
We are exposed to risks associated with the storage of the products we sell.
We store our products temporarily in warehouses owned by us until they are delivered to our customers. We have insurance in place to protect us against possible financial loss in the event of an accident, including fire. However, in the event of such an accident (including fire) resulting in damage to the products we sell or to our warehouse, our ability to supply the products could be adversely affected. The occurrence of any such event could also require us to make significant capital expenditures beyond those anticipated and delay product deliveries. The sales we may lose or the increased costs we may incur as a result of such operational disruptions and delays in delivery may not be recoverable under existing policies, and long-term business interruptions may result in the loss of end customers. If any one or more of these risks were to occur, our business, financial condition, results of operations and prospects could be materially and adversely affected.
Failure to maintain optimal inventory levels may increase the cost of holding inventory or cause us to lose sales.
Maintaining optimal inventory levels is important to the success of our business. Inventory balances are approximately 10.7% and 7.6% of our total current assets as of June 30, 2026 and 2025, respectively. Inventory turnover measures how fast a company sells inventory. The speed at which a company can sell inventory is a critical measure of business performance. A low turnover implies weak sales and possibly excess inventory, also known as overstocking. A high ratio, on the other hand, implies either strong sales or insufficient inventory. The Company calculated inventory turnover by dividing the cost of goods by average inventory, of which average inventory is done by dividing the sum of beginning inventory and ending inventory by two. The inventory turnover days are calculated by dividing 360 by inventory turnover. Our inventory turnover days were approximately 96 days and 75 days as of June 30, 2026 and 2025, respectively. The increase in our inventory balances, together with the increase in inventory turnover days in the year ended June 30, 2026 reflects a greater proportion of our current assets held in inventory and a longer inventory holding period, which may increase our exposure to excess or obsolete inventory, inventory write-downs and additional storage costs and could adversely affect our profitability and cash flows. We are exposed to inventory risk due to a number of factors beyond our control, including changing consumer trends and customer preferences and the introduction of competitive products. In addition, we generally estimate the demand for the products we will sell in advance of actual sales in connection with preparing our inventory. We cannot assure you that we will be able to accurately predict such trends and events and maintain adequate inventories at all times. A sudden decline in market demand for the products we sell could result in excess or obsolete inventory, and we may be forced to offer discounts or conduct promotional activities to dispose of slow-moving inventory, which could have a material adverse effect on our financial condition and results of operations. On the other hand, a shortage of inventory could cause us to lose sales, and our business, financial condition, results of operations, and prospects could be materially and adversely affected.
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Any quality problems associated with our products may result in lost customers and sales, and we may face product liability claims if the problems are related to our products.
The success of our business depends on the continued delivery of quality and reliable products. We cannot assure you that our quality controls will be effective at all times, and we may face returns or cancellation of orders and customer complaints if the quality of any of our products deteriorates for any reason, or if consumers believe that our products do not deliver the claimed results.
In addition, if our commercial kitchen products are defective or adversely affect the overall cause of consumer property damage or personal injury, we may be subject to product liability claims or product recalls that could cause financial and reputational harm. Even if we ultimately prevail, we may be required to incur substantial costs in defending such legal claims. In addition, consumers’ perception of our products and their willingness to purchase them may be adversely affected, regardless of whether the quality problems are related to us. Accordingly, any actual or known quality problems associated with our products could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Our facilities and operations may require significant investment and upgrades.
Our facilities and operations may require significant investment and occasional upgrades due to depreciation or business growth, and our costs may increase as a result. If we are not successful in recovering such costs, our profitability may decline. In addition, the timely completion of upgrades as planned depends on a number of factors, including our ability to raise and maintain sufficient funds for such upgrades, the adequate supply of materials and equipment, and the ability to deliver on time. If the upgrade is not completed on time, our capacity will be temporarily limited and our business, financial condition, results of operations, and prospects may be further materially and adversely affected.
Regulatory actions, legal proceedings, and customer complaints against us could harm our reputation and have a material adverse effect on our business, results of operations, financial condition, and prospects.
Along with the growth and expansion of our business, we may be involved in litigation, regulatory proceedings, and other disputes arising outside the ordinary course of our business. Such litigation and disputes may result in claims for actual damages, freezing of our assets, diversion of our management’s attention and reputational damage to us and our management, as well as legal proceedings against our directors, officers, or employees, and the probability and amount of liability, if any, may remain unknown for long periods of time. Given the uncertainty, complexity, and scope of many of these litigation matters, their outcome generally cannot be predicted with any reasonable degree of certainty. Therefore, our reserves for such matters may be inadequate. Moreover, even if we eventually prevail in these matters, we could incur significant legal fees or suffer significant reputational harm.
We may fail to protect our intellectual properties.
We regard software registrations, trademarks, patents, domain names, know-how, proprietary technologies, and similar intellectual property critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and non-compete agreements with our employees and others to protect our proprietary rights. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented, or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages.
It is often difficult to maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently. Confidentiality, invention assignment, and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or enforce our contractual rights in China. Some of our trademark applications for certain categories have been rejected, and we have applied for administrative reviews on such rejections. However, there can be no assurance that we will obtain such trademarks and any other trademarks that are crucial to our business in the future. Thus, we may be unable to prevent others from using such trademarks or suing us for infringement, or even unable to continue to use such trademarks in our business.
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Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can also provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors.
Our employees are at risk of serious injury from the use of production equipment and machinery.
We use heavy machinery and equipment in our production processes that are potentially dangerous and could result in personal injury to our employees. The safety training we provide to our employees may not be effective in preventing accidents from occurring. Any major accident resulting from the use of equipment or machinery may cause disruption to our production, damage to our corporate image, and legal and regulatory liability. Although we carry employee accident insurance, as well as workers’ compensation and medical insurance, the coverage may not be sufficient to offset losses arising from claims related to such accidents. As of the date of the annual report, there are no claims against the Company.
In addition, potential industrial accidents resulting in substantial property damage, loss of life or injury may expose us to claims and litigation, and we may be liable for medical expenses and other payments to employees and their families and may be subject to fines or penalties. As a result, our reputation, brand, business, financial condition, results of operations, and prospects could be materially and adversely affected.
We may be subject to intellectual property infringement claims.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how, or other intellectual property rights held by third parties. As of the date of this Annual Report, our Operating Subsidiaries have 26 trademarks, 52 registered patents, and 1 registered domain name. We may be from time to time in the future, be subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services, or other aspects of our business without our awareness. If any third-party infringement claims are brought against us, we may be forced to divert management’s time and other resources from our business and operations to defend against these claims, regardless of their merits.
We may fail to make necessary or desirable strategic alliances, acquisitions, or investments, and even where we pursue them, we may be unable to complete them, or to complete them on the terms we originally propose, and we may not be able to achieve the benefits we expect from the alliances, acquisitions, or investments we make.
We may pursue selected strategic alliances and potential strategic acquisitions that are supplemental to our business and operations, including opportunities that can help us further expand our product and service offerings and improve our technology system. However, strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance or default by counterparties, and increased expenses in establishing these new alliances, any of which may materially and adversely affect our business. In addition, we may have limited ability to control or monitor the actions of our strategic partners. To the extent a strategic partner suffers any negative publicity as a result of its business operations, our reputation may be negatively affected by virtue of our association with such party.
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We propose or evaluate potential acquisitions and/or strategic investments from time to time as opportunities arise. There can be no assurance, however, that any such proposed transaction will be completed. Whether we are able to identify, negotiate, and consummate an acquisition depends on many factors beyond our control, including prevailing market and industry conditions, the availability of suitable targets, our ability to agree with counterparties on valuation and the terms of negotiation, the outcome of due diligence, the availability of financing on acceptable terms, and the receipt of any required corporate, governmental, or regulatory approvals in the PRC and elsewhere. As a result, we may suspend or abandon proposed transactions, or the terms on which a transaction is ultimately completed may differ materially from those we originally contemplated. For example, on February 25, 2026, Jiangsu Li Bang Intelligent Technology Co., Ltd., our wholly-owned subsidiary, entered into an equity transfer agreement to acquire an aggregate 51% equity interest in Suzhou Yufengyuan Food Distribution Co., Ltd., a catering service provider in China; that agreement originally included a special voting arrangement under which, notwithstanding our 51% equity interest, voting rights would be shared equally between us and the sellers for two years following closing, and we subsequently entered into a new equity transfer agreement in April 2026 that removed the special voting arrangement in order to enhance our control over the target. As of the date of this Annual Report, the parties have not made substantial progress toward completing the transaction and have mutually agreed to terminate the agreement and release each other from all liabilities arising thereunder. The parties entered into a termination letter effective as of October 8, 2026. This transaction illustrates that the terms on which we propose acquisitions may need to be renegotiated and that the control and other benefits we expect may not be realized as initially structured.
The costs of identifying and consummating strategic acquisitions may be significant and subsequent integrations of newly acquired companies, businesses, assets, and technologies would require significant managerial and financial resources and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our growth and business operations. In addition, investments and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, and exposure to potential unknown liabilities of the acquired business. The acquired businesses or assets may not generate the financial results we expect and may incur losses. The cost and duration of integrating newly acquired businesses could also materially exceed our expectations. Where we acquire less than full ownership or agree to shared governance or voting arrangements, we may be unable to direct the target’s operations as we intend, and disputes may arise with the other equity holders.
Our success depends on the continuing efforts of our senior management and key employees.
Our future success is significantly dependent upon the continued service of our senior management and other key employees. If we lose their service, we may not be able to locate suitable or qualified replacements and may incur additional expenses to recruit and train new staff, which could severely disrupt our business and growth. Our Chairman and chief executive officer, Mr. Feng Huang, and other management members are critical to our vision, strategic direction, culture, and overall business success. If there is any internal organizational structure change or change in responsibilities for our management or key personnel, or if one or more of our senior management members were unable or unwilling to continue in their present positions, the operation of our business and our business prospects may be adversely affected. Our employees, including members of our management, may choose to pursue other opportunities. If we are unable to motivate or retain key employees, our business may be severely disrupted, and our prospects could suffer. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that our management members would not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China, or we may not be able to enforce them at all.
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Our subsidiaries are required to obtain and hold various licenses and permits in China, failure to do so could have a material adverse effect on us.
Under PRC law, our subsidiaries are required to obtain and hold various licenses and permits to operate the business, including National Industrial Product Production License (Gas Stoves), National Industrial Product Production License (Electric Heating Food Processing Equipment), Work Safety License (Building Construction), Sanitary License for Disinfection Product Manufacturers, Gas Burner Installation and Maintenance Qualification Certificate, and Construction Mechanical and Electrical Installation Engineering Professional Contractor Level 3 Certificate. We are required to comply with applicable environmental regulations, health quality standards, and production safety standards in relation to our operations and production processes. In order to comply with the rules and regulations of the relevant public health authorities and quality and technical supervision authorities, we are subject to regular and random inspections. Failure to pass such inspections and comply with licensing or other regulatory requirements could result in termination of the manufacture and sale of our products, forfeiture of related revenues, revocation of business licenses, or potential criminal liability, which would have a material adverse effect on our reputation and our business, financial condition, results of operations and prospects.
If we fail to implement and maintain an effective system of internal controls to remediate our material weaknesses over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.
We completed our initial public offering and listed our ordinary shares on the Nasdaq Capital Market in October 2024. Prior to becoming a public company, we operated as a private company with limited accounting personnel and other resources with which to address our ICFR. In connection with the audits of our CFS included in this Annual Report, we and our independent registered public accounting firm identified material weaknesses in our ICFR. As defined in the standards established by the U.S. PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses that were identified relate to our lack of qualified personnel who are knowledgeable about U.S. GAAP and pertinent SEC reporting requirements and our lack of well-established financial and SEC reporting processes to ensure timely review and detection of errors or inaccuracies in the Company’s consolidated financial statements. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and reporting material weaknesses and other deficiencies in our ICFR. Had we performed a formal assessment of our ICFR or had our independent registered public accounting firm performed an audit of our ICFR, additional deficiencies may have been identified.
Following the identification of the material weaknesses and other deficiencies, we have taken measures and plan to continue to take measures to remediate these control deficiencies. See “Item 15. Controls and Procedures.” However, the implementation of these measures may not fully address the material weaknesses and other deficiencies in our ICFR, and we cannot conclude that they have been fully remediated. Our failure to correct the material weaknesses and other deficiencies or our failure to discover and address any other deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective ICFR could significantly hinder our ability to prevent fraud.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) as well as rules and regulations of The Nasdaq Stock Exchange. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and ICFR. We are required by Section 404 of the Sarbanes-Oxley Act to perform system and process evaluation and testing of our ICFR to allow management to report on the effectiveness of our ICFR in our Form 20-F beginning with our annual report in our second annual report after becoming a public company. Prior to our recent offering, we were never required to test our internal controls within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.
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We are an “emerging growth company” within the meaning of the Securities Act, and for so long as we remain an emerging growth company we are exempt from the auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act with respect to our ICFR; management, however, remains subject to the requirement to assess and report on the effectiveness of our ICFR under Section 404(a) once applicable. After we cease to qualify as an emerging growth company, our independent registered public accounting firm will be required to attest to and report on the effectiveness of our ICFR, which will increase our compliance costs and the risk that deficiencies are identified.
Our management may conclude that our ICFR is not effective. Moreover, even if our management concludes that our ICFR is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue an adverse report if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain the adequacy of our ICFR, as these standards are modified, supplemented or amended from time to time, we may not be able to produce timely and accurate financial statements and may not be able to conclude on an ongoing basis that we have effective ICFR in accordance with Section 404. If that were to happen, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which could lead to a decline in the market price of our ordinary shares and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. We may also be required to restate our financial statements for prior periods.
We have extended, and may continue to extend, loans to third parties, principally our business partners, and if these loans are not repaid on time or at all, our financial condition and results of operations, as well as our relationships with the affected partners, may be materially and adversely affected.
From time to time we have extended, and we may in the future continue to extend, loans and other financial accommodations to third parties, principally our business partners. We may make these loans to support or strengthen commercial relationships, to facilitate joint business initiatives, or in connection with strategic alliances, acquisitions, or investments. These loans expose us to credit and counterparty risk. The ability of a borrower to repay depends on its financial condition, business performance, access to liquidity, and general economic and market conditions in China, all of which are outside our control. We may have limited ability to monitor a borrower’s financial condition or use of proceeds, and our loans may be unsecured or inadequately secured.
If any of these loans is not repaid when due, or at all, we may be required to record allowances for credit losses, write off all or part of the outstanding amounts, or incur costs in pursuing collection or enforcement, any of which could materially and adversely affect our financial condition, liquidity, and results of operations. In addition, because these loans are extended principally to our business partners, a default, a dispute over repayment, or our efforts to enforce repayment could damage or terminate our commercial relationship with the affected partner, disrupt related business arrangements, and harm our reputation with other partners and customers. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.
There is substantial doubt about our ability to continue as a going concern.
We incurred net losses of approximately $3.8 million, $1.0 million and $1.4 million for the years ended June 30, 2026, 2025 and 2024, respectively, and as of June 30, 2026 we had a working capital deficit of approximately $4.3 million and an accumulated deficit of approximately $3.3 million. These conditions raise substantial doubt about our ability to continue as a going concern.
In that regard, the report of our independent registered public accounting firm on our consolidated financial statements for the year ended June 30, 2026 contains an explanatory paragraph stating that these conditions raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments to the recoverability or classification of recorded asset amounts, or to the amounts or classification of liabilities, that might be necessary should we be unable to continue as a going concern. If we become unable to continue as a going concern, we may be forced to curtail or cease our operations, liquidate assets at amounts significantly below their carrying values, and seek protection under applicable insolvency laws, in which case our investors could lose all or a substantial part of their investment.
Our ability to continue as a going concern depends on our ability to generate sufficient cash flows to meet our operating and capital expenditure commitments and, in particular, on our ability to reduce our accounts and loans receivable, maintain our gross profit, control our operating expenses, and obtain additional financing. We have historically depended on financing activities (including public and private equity offerings) and bank loans to fund our operations, and our future operations are dependent upon equity or debt financing and our ability to generate profits through operations at an indeterminate time in the future. We cannot assure you that we will be successful in completing an equity or debt financing or in achieving or maintaining profitability in the near term.
Although in July 2026 we raised gross proceeds of approximately $8.7 million (net proceeds of approximately $7.6 million after deducting sales agent fees) through at-the-market sales of 116,743,749 Class A ordinary shares (583,719 shares after giving effect to our share consolidation) under the Sales Agreement dated February 13, 2026, and although Mr. Feng Huang and Ms. Funa Li, as our major shareholders, have indicated an intent and ability to provide certain financial support if we require additional funding, we cannot assure you that any such financing or shareholder support will in fact be available to us, will be available on acceptable terms, or will be sufficient to fund our working capital requirements and satisfy our obligations as they become due. Any support that our major shareholders have indicated they are willing to provide may be withdrawn, reduced, or delayed. Sales under our at-the-market program and any future equity financings would dilute our existing shareholders, potentially substantially, and any debt financing may impose covenants that restrict our operations. If we are unable to obtain adequate financing or financing on terms satisfactory to us when required, our ability to continue to support our business operations and to respond to business opportunities and challenges would be significantly limited.
The existence of substantial doubt about our ability to continue as a going concern, and the going concern explanatory paragraph in our auditor’s report, may make it more difficult for us to raise capital on favorable terms, may discourage investors, customers, suppliers, lenders and strategic partners from transacting with us, and may adversely affect the trading price of our securities.
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Risks Related to Our Corporate Structure
We rely on dividends and other distributions on equity paid by the Operating Subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of the Operating Subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
We are a Cayman Islands holding company and will be dependent on dividends and other distributions on equity by the Operating Subsidiaries to fund any cash and financing requirements we may have, including the funds necessary to pay dividends and other cash distributions to our shareholders and for servicing any debt we may incur. If our Operating Subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our Operating Subsidiaries, which are foreign-owned enterprises, may pay dividends only out of their respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends. At its discretion, a foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund, or staff welfare and bonus fund.
Our Operating Subsidiaries generate essentially all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our Operating Subsidiaries to use their Renminbi cash balances to pay dividends to us.
The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting processes may be put forward by the SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our Operating Subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated.
We are a Cayman Islands holding company with no operations of our own, and we conduct all of our operations through our PRC Operating Subsidiaries held indirectly through our Hong Kong holding company and our WFOE; investors hold equity in the offshore holding company and do not hold shares in our Operating Subsidiaries.
Li Bang International Corporation Inc. is a holding company incorporated in the Cayman Islands. We do not conduct any business operations of our own. We conduct substantially all of our operations in the PRC indirectly through our Operating Subsidiaries, and our only material assets are the equity interests we hold, directly or indirectly, in those subsidiaries. Investors in our Class A Ordinary Shares do not directly hold any equity interest in the Operating Subsidiaries; investors can purchase equity only in Li Bang International Corporation Inc., our Cayman Islands holding company, which indirectly owns a majority of the equity interests in the Operating Subsidiaries. We do not have, and do not intend to establish, any contractual arrangements constituting a variable interest entity (“VIE”) structure with any entity in the PRC.
Because we have no operations of our own, our ability to pay our expenses, service any indebtedness we may incur, and pay dividends on our Class A Ordinary Shares depends entirely on the earnings of, and the distribution of funds from, our Operating Subsidiaries. If our Operating Subsidiaries do not generate sufficient earnings, or are otherwise unable or unwilling to remit funds to us, we may be unable to meet our obligations or to make any distributions to our shareholders. Our Operating Subsidiaries are separate and distinct legal entities, and they have no obligation to pay any amounts due on our securities or to make funds available to us for that purpose, whether by dividend, loan, or otherwise.
The ability of our Operating Subsidiaries to make distributions to us is subject to significant legal and regulatory restrictions. Under current PRC regulations, our PRC subsidiaries may pay dividends only out of their accumulated profits, if any, as determined in accordance with Chinese accounting standards and regulations. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year to fund a statutory reserve until that reserve reaches 50% of the subsidiary’s registered capital. These statutory reserves are not distributable as cash dividends except in the event of liquidation. As a result, a portion of our PRC subsidiaries’ net assets is not available for distribution to us. Dividends paid by our PRC subsidiaries to our offshore entities may also be subject to PRC withholding tax, currently at a rate of 10% for dividends paid to a foreign enterprise investor absent applicable treaty relief, which would further reduce the amount of cash available to us.
The remittance of funds out of the PRC is also subject to currency and capital-control requirements. The PRC government imposes controls on the conversion of Renminbi into foreign currencies and on the remittance of currencies out of the PRC, and PRC regulatory authorities have from time to time implemented, and may in the future further tighten, measures that subject cross-border dividend payments, shareholder-loan repayments, and other distributions to heightened scrutiny and approval requirements. Any delay in, limitation on, or inability to obtain the approvals or complete the procedures required for our Operating Subsidiaries to transfer funds to us could materially and adversely affect our liquidity and our ability to fund and conduct our business, make investments or acquisitions, service indebtedness, and pay dividends.
Separately, as a Cayman Islands company, we may pay dividends on our shares only out of profits or our share premium account, and in no circumstances may a dividend be paid if doing so would result in our being unable to pay our debts as they fall due in the ordinary course of business. These constraints apply at the holding-company level in addition to the restrictions on distributions from our subsidiaries described above.
Finally, because we are a holding company, our Class A Ordinary Shares are structurally subordinated to the obligations of our Operating Subsidiaries. In the event of a bankruptcy, liquidation, reorganization, or winding up of any Operating Subsidiary, that subsidiary’s creditors (and any holders of preferred equity) would generally be entitled to payment in full from the subsidiary’s assets before we, as an equity holder, would receive any distribution. If any of our Operating Subsidiaries incurs indebtedness in the future, the instruments governing that indebtedness may further restrict the subsidiary’s ability to pay dividends or make other distributions to us. Accordingly, our shareholders may have limited recourse to the assets generating our business revenue, and the value of their investment depends on our continued ability to receive distributions from our Operating Subsidiaries.
Because we are a Cayman Islands company that conducts substantially all of its operations and holds substantially all of its assets in China, it may be difficult for investors to enforce judgments or protect shareholder rights, and our layered offshore structure adds further complexity.
We are incorporated under the laws of the Cayman Islands, we conduct substantially all of our operations in the PRC through our Operating Subsidiaries, substantially all of our assets are located in the PRC, and substantially all of our directors and senior executive officers reside in, and are nationals of, the PRC. As a result, it may be difficult for investors to effect service of legal process upon us or those persons within the PRC, to bring an original action against us or them in the Cayman Islands or the PRC, or to enforce against us or them, in those jurisdictions, judgments of U.S. courts predicated upon the civil liability provisions of the U.S. federal securities laws or the securities laws of any U.S. state; there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States (and the Cayman Islands courts would enforce such a judgment only at common law, subject to conditions and exclusions, including that a penal or multiple-damages judgment and any enforcement contrary to public policy would not be recognized), and because China has no treaty or other reciprocal arrangement with the United States for the recognition and enforcement of judgments, there is substantial uncertainty as to whether PRC courts would recognize or enforce a U.S. judgment against us or our management. In addition, your rights as a shareholder and our corporate affairs are governed by our amended and restated memorandum and articles of association and by Cayman Islands law, which differs from the law of U.S. jurisdictions and may afford our shareholders less protection than, and rights different from those they would have under, the laws of a U.S. state (including with respect to the availability of shareholder suits, remedies against directors and officers, and minority-shareholder protections) so that it may be more difficult for our public shareholders to protect their interests. These difficulties are compounded by our layered offshore holding structure, under which investors hold equity only in our Cayman Islands holding company, which owns the PRC Operating Subsidiaries indirectly through one or more intermediate holding entities; this structure places multiple corporate and jurisdictional layers between our shareholders and the entities that actually conduct our business and hold our assets, further limiting the practical ability of shareholders to reach those operations and assets or to obtain and enforce effective legal remedies.
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Risks Related to Doing Business in China
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.
Substantially all of our operations are located in China. Accordingly, our business, prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions in China generally and by continued economic growth in China as a whole. The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform and has reduced state ownership of productive assets, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past, the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.
Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our current understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. In addition, any new or changes in PRC laws and regulations related to foreign investment in China could affect the business environment and our ability to operate our business in China.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and the results of operations.
Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effects. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property, and procedural rights could adversely affect our business and impede our ability to continue our operations.
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You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in this report. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.
We are a company incorporated under the laws of the Cayman Islands, and we conduct most of our operations in China and most of our assets are located in China. In addition, substantially all our senior executive officers reside within China, are physically there for a significant portion of each year and are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of U.S. securities laws or those of any U.S. state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the U.S. that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S.
It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the authorities in China may establish a regulatory cooperation mechanism with its counterparts of another country or region to monitor and oversee cross-border securities activities, such regulatory cooperation with the securities regulatory authorities in the U.S. may not be efficient in the absence of a practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to foreign agencies without prior consent from the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council. While the detailed interpretation of or implementing of rules under Article 177 have to be promulgated, the inability of an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase the difficulties faced by you in protecting your interests.
We rely on loans for our liquidity and we may not be able to continue to obtain financing from banks in China.
Our liquidity relies partly on bank loans. Financing may not be available to us on favorable terms, if at all. If we are unable to obtain short-term financing in an amount sufficient to support our operations, it may be necessary, to suspend or curtail our operations, which would have a material adverse effect on our business and financial condition. In that event, current shareholders would likely experience a loss of most of or all of their investment.
In addition, potential risks in the credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements, which could adversely affect our results of operations, cash flows and financial condition.
Potential changes in economy may affect the availability of business and customer credit. We may need to rely on the credit markets, particularly for short-term loans from banks in China, to meet our financial commitments and short-term liquidity needs if internal funds from our operations are not available to be allocated to such purposes. Our access to funds under such bank loans is dependent on the ability of the banks that are parties to those facilities to meet their funding commitments, which may be dependent on governmental economic policies in China. Those banks may not be able to meet their funding commitments to us if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers within a short period of time. Therefore, these uncertain and changing events would adversely impact our results of operations, cash flows and financial position.
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PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of our recent offering to make loans or additional capital contributions to our PRC Subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company conducting our operations in China through our PRC Subsidiaries. We may decide to finance our PRC Subsidiaries by means of loans or capital contributions.
Any loans to Li Bang WFOE, which is treated as a FIE, under PRC law, is subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to Li Bang WFOE to finance its Operating Subsidiaries activities cannot exceed statutory limits and must be registered with the local counterpart of the SAFE, or filed with SAFE in its information system. According to the Notice of the People’s Bank of China (“PBOC”) and SAFE on Adjustments to Comprehensive Macro-prudential Regulation Parameters for Cross-border Financing issued by PBOC and SAFE in January 2021, the limit for the total amount of foreign debt is 2 times of their respective net assets. Moreover, any medium or long-term loan to be provided by us to our PRC Subsidiaries must also be filed and registered with the National Development and Reform Commission, or the NDRC. We may also decide to finance our PRC Subsidiaries by means of capital contributions. These capital contributions must be reported to the Ministry of Commerce, or MOFCOM, or its local counterpart.
We believe the offering proceeds will be available for investments in our PRC operations after completing the registration. For example, if we decide to make loans to our PRC Subsidiaries, the loan can be in an amount of up to two times the net assets in the CFS. However, we cannot assure you that we will be able to obtain relevant government registrations or approvals on a timely basis, or at all.
These capital contributions must be approved by the Ministry of Commerce (“MOC”) or its local counterpart. On March 30, 2015, SAFE promulgated Circular of the State Administration of Foreign Exchange on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capital of foreign-invested enterprises nationwide. Circular 19 came into force and replaced both previous Circular 142 and Circular 36 on June 1, 2015. On June 9, 2016, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or Circular 16, to further expand and strengthen such reform. Under Circular 19 and Circular 16, foreign-invested enterprises in the PRC are allowed to use their foreign exchange funds under capital accounts and RMB funds from exchange settlement for expenditure under current accounts within their business scope or expenditure under capital accounts permitted by laws and regulations, except that such funds shall not be used for (i) expenditures beyond the enterprise’s business scope or expenditures prohibited by laws and regulations; (ii) investments in securities or other investments other than principal-secured products issued by banks; (iii) granting loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) construction or purchase of a real estate for purposes other than self-use (except for real estate enterprises). In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of these circulars could result in severe monetary or other penalties. These circulars may significantly limit our ability to use RMB converted from the cash provided by our offshore financing activities to fund the establishment of new entities in China by our PRC Subsidiaries, to invest in or acquire any other PRC companies through our PRC Subsidiaries.
In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC Subsidiaries or future capital contributions by us to our PRC Subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from our initial public offering to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
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The Chinese government exerts substantial influence over the manner in which we must conduct our business activities, which could result in a material change in our operations and/or the value of our Class A Ordinary Shares. The Chinese government may intervene or influence our operations at any time, which could result in a material change in our operations and the value of our Class A Ordinary Shares. Additionally, governmental and regulatory interference could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property, and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties.
For example, the Chinese cybersecurity regulator announced on July 2, 2021 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s mobile application be removed from smartphone app stores.
As such, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. The Company’s operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry. Since the Chinese government may intervene or influence our operations at any time, it could result in a material change in our operation and the value of our Class A Ordinary Shares. Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Furthermore, it is uncertain when and whether the Company will be required to obtain permission from the PRC government to complete future offering and/or continue listing on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain such permission from any of the PRC central or local government and has not received any denial to list on the U.S. exchanges, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry. As a result, our securities may decline in value dramatically or even become worthless should we become subject to new requirement to obtain permission from the PRC government to list on U.S. exchange in the future. For more information, refer to “-We may be required to complete filing procedures with the China Securities Regulatory Commission in connection with our future offerings. We cannot predict whether we will be able to complete such filing on a timely manner, or at all.”
We may be required to complete filing procedures with the China Securities Regulatory Commission in connection with our future offerings. We cannot predict whether we will be able to complete such filing on a timely manner, or at all.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. We do not believe that any provision in these opinions had a material adverse impact on our business or offshore listing plan.
On February 17, 2023, the CSRC, as approved by the State Council, released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies and five supporting guidelines, or the Filing Rules. The Filing Rules took effect on March 31, 2023, when the CSRC started to accept filing applications. Pursuant to the Filing Rules, PRC domestic enterprises that directly or indirectly offer or list their securities in an overseas market are required to file with the CSRC within three business days after submitting their listing application documents to the relevant regulator in the place of intended listing. Failure to complete such filing may subject a PRC domestic enterprise to an order of rectification, a warning or a fine between RMB1 million and RMB10 million. Pursuant to these regulations, a domestic enterprise applying for listing abroad shall, among others, complete record filing procedures and report relevant information to the securities regulatory authority as required. We completed the CSRC filing procedures in connection with our initial public offering.
Our future capital raising activities such as follow-on equity or debt offerings, listing on other stock exchanges and going private transactions, may also be subject to the filing requirement with the CSRC. Failure to complete such filing procedures as required under the Filing Rules, or a rescission of any such filings completed by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in mainland China, and other forms of sanctions that may materially and adversely affect our business, financial condition and results of operations.
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Uncertainties exist with respect to the interpretation and implementation of the enacted Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, and business operations.
On March 15, 2019, the PRC National People’s Congress approved the Foreign Investment Law, which came into effect on January 1, 2020, and replaces the trio of existing laws regulating foreign investment in the PRC, namely, the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Invested Enterprise Law, together with their implementation rules and ancillary regulations and becomes the legal foundation for foreign investment in the PRC. Meanwhile, the Implementation Regulation of the Foreign Investment Law and the Measures for Reporting of Information on Foreign Investment came into effect as of January 1, 2020, which clarified and elaborated the relevant provisions of the Foreign Investment Law.
The Foreign Investment Law sets out the basic regulatory framework for foreign investments and proposes to implement a system of pre-entry national treatment with a negative list for foreign investments, pursuant to which (i) foreign entities and individuals are prohibited from investing in the areas that are not open to foreign investments, (ii) foreign investments in the restricted industries must satisfy certain requirements under the law, and (iii) foreign investments in business sectors outside of the negative list will be treated equally with domestic investments. The Foreign Investment Law also sets forth necessary mechanisms to facilitate, protect and manage foreign investments and proposes to establish a foreign investment information reporting system, through which foreign investors or foreign-invested enterprises are required to submit an initial report, report of changes, report of deregistration and annual report relating to their investments to the Ministry of Commerce, or MOFCOM, or its local branches.
We will be dependent on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
We are a holding company, and we will be dependent on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require our PRC Subsidiaries to adjust their taxable income, in a manner that would materially and adversely affect their ability to pay dividends and other distributions to us.
Under PRC laws and regulations, our PRC subsidiaries, as wholly foreign-owned enterprises in China, may pay dividends only out of their respective accumulated after-tax profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
In response to the persistent capital outflow and the Renminbi’s depreciation against the U.S. dollar in the fourth quarter of 2016, the PBOC and SAFE have implemented a series of capital control measures, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments, and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subjected to tighter scrutiny in the future. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
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Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of our Class A Ordinary Shares.
Substantially all of our revenues and expenditures are denominated in RMB, whereas our reporting currency is the U.S. dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and RMB will affect the relative purchasing power in RMB terms of our U.S. dollar assets and the proceeds from our IPO. Our reporting currency is the U.S. dollar while the functional currency for our PRC Subsidiaries is RMB. Gains and losses from the re-measurement of assets and liabilities that are receivable or payable in RMB are included in our consolidated statements of operations. The re-measurement has caused the U.S. dollar value of our results of operations to vary with exchange rate fluctuations, and the U.S. dollar value of our results of operations will continue to vary with exchange rate fluctuations. A fluctuation in the value of RMB relative to the U.S. dollar could reduce our profits from operations and the translated value of our net assets when reported in U.S. dollars in our consolidated financial statements. This could have a negative impact on our business, financial condition, and results of operations as reported in U.S. dollars. If we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our Class A Ordinary Shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations in currencies relative to the periods in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations.
The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. However, the PBOC regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rates and achieve policy goals. During the period between July 2008 and June 2010, the exchange rate between the RMB and the U.S. dollar had been stable and traded within a narrow range. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. Since October 1, 2016, Renminbi has joined the International Monetary Fund (IMF)’s basket of currencies that make up the Special Drawing Right (SDR), along with the U.S. dollar, the Euro, the Japanese yen, and the British pound. In the fourth quarter of 2016, the RMB depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress toward interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our Class A Ordinary Shares in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offering into RMB to pay our operating expenses, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our Class A Ordinary Shares.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. As of the date of this Annual Report, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited, and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on the price of our Class A Ordinary Shares.
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Governmental control of currency conversion may limit our ability to utilize our cash on hand effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our net revenues in RMB. Under our current corporate structure, our company in the Cayman Islands will be dependent on dividend payments from our PRC Subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our PRC Subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our Company who are PRC residents. But approval from, or registration with, appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.
In light of the flood of capital outflows of China in 2016 due to the weakening RMB, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movements. More restrictions and substantial vetting processes have been put in place by SAFE to regulate cross-border transactions falling under the capital account. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends to our shareholders.
We must remit the proceeds of our future offerings to our Operating Subsidiaries in the PRC before they may be used to benefit our business, and this process may take a number of months.
The proceeds of our future offerings must be sent back to the PRC, and the process for sending such proceeds back to the PRC may take several months after the closing of our recent offering. We may be unable to use these proceeds to grow our business until we receive such proceeds in the PRC. In order to remit the offering proceeds to the PRC, we will have to take the following actions: First, we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to SAFE certain application forms, identity documents, transaction documents, a form of foreign exchange registration of overseas investments by domestic residents, and a foreign exchange registration certificate of the invested company. Second, we will remit the offering proceeds into this special foreign exchange account. Third, we will apply for settlement of the foreign exchange. In order to do so, we must submit to SAFE certain application forms, identity documents, payment orders to a designated person, and a tax certificate.
The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary materially. Ordinarily, the process takes several months to complete but is required by law to be accomplished within 180 days of application. The proceeds of our recent offering will be maintained in an interest-bearing account maintained by us in the U.S. until the abovementioned approvals have been provided.
Failure to make adequate contributions to various employee benefit plans and withhold individual income tax on employees’ salaries as required by PRC regulations may subject us to penalties.
We are required under PRC laws and regulations to participate in various government-sponsored employee benefit plans, including certain social insurance, housing funds, and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China, given the different levels of economic development in different locations. If the local governments deem our contribution to be not sufficient, we may be subject to late contribution fees or fines in relation to any underpaid employee benefits, our financial condition and results of operations may be adversely affected.
Currently, we are making contributions to the plans based on the minimum standards, although the PRC laws required such contributions to be based on the actual employee salaries up to a maximum amount specified by the local government. Therefore, in our CFS, we have made an estimate and accrued a provision in relation to the potential make-up of our contributions for these plans as well as to pay late contribution fees and fines. If we are required to make increased contributions or are subject to late contribution fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
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Companies operating in China are also required to withhold individual income tax on employees’ salaries based on the actual salary of each employee upon payment. With respect to the under-withheld individual income tax, we may be required to make up sufficient withholding and pay late fees and fines. If we are subject to late fees or fines in relation to the under-withheld individual income tax, our financial condition and results of operations may be adversely affected. We may also be subject to regulatory investigations and other penalties if our other employment practices are deemed to be in violation of relevant PRC laws and regulations.
Increases in labor costs and enforcement of stricter labor laws and regulations in China may adversely affect our business and our profitability.
China’s overall economy and the average wage in China have increased in recent years and are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to those who pay for our products and services, our profitability and results of operations may be materially and adversely affected.
In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing funds, medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance to designated government agencies for the benefit of our employees. Pursuant to the Labor Contract Law and its implementation rules, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration and statutory benefits, determining the term of employee’s probation, and unilaterally terminating labor contracts. In addition, enterprises are forbidden to force laborers to work beyond the time limit and employers shall pay laborers for overtime work in accordance with the laws and regulations. If we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to affect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.
We engage independent third-party service providers to recruit certain third-party workers at our request, such as customer service, and to settle the payment of service fees to such third-party service providers for us. However, we cannot preclude the possibility that these workers supplied by third-party service providers may be classified as “dispatched workers” by courts, arbitration tribunals, or government agencies. In December 2012, the Labor Contract Law was amended and in January 2014, the Interim Provisions on Labor Dispatch was promulgated, to impose more stringent requirements on the use of employees of temp agencies, who are known in China as “dispatched workers”. For example, the number of dispatched workers may not exceed a certain percentage of the total number of employees and the dispatched workers can only engage in temporary, auxiliary, or substitutable work. However, since the application and interpretation of the Labor Contract Law and the Interim Provisions on Labor Dispatch are limited and uncertain, we cannot assure you our business operation will be deemed to be in full compliance with them. If we are found to be in violation of any requirements under the Labor Contract Law, the Interim Provisions on Labor Dispatch, or their related rules and regulations, we may be ordered by the labor authority to rectify the non-compliance by entering into written employment contracts with the deemed “dispatched workers”, or be subject to regulatory penalty, other sanction or liability or be subject to labor disputes.
As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practices do not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. We cannot assure you that we have complied or will be able to comply with all labor-related laws and regulations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees, and our business, financial condition, and results of operations will be adversely affected.
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The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions, established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.
In July 2014, the SAFE promulgated the Circular on Issues Concerning Foreign Exchange Administration over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents via Special Purpose Vehicles, or “Circular 37”. According to Circular 37, prior registration with the local SAFE branch is required for Chinese residents to contribute domestic assets or interests to offshore companies, known as SPVs. Circular 37 further requires an amendment to a PRC resident’s registration in the event of any significant changes with respect to the SPV, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger, division, or other material event. Further, foreign investment enterprises established by way of round-tripping shall complete the relevant foreign exchange registration formalities pursuant to the prevailing foreign exchange control provisions for direct investments by foreign investors and disclose the relevant information such as an actual controlling party of the shareholders truthfully.
Currently, all of our beneficial owners and who are known to us as being PRC residents have completed the Circular 37 Registration required in connection with our recent corporate restructuring. We attempt to comply and attempt to ensure that our shareholders who are subject to these rules comply, with the relevant requirements. However, we cannot provide any assurances that all of our shareholders who are Chinese residents will comply with our request to make or obtain any applicable registration or comply with other requirements required by Circular 37 or other related rules. The Chinese resident shareholders’ failure to comply with Circular 37 registration would not impose penalties on our Company, while it may result in restrictions being imposed on part of foreign exchange activities of the offshore special purpose vehicles, including restrictions on its ability to receive registered capital as well as additional capital from Chinese resident shareholders who fail to complete Circular 37 registration; and repatriation of profits and dividends derived from special purpose vehicles to China, by the Chinese resident shareholders who fail to complete Circular 37 registration, are also illegal. In addition, the failure of the Chinese resident shareholders to complete Circular 37 registration may subject each of the shareholders to fines of less than RMB50,000 ($7,000). We cannot assure you that each of our Chinese resident shareholders will in the future complete the registration process as required by Circular 37.
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If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts, and properties of an enterprise. In April 2009, the State Administration of Taxation (“SAT”) issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners like us, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” As substantially all of our management members are based in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that Li Bang International or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then Li Bang International or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our ordinary shares may be subject to PRC tax, at a rate of 10%, in the case of non-PRC enterprises, or 20%, in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax imposed may reduce the returns on the investment in our ordinary shares.
We may not be able to obtain certain benefits under relevant tax treaties on dividends paid by our PRC subsidiaries to us through our Hong Kong subsidiary.
We are an exempted company incorporated under the laws of the Cayman Islands and as such will be dependent on dividends and other distributions on equity from our PRC subsidiaries to satisfy part of our liquidity requirements. Pursuant to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC “resident enterprise” to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, such withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC enterprise. Furthermore, the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties, which became effective in August 2015, require non-resident enterprises to determine whether they are qualified to enjoy the preferential tax treatment under the tax treaties and file the relevant report and materials with the tax authorities. There are also other conditions for enjoying the reduced withholding tax rate, according to other relevant tax rules and regulations. As of the date of the annual report, we did not record any withholding tax on the retained earnings of our subsidiaries in the PRC, as we intend to re-invest all earnings generated from our PRC subsidiaries for the operation and expansion of our business in China, and we intend to continue this practice in the foreseeable future. Should our tax policy change to allow for offshore distribution of our earnings, we would be subject to a significant withholding tax. We cannot assure you that our determination regarding our qualification to enjoy the preferential tax treatment will not be challenged by the relevant tax authority or if we will be able to complete the necessary filings with the relevant tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiaries to our Hong Kong subsidiary.
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Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing Notice of the Ministry of Finance and the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax Treatment on Enterprise Reorganization (Circular 59) and Announcement No. 7 2015 of the State Administration of Taxation-Announcement on Several Issues concerning the Enterprise Income Tax on Income from the Indirect Transfer of Assets by Non-Resident Enterprises (Circular 7) which became effective in February 2015. Under Circular 7, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. Circular 7 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.
Circular 7 extends its tax jurisdiction to not only indirect transfers but also transactions involving the transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clear criteria on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax.
According to the “Enterprise Income Tax Law of the PRC” (adopted on March 16, 2007, first amended on February 24, 2017, and further amended on December 29, 2018), if the business dealings between an enterprise and its affiliated parties do not conform to the principle of independent transactions and thus reduce the taxable income or income of the enterprise or its affiliated parties, the tax authorities have the right to adjust in accordance with reasonable methods. The cost incurred by an enterprise and its related parties in developing and accepting intangible assets or providing and receiving labor services together shall be apportioned according to the principle of the independent transaction when calculating taxable income.
Where enterprises that are controlled by resident enterprises or resident enterprises and Chinese residents in the country (region) where the actual tax burden is obviously lower than the tax rate level of China’s enterprise income tax, and profits are not distributed or are distributed at a reduced rate due to reasons other than reasonable business needs, the portion of the above profits attributable to such resident enterprises shall be included in the income of such resident enterprises for the reported period. Interest expenses incurred when the ratio of creditor’s rights investment to equity investment accepted by an enterprise from its affiliated parties exceeds the prescribed standard shall not be deducted in the calculation of taxable income. If an enterprise reduces its taxable income or income by implementing other arrangements without reasonable commercial purposes, tax authorities have the right to adjust them in accordance with reasonable methods.
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We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange, or other transactions involving the transfer of shares in our Company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation and request our PRC Subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59 and Circular 7, and may be required to expend valuable resources to comply with Circular 59 and Circular 7 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
The PRC tax authorities have the discretion under Circular 59 and Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of the investment. Although we currently have no plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under Circular 59 and Circular 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.
The Holding Foreign Companies Accountable Act, and related SEC and PCAOB actions and Nasdaq rule changes, call for additional and more stringent criteria to be applied to companies with operations in emerging markets, including China. Although our auditor is a U.S.-based firm that is subject to PCAOB inspection, we cannot assure you that these developments will not adversely affect us.
The Holding Foreign Companies Accountable Act (the “HFCAA”) was signed into law on December 18, 2020. The HFCAA requires the SEC to prohibit the securities of an issuer from being traded on a national securities exchange or in the over-the-counter market in the United States if the issuer’s auditor is not subject to inspection by the Public Company Accounting Oversight Board (the “PCAOB”) for a specified number of consecutive years because of a position taken by an authority in a foreign jurisdiction. As subsequently amended by the Consolidated Appropriations Act, 2023, the number of consecutive non-inspection years required to trigger such a trading prohibition was reduced from three years to two years. In addition, Nasdaq has adopted rules that apply additional and more stringent criteria to an applicant or listed company based on, among other things, the qualifications of the company’s auditors.
The trading prohibition under the HFCAA applies only where the PCAOB is unable to inspect or investigate an issuer’s auditor completely because of a position taken by an authority in a foreign jurisdiction. Our auditor, Wei, Wei & Co., LLP, the independent registered public accounting firm that issued the audit report included elsewhere in this Annual Report, is a U.S.-based accounting firm that is headquartered in New York and registered with the PCAOB. Our auditor conducts its audit of our consolidated financial statements in China and the United States, and it is subject to regular inspection by the PCAOB to assess its compliance with applicable professional standards, with its most recent inspection occurred in 2024. Because our auditor is (and has been) subject to PCAOB inspection, we do not currently expect to be identified as a “Commission-Identified Issuer” or to have our Class A Ordinary Shares subject to a trading prohibition under the HFCAA.
Nevertheless, we cannot assure you that Nasdaq or other regulatory authorities would not apply additional or more stringent criteria to us in connection with the audit of our financial statements, including after considering the effectiveness of our auditor’s audit procedures and quality control procedures, the adequacy of its personnel and training, or the sufficiency of its resources, geographic reach, or experience. In addition, in the event it is later determined that the PCAOB is unable to inspect or investigate our auditor completely because of a position taken by an authority in a foreign jurisdiction, trading in our Class A Ordinary Shares could be prohibited under the HFCAA and could ultimately result in a determination by a securities exchange to delist our securities. The delisting of our Class A Ordinary Shares, or the threat of their being delisted, may materially and adversely affect the value of your investment, even making it worthless.
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Trading in our securities may be prohibited under the HFCAA and, as a result, an exchange may determine to delist our securities if it is later determined that the PCAOB is unable to completely inspect or investigate our auditor because of a position taken by an authority in a foreign jurisdiction.
The HFCAA was enacted on December 18, 2020. The HFCAA states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit such shares from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. A company will be required to comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described above.
Despite having a U.S.-based auditor that is registered with the PCAOB and subject to PCAOB inspection, there are still risks to the Company and investors if it is later determined that the PCAOB is unable to completely inspect or investigate our auditor because of a position taken by an authority in a foreign jurisdiction. Such risks include, but are not limited to, prohibition on trading in our securities under the HFCAA and as a result an exchange may determine to delist our securities. If the PCAOB is unable to completely inspect or investigate our auditor, then we will engage an auditor that is U.S.-based and subject to full PCAOB inspection with all materials related to the audit of our financial statements accessible to the PCAOB. There is no guarantee, however, that any future auditor engaged by the Company would remain subject to full PCAOB inspection during the entire term of our engagement. In such case, we will engage a new, qualified and fully-inspected auditor, which may result in delaying or restating our financial statements.
It is unclear whether we will be subject to the oversight of the CAC and how such oversight may impact us. Our business could be interrupted, or we could be subject to liabilities which may materially and adversely affect the results of our operation and the value of your investment.
Pursuant to the PRC Cybersecurity Law and the Measures for Cybersecurity Censorship (the “Cybersecurity Review Measures”), if a critical information infrastructure operator purchases internet products and services that affect or may affect national security, it should be subject to cybersecurity review by the CAC. Any internet product or service that affects or may affect national security as deemed by the cybersecurity review authorities may be subject to cybersecurity review. According to the Cybersecurity Review Measures, a critical information infrastructure operator refers to any operator identified by an authority for the protection of critical information infrastructures. As of the date hereof, we have not received any notice from such authorities identifying us as a critical information infrastructure operator or requiring us to go through a cybersecurity review by the CAC.
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On July 10, 2021, the CAC publicly issued the Measures for Cybersecurity Censorship (Revised Draft for Comments) (“Draft Measures”) to collect public comments. The deadline for collecting comments was July 25, 2021. According to the Draft Measures, the scope of cybersecurity reviews is extended to data processing operators engaging in data processing activities that affect or may affect national security. The Draft Measures further require that any operator applying for listing on a foreign exchange must go through cybersecurity review if it possesses personal information of more than one million users. According to the Draft Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The review focuses on several factors, including, among others, (i) the risk of theft, leakage, corruption, illegal use or export of any core or important data, or a large amount of personal information, and (ii) the risk of any critical information infrastructure, core or important data, or a large amount of personal information being affected, controlled or maliciously exploited by a foreign government after a company is listed overseas. While the Draft Measures had been released for consultation purposes, there is still uncertainty regarding the Draft Measures as to the final content, adoption timeline or effective date, final interpretation and implementation, and other aspects. On November 14, 2021, the Cyberspace Administration of China released the Regulations on Network Data Security (draft for public comments) and accepted public comments until December 13, 2021. The draft Regulations on Network Data Security provide that data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing data. If a data processor that processes personal data of more than one million users intends to list overseas, it shall apply for a cybersecurity review. In addition, data processors that process important data or are listed overseas shall carry out an annual data security assessment on their own or by engaging a data security services institution, and the data security assessment report for the prior year should be submitted to the local cyberspace affairs administration department before January 31 of each year.
On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the Cybersecurity Review Measures (the “new Cybersecurity Review Measures”) which took effect on February 15, 2022 and replaced the original Cybersecurity Review Measures. Pursuant to the new Cybersecurity Review Measures, if critical information infrastructure operators purchase network products and services, or network platform operators conduct data processing activities that affect or may affect national security, they will be subject to cybersecurity review. A network platform operator holding more than one million users/users’ individual information also shall be subject to cybersecurity review before listing abroad. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled or maliciously used by foreign governments and the risk of network data security after going public overseas.
As confirmed by our PRC counsel, we will not be subject to cybersecurity review with the CAC after the Cybersecurity Review Measures became effective on February 15, 2022, since we currently do not have over one million users’ personal information and do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject us to the Cybersecurity Review Measures; we are also not subject to network data security review by the CAC if the Draft Regulations on the Network Data Security Administration are enacted as proposed, given that: (i) using our products and services does not require users to provide any personal information; (ii) we do not possess any personal information of users in our business operation; (iii) we do not collect data or operate crucial network facilities and information systems that affect or may affect national security or public interest and we do not anticipate that we will be collecting over one million users’ personal information or data that affects or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Security Administration Draft.
According to our PRC counsel, no relevant laws or regulations in the PRC explicitly require us to seek approval from the CSRC for our overseas listing plan. As of the date of this Annual Report, we and our PRC Subsidiaries have not received any inquiry, notice, warning, or sanctions regarding our planned overseas listing from the CSRC or any other PRC governmental authorities. However, since these statements and regulatory actions by the PRC government are newly published and official guidance and related implementation rules have not been issued, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. or other foreign exchange. The Standing Committee of the National People’s Congress, or the SCNPC, or other PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that requires our company or any of our subsidiaries to obtain regulatory approval from Chinese authorities before offering in the U.S. In other words, although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly; our ability to offer, or continue to offer, securities to investors would be potentially hindered and the value of our securities might significantly decline or be worthless, by existing or future laws and regulations relating to its business or industry or by intervene or interruption by PRC governmental authorities, if we or our subsidiaries (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not required, (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future, or (iv) any intervention or interruption by PRC governmental with little advance notice.
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If the custodians or authorized users of controlling non-tangible assets of our company, including our corporate chops and seals, fail to fulfil their responsibilities, or misappropriate or misuse these assets, our business and operations could be materially and adversely affected.
Under PRC law, legal documents for corporate transactions are executed using the chops or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant branch of the Administration. Although we usually utilize chops to enter into contracts, the designated legal representatives of our WFOE, and their subsidiaries have the apparent authority to enter into contracts on behalf of these entities without chops and bind the entities. The designated legal representatives of our PRC entities have signed employment agreements with us or these PRC entities under which they agree to abide by various duties. In order to maintain the physical security of our chops and chops of our PRC entities, we generally store these items in secured locations accessible only by the authorized personnel in the administrative department of each of our subsidiaries. Although we monitor such authorized personnel, there is no assurance such procedures will prevent all instances of abuse or negligence. Accordingly, if any of our authorized personnel misuse or misappropriate our corporate chops or seals, we could encounter difficulties in maintaining control over the relevant entities and experience significant disruption to our operations. If a designated legal representative obtains control of the chops in an effort to obtain control over our PRC entities, we or our PRC entities would need to pass a new shareholder or board resolution to designate a new legal representative and we would need to take legal action to seek the return of the chops, apply for new chops with the relevant authorities, or otherwise seek legal redress for the violation of the representative’s fiduciary duties to us, which could involve significant time and resources and divert management attention away from our regular business. In addition, the affected entities may not be able to recover corporate assets that are sold or transferred out of our control in the event of such a misappropriation if a transferee relies on the apparent authority of the representative and acts in good faith.
A downturn in the Hong Kong, China or global economy, and economic and political policies of China could materially and adversely affect our business and financial condition.
The recent outbreak of war in Ukraine has already affected global economic markets, and the uncertain resolution of this conflict could result in protracted and/or severe damage to the global economy. Russia’s recent military interventions in Ukraine have led to, and may lead to, additional sanctions being levied by the U.S., European Union and other countries against Russia. Russia’s military incursion and the resulting sanctions could adversely affect global energy and financial markets and thus could affect our client’s business and our business, even though we do not have any direct exposure to Russia or the adjoining geographic regions. The extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in this section. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond their control. Prolonged unrest, intensified military activities, or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on the operations, results of operations, financial condition, liquidity and business outlook of our business.
Changes in U.S. and Chinese regulations or in relations between the U.S. and China may adversely impact our business, our operating results, our ability to raise capital and the market price of our Class A Ordinary Shares. Any such changes may take place quickly and with very little notice.
The U.S. government, including the SEC, has made statements and taken certain actions that led to changes to U.S. and international relations, and will impact companies with connections to the U.S. or China. The SEC has issued statements primarily focused on companies with significant China-based operations, such as us, primarily because of the recognition that, according to the Financial Times, over the past 20 years, not one Chinese company (listed in the US) has been compliant with US federal securities laws. With the passage of the HFCAA and the ensuing SEC rules, the SEC and CSRC are currently negotiating a compromise. If the parties do not come to an agreement, more than 270 companies could be delisted from U.S. stock markets. Even though our Company may be exempt from delisting at present, it is possible that our filings with the SEC may be subject to enhanced review by the SEC and this additional scrutiny could affect our ability to effectively raise capital in the U.S. If any new legislation, executive orders, laws and/or regulations are implemented, if the U.S. or Chinese governments take retaliatory actions due to the recent U.S.-China tensions or if the Chinese government exerts more oversight and control over securities offerings that are conducted in the U.S., such changes could have an adverse effect on our business, financial condition and results of operations, our ability to raise capital and the market price of our Class A Ordinary Shares.
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Risks Related to Our Class A Ordinary Shares
Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class B Ordinary Shares may view as beneficial.
We have adopted a dual-class voting structure consisting of Class A Ordinary Shares and Class B Ordinary Shares. Based on our dual-class voting structure, holders of Class A Ordinary Shares are entitled to one (1) vote per Class A Ordinary Share in respect of matters requiring the votes of shareholders, while holders of Class B Ordinary Shares are entitled to fifteen (15) votes per Class B Ordinary Share. Due to the disparate voting powers associated with our two classes of ordinary shares, our directors and officers hold in aggregate approximately 68.24% of voting power of our Company as of the date of this Annual Report. Their interests may not coincide with your interests, and it may make decisions with which you disagree, including decisions on important topics such as the composition of the board of directors, compensation, management succession, and our business and financial strategy.
The trading price of our Class A Ordinary Shares is likely to be volatile, which could result in substantial losses to investors.
Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent IPO, especially among companies with relatively smaller public floats. The trading price of our Class A Ordinary Shares is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the U.S. In addition to market and industry factors, the price and trading volume for the Class A Ordinary Shares may be volatile for factors specific to our own operations, including the following:
| ● | variations in our revenues, earnings, cash flow; | |
| ● | fluctuations in operating metrics; | |
| ● | announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; | |
| ● | announcements of new solutions and services and expansions by us or our competitors; | |
| ● | termination or non-renewal of contracts or any other material adverse change in our relationships with our key customers or strategic investors; | |
| ● | changes in financial estimates by securities analysts; | |
| ● | detrimental negative publicity about us, our competitors or our industry; | |
| ● | additions or departures of key personnel; | |
| ● | release of lockup or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; | |
| ● | regulatory developments affecting us or our industry; and | |
| ● | potential litigation or regulatory investigations. |
Any of these factors may result in large and sudden changes in the volume and price at which the Class A Ordinary Shares will trade. Furthermore, the stock market in general experiences price and volume fluctuations that are often unrelated or disproportionate to the operating performance of companies like us. These broad market and industry fluctuations may adversely affect the market price of our Class A Ordinary Shares. Volatility or a lack of positive performance in our Class A Ordinary Shares price may also adversely affect our ability to retain key employees.
In the past, shareholders of public companies have often brought securities class action suits against companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
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We may experience extreme share price volatility, including any stock-run up, unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares.
In addition to the risks addressed above, our Class A Ordinary Shares may be subject to extreme volatility that is seemingly unrelated to the underlying performance of our business. In particular, our Class A Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices, given that we will have relatively small public floats. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects.
Holders of our Class A Ordinary Shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Class A Ordinary Shares. As a result of this volatility, investors may experience losses on their investment in our Class A Ordinary Shares. Furthermore, the potential extreme volatility may confuse the public investors of the value of our Class A Ordinary Shares, distort the market perception of our share price and our company’s financial performance and public image, negatively affect the long-term liquidity of our Class A Ordinary Shares, regardless of our actual or expected operating performance. If we encounter such volatility, including any rapid share price increases and declines seemingly unrelated to our actual or expected operating performance and financial condition or prospects, it will likely make it difficult and confusing for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares and understand the value thereof.
If securities or industry analysts cease to publish research or reports about our business, or if they adversely change their recommendations regarding our Class A Ordinary Shares, the market price for the Class A Ordinary Shares and trading volume could decline.
The trading market for our Class A Ordinary Shares will be influenced by research or reports that industry or securities analysts publish about our Class A Ordinary Shares would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our Class A Ordinary Shares to decline.
We currently do not expect to pay dividends in the foreseeable future and you must rely on price appreciation of our Class A Ordinary Shares for return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our Class A Ordinary Shares as a source for any future dividend income.
Our board of directors (“BOD”) has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. Under Cayman Islands law, a Cayman Islands exempted company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our BOD decides to declare and pay dividends, the timing, amount, and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our BOD. Accordingly, the return on your investment in our Class A Ordinary Shares will likely depend entirely upon any future price appreciation of our Class A Ordinary Shares. There is no guarantee that our Class A Ordinary Shares will appreciate in value or even maintain the price at which you purchased the Class A Ordinary Shares. You may not realize a return on your investment in our Class A Ordinary Shares and you may even lose your entire investment in our Class A Ordinary Shares.
You may experience dilution of your holdings due to the inability to participate in a rights offering.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of Class A Ordinary Shares may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act (as revised) of the Cayman Islands (the “Cayman Islands Companies Act”) and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors owed to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors owed to us under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the U.S. In particular, the Cayman Islands different body of securities laws than the U.S. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have the standing to initiate a shareholder derivative action in a federal court of the U.S.
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Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than the memorandum and articles of association and any special resolutions passed by such companies, and the registers of mortgages and charges of such companies) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our amended and restated memorandum and articles of association that will become effective immediately prior to completion of our recent offering to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of our board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the U.S. For a discussion of significant differences between the provisions of the Cayman Islands Companies Act and the laws applicable to companies incorporated in the U.S. and their shareholders, see “Description of Share Capital—Our Post-Offering Memorandum and Articles of Association—Differences in Corporate Law.”
We have conducted equity financings and issued additional Class A Ordinary Shares and we may continue to raise capital through further issuances; these issuances are dilutive and have contributed to significant volatility in the price of our Class A Ordinary Shares.
Since our initial public offering, we have raised capital through equity financings and have issued additional Class A Ordinary Shares. We completed our initial public offering in October 2024 and listed our ordinary shares on the Nasdaq Capital Market, raising approximately US$4.8 million in net proceeds. In December 2025, we conducted a private placement of our Class A Ordinary Shares raising $30 million in gross proceeds. We subsequently established an at-the-market equity offering program under which we may sell Class A Ordinary Shares having an aggregate offering price of up to US$60 million from time to time through a sales agent. In August 2026, we conducted a private placement of our Class B Ordinary Shares, which are convertible into Class A Ordinary Shares, to certain of our directors. We may in the future continue to seek to raise capital through the issuance of Class A Ordinary Shares or securities convertible into or exercisable for Class A Ordinary Shares, whether under this program or otherwise.
Any issuance of additional Class A Ordinary Shares, or securities convertible into or exercisable for such shares, will dilute the percentage ownership and voting and economic interests of existing holders, and sales of shares into the market, or the perception that such sales may occur, could depress the trading price of our Class A Ordinary Shares. The number of shares we may issue, and the prices at which we may issue them, will depend on market conditions and other factors, and issuances at prices below the price paid by existing holders would further dilute those holders.
Our Class A Ordinary Shares have experienced significant price volatility during the reporting period. In November 2025, Nasdaq notified us that we were not in compliance with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2) because the closing bid price of our shares had been below US$1.00 per share for more than consecutive business days, and in order to regain compliance we effected a 100-for-1 share consolidation in March 2026, following which Nasdaq confirmed in April 2026 that we had regained compliance. On August 3, 2026, we effected another combination of all of the Company’s authorized and issued Class A ordinary shares and Class B ordinary shares at a ratio of 1-for-200, which demonstrated our proactive approach to ensure our continued compliance with the minimum bid price requirement. A share consolidation may not result in a sustained increase in our share price, and the price of our Class A Ordinary Shares following a consolidation may continue to fluctuate significantly or decline. The combination of our capital-raising activities, additional share issuances, changes to our share capital, and general market conditions has contributed, and may continue to contribute, to substantial fluctuations in the trading price of our Class A Ordinary Shares, which could result in substantial losses to investors and could impair our ability to raise capital on acceptable terms in the future.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands exempted company and substantially all of our assets are located outside of the U.S. All of our current operations are conducted in China. In addition, substantially all of our current directors and officers are nationals and residents of countries other than the U.S. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the U.S. in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
As a “controlled company” under the rules of The Nasdaq Capital Market, we may choose to exempt our Company from certain corporate governance requirements that could have an adverse effect on our public shareholders.
Our directors and officers beneficially own a majority of the voting power of our issued and outstanding ordinary shares. Under the Rule 4350(c) of The Nasdaq Capital Market, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in The Nasdaq Capital Market Rules, and the requirement that our compensation and nominating and corporate governance committees consist entirely of independent directors. Although we do not intend to rely on the “controlled company” exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future. If we elect to rely on the “controlled company” exemption, a majority of the members of our Board of Directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, during any time while we remain a controlled company relying on the exemption and during any transition period following a time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of The Nasdaq Capital Market corporate governance requirements. Our status as a controlled company could cause our ordinary shares to be less attractive to certain investors or otherwise harm our trading price.
We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.
As a Company with less than US$1.235 billion in revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. Therefore, we may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s ICFR and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies. As a result, if we elect not to comply with such reporting and other requirements, in particular the auditor attestation requirements, our investors may not have access to certain information they may deem important.
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The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We do not plan to “opt out” of such exemptions afforded to an emerging growth company. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the U.S. that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; | |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; | |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; | |
| ● | the selective disclosure rules by issuers of material nonpublic information under Regulation FD; and | |
| ● | certain audit committee independence requirements in Rule 10A-3 of the Exchange Act. |
We have incurred increased costs as a result of being a public company.
We are a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, impose various requirements on the corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly.
As a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the number of additional costs we may incur or the timing of such costs.
In addition, as an emerging growth company, we will still incur expenses in relation to management’s assessment according to the requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002. After we are no longer an “emerging growth company,” we expect to incur additional significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC.
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We may be deemed to be an investment company under the Investment Company Act of 1940 as a result of our loans and investments, which could require us to register as an investment company, impose substantial restrictions on our operations, render our contracts unenforceable, and expose us to regulatory enforcement and investor rescission claims.
We have extended, and continue to hold, a significant amount of loans receivable, and we have made and expect to continue to make investments outside our core operating business. As of June 30, 2026, our net loans receivable totaled approximately $37.76 million, representing approximately 59% of our total consolidated assets of approximately $63.67 million. These loans consist of advances to various third parties bearing annual interest of between 3% and 5%. The most significant of these is a loan with an outstanding balance of approximately $30.8 million (originally RMB 210 million) that our subsidiary extended to a third party in December 2025 at an annual interest rate of 5%, with a term running to December 31, 2027. the rights and obligations under this loan were subsequently transferred to a new third-party debtor, Jiangyin Gushan Town Yuhua Aluminum Industry Co., Ltd., at an annual interest rate of 3%. We have also extended a number of smaller third-party loans, including loans to Well Fancy Development Ltd., Hamasen International Consultancy Limited, Libra Appraisal Limited, Giant Image Limited, OIC Corporate Services Limited, Leiluo Intelligent Technology (Jiangsu) Co., Ltd., and Rapid Proceed Limited. Separately, we have engaged in investment-related activities, including a refundable $2.0 million advance to a third-party investment service provider to identify, evaluate, and invest in target companies, the holding of time deposits, and a pending agreement to acquire a 50.1% controlling equity interest in Jiangsu Xinsheng Synthetic Materials Co., Ltd. for a combination of our Class A ordinary shares and $23.0 million in cash.
The Investment Company Act of 1940 (the “Investment Company Act”) defines an “investment company” to include any issuer that is, holds itself out as, or proposes to be engaged primarily in the business of investing, reinvesting, or trading in securities. In addition, under the statute’s objective asset test, an issuer that is engaged in the business of investing, owning, holding, or trading in securities and that owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets on an unconsolidated basis is an investment company. “Investment securities” is defined broadly to include substantially all securities other than government securities, securities of employees’ securities companies, and securities of certain majority-owned, non-investment-company subsidiaries. Because loans and other instruments we hold, together with our other investments, could be characterized as securities, there is a risk that these assets could cause us to be viewed as owning investment securities in excess of the 40% threshold, or otherwise to be engaged in the business of investing in securities. We are an operating company engaged primarily in the design, manufacture, and sale of commercial kitchen equipment, and we do not intend to be, or to hold ourselves out as being, engaged primarily in the business of investing in securities. However, the volume and concentration of our loans receivable and investments could subject our status to challenge.
Whether we are deemed an investment company would depend on a fact-intensive analysis, and the Investment Company Act and the rules under it provide certain exclusions and safe harbors that turn on factors such as the nature of our business, assets, income, and public representations, including for issuers primarily engaged in a non-investment business, and under asset- and income-based tests. There can be no assurance that we would qualify for any of these exclusions or safe harbors, and their availability depends on facts that may change as our asset mix and sources of income change over time.
If we were deemed to be an investment company and were unable to rely on an exclusion or safe harbor, the consequences to us would be severe. An unregistered investment company is prohibited from using the mails or any instrumentality of interstate commerce to offer, sell, or deliver its securities or the securities of others, to purchase or acquire securities, or to “engage in any business in interstate commerce”, which would be a prohibition that would effectively bar us from conducting our ordinary business and capital-raising activities. In addition, any contract that is made, or whose performance involves, a violation of the Investment Company Act is unenforceable by either party unless a court finds that enforcement would produce a more equitable result, and a court may not deny rescission at the instance of a party to a performed contract absent similar equitable findings. As a result, contracts we have entered into, including securities we have issued, could be rendered voidable or unenforceable, and investors could seek to rescind their purchases and recover their investments. We would also become subject to SEC enforcement action, which could result in injunctions, the appointment of a receiver, and civil penalties. Should we instead register as an investment company, we would become subject to extensive substantive regulation governing our capital structure, governance, custody of assets, transactions with affiliates, and financial reporting requirements that are fundamentally incompatible with the operation of our kitchen-equipment business and with our status as a foreign private issuer. Compliance with, or a determination of noncompliance with, these requirements could, as it has for other operating companies forced into investment-company status, precipitate the resignation of our auditor, an inability to prepare and file required periodic reports, and the threatened delisting of our securities. Any of these outcomes would materially and adversely affect our business, financial condition, results of operations, growth prospects and the value of our securities.
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ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of The Company
Corporate History
Li Bang International Corporation Inc. (“Li Bang International”, “the Company”, “we”, “us”, “our” and similar terms) was incorporated in the Cayman Islands on July 8, 2021. As of the date of this annual report, the authorized share capital of the Company is US $35,000 divided into 3,150,000,000 Class A Ordinary Shares of par value $0.00001 each and 350,000,000 Class B Ordinary Shares of par value $0.00001 each. The Company’s shareholders approved to reduce the par value of all of our issued and unissued Class A Ordinary Shares and Class B Ordinary Shares at the extraordinary general meeting held on September 22, 2026 from US$0.002 per share to US$0.00001 per share, and the Company has completed the registration of such par value reduction with the Registrar of Companies of the Cayman Islands as of the date of this annual report. The Company is a holding company and is currently not actively engaging in any business. We conduct all of our operations in China through our Operating Subsidiaries in China.
On July 8, 2021, the Company’s shareholders approved a Memorandum and Articles of Association, pursuant to which 500,000,000 shares were authorized as ordinary shares with a nominal or par value of $0.0001 per share, and the Company issued 10,000 ordinary shares. On July 15, 2022, in connection with the Reorganization (defined below), the Company issued an additional 16,990,000 ordinary shares which was treated as a stock split.
On July 26, 2021, Li Bang International formed its wholly owned subsidiary, Li Bang International Hong Kong Holdings Limited (“Li Bang HK”) in Hong Kong. On August 18, 2021, Li Bang HK formed its wholly owned subsidiary, Jiangsu Li Bang Intelligent Technology Co., Limited (“Li Bang Intelligent Technology” or “WFOE”) in PRC.
Wuxi Li Bang Kitchen Appliance Co., Limited (“Wuxi Li Bang”) is a limited liability company incorporated on May 18, 2007, under the laws of China. Suzhou Deji Kitchen Engineering Co., Limited (“Suzhou Deji”) is a limited liability company incorporated on April 8, 2010, under the laws of China. Li Bang Kitchen Appliance Co., Limited (“Li Bang Kitchen Appliance”) is a limited liability company incorporated on March 22, 2019, under the laws of China. On December 2, 2019, Li Bang Kitchen Appliance established a subsidiary in China, Yangzhou Bangshijie Kitchen Appliance Co., Ltd. (“Yangzhou Bangshijie”). On November 25, 2015, Wuxi Li Bang established one subsidiary in China, Nanjing Bangshijie Kitchen Appliance Co., Ltd. (“Nanjing Bangshijie”). In March 2019, Wuxi Li Bang transferred its ownership in Nanjing Bangshijie to Li Bang Kitchen Appliance. Suzhou Deji, Wuxi Li Bang, Li Bang Kitchen Appliance, Yangzhou Bangshijie and Nanjing Bangshijie are our operating entities (collectively, the “Operating Subsidiaries”).
A reorganization of Li Bang International’s legal entity structure (the “Reorganization”) was completed in 2022 to facilitate the Company’s initial public offering. The Reorganization involved the incorporation of Li Bang International and Li Bang Intelligent Technology, and the transfer of the 100% equity interest of Li Bang Kitchen Appliance, Suzhou Deji and Wuxi Li Bang. Consequently, Li Bang International, through its subsidiary Li Bang HK, directly controls Li Bang Kitchen Appliance, Suzhou Deji and Wuxi Li Bang, and became the ultimate holding company of all other entities mentioned above. The Reorganization was accounted for as a recapitalization among entities under common control since the controlling shareholder, Feng Huang, controlled these entities before and after the Reorganization. The Company’s consolidation was accounted for at historical cost and prepared on the basis as if the aforementioned transactions became effective as of the beginning of the first period presented in our consolidated financial statements.
On October 23, 2024, Li Bang International completed its IPO and issued 1,520,000 ordinary shares with a par value of US$0.0001 per share and at $4.00 per share, with gross proceeds of $6.08 million. On November 14, 2024, Li Bang International issued 228,000 additional shares for the over-allotment, with par value of US$0.0001 per share and at $4.00 per share, with gross proceeds of $0.91 million. After deducting underwriting discounts, offering expenses, the Company received total net proceeds of approximately $5.23 million.
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On June 27, 2025, our shareholders approved an amendment and restatement of our memorandum and articles of association to adopt a dual-class share structure by:
| (a) | re-designating, on a one-for-one basis, all of the then issued and outstanding Ordinary Shares into Class A ordinary shares of a par value of US$0.0001 each (“Class A Ordinary Shares”), each having one (1) vote per share and the other rights attached to it as set out in the Company’s amended and restated memorandum and articles of association (the “Amended and Restated M&A”); | |
| (b) | re-designating, on a one-for-one basis, 50,000,000 of the authorized but unissued Ordinary Shares into Class B ordinary shares of a par value of US$0.0001 each (“Class B Ordinary Shares”), each having fifteen (15) votes per share and the other rights attached to it as set out in the Amended and Restated M&A; and | |
| (c) | re-designating, on a one-for-one basis, all of the remaining authorized but unissued Ordinary Shares into Class A Ordinary Shares. |
Following the adoption of the dual-class share structure, we intend to repurchase an aggregate of 15,436,000 Class A ordinary shares held by Maple Huang Holdings Limited and Funa Lee Holdings Limited and issue an equal number of new Class B Ordinary Shares to such shareholders in consideration therefor. Mr. Feng Huang, our Chief Executive Officer and Chairman of the Board of Directors, has the voting and dispositive power of all the shares held by Maple Huang Holdings Limited. Ms. Funa Li, our director and the spouse of Mr. Huang, has the voting and dispositive power of all the shares held by Funa Lee Holdings Limited. Mr. Huang and Ms. Li will beneficially own all of our outstanding Class B Ordinary Shares and control a vast majority of our total voting power following completion of the aforementioned repurchase and issuance transactions.
The Class A ordinary shares began trading on The Nasdaq Capital Market on November 21, 2025, under the same symbol “LGBJ” and the same CUSIP number of G5480M102. The Class B ordinary shares are not be listed and traded on The Nasdaq Capital Market or any other exchange.
On December 30, 2025, our shareholders approved one or more share consolidations of our authorized and issued ordinary shares at ratios ranging from 1-for-5 to 1-for-5,000, an increase in our authorized share capital to up to US$1.75 billion, and the adoption of an amended and restated memorandum and articles of association to reflect such changes. Pursuant to such shareholder approval, the Company effected a 1-for-100 share consolidation on March 27, 2026, with every 100 issued and outstanding Ordinary Shares of par value of US$0.0001 each consolidated into 1 issued and outstanding Ordinary Share of par value of US$0.01 each.
On April 30, 2026, our shareholders approved, among others, (i) increasing our authorized share capital to $35,000,000 divided into 3,150,000,000 class A ordinary shares of par value of $0.01 each and 350,000,000 class B ordinary shares of par value of $0.01 each, (ii) a share capital reduction, subdivision and cancellation, pursuant to which the par value of each issued and outstanding Class A ordinary share and Class B ordinary share was reduced from US$0.01 to US$0.00001, resulting in an authorized share capital of US$35,000 divided into 3,150,000,000 Class A ordinary shares of par value US$0.00001 each and 350,000,000 Class B ordinary shares of par value US$0.00001 each. In connection with these changes, our shareholders adopted amended and restated memoranda of association to reflect the share capital increase and the subsequent reduction and reorganization. In addition, our shareholders authorized the board of directors to effect, in its sole discretion within two years following the meeting, a consolidation of our issued and unissued share capital at a ratio of one-for-two hundred (200).
On August 3, 2026, the Company effectuated the 1-for-200 share consolidation of its issued and unissued share capital pursuant to the shareholders’ approval on April 30, 2026, and accordingly the Company’s authorized share capital became $35,000 divided into 15,750,000 Class A ordinary shares and 1,750,000 Class B ordinary shares each with par value of $0.002. The memorandum of association was amended and restated to reflect such 200-for-1 share consolidation.
On September 22, 2026, the Company’s shareholders approved an increase in the Company’s authorized share capital from US$35,000, comprising 15,750,000 Class A ordinary shares and 1,750,000 Class B ordinary shares, each with a par value of US$0.002, to US$7,000,000, comprising 3,150,000,000 Class A ordinary shares and 350,000,000 Class B ordinary shares, each with a par value of US$0.002 (the “Share Capital Increase”), and a subsequent share capital reorganization reducing the par value of each authorized ordinary share, including all issued and outstanding shares, to US$0.00001 (the “Share Capital Reorganization”). Following the completion of the Share Capital Reorganization, the authorized share capital became US$35,000, comprising 3,150,000,000 Class A ordinary shares and 350,000,000 Class B ordinary shares, each with a par value of US$0.00001. The shareholders also approved an amended and restated memorandum of association reflecting these changes. As of the date of this annual report, the Company has completed all required filings relating to the Share Capital Reorganization, and the memorandum of association was amended and restated to reflect such Share Capital Reorganization. The shareholders further approved, subject to completion of the foregoing steps and necessary governmental and regulatory consents, the Company’s deregistration in the Cayman Islands and continuation as a British Virgin Islands business company (the “Migration”), together with the adoption of a BVI-compliant memorandum and articles of association effective upon the Migration. As of the date of this report, the Company has not completed the Migration.
Corporate Information
Our principal executive offices are located at No. 190 Xizhang Road, Gushan Town, Jiangyin City, Jiangsu Province, People’s Republic of China. The telephone number of our principal executive offices is +86 0510-81630030. Our registered office in the Cayman Islands is located at the offices of Ascentium (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc. located at 122 East 42nd Street, 18th Floor, New York, NY 10168. Our corporate website is https://ir.libangco.cn. The information contained in our website is not a part of this annual report.
The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC.
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4.B. Business Overview
Li Bang International Corporation Inc. (“Li Bang International”, “the Company”, “we”, “us”, “our” and similar terms) was incorporated in the Cayman Islands on July 8, 2021. We conduct all of our operations in China through our Operating Subsidiaries in China. The main business of our Operating Subsidiaries is to design, develop, produce and sell stainless steel commercial kitchen equipment in China under our own “Li Bang” brand. Additionally, our Operating Subsidiaries provide customers with comprehensive services, from commercial kitchen design in the early stage to equipment installation and after-sales maintenance.
Our production plant in China is more than 10,000 square meters. We use modern production facilities and state-of-the-art procedures. Furthermore, as a new technology enterprise in Jiangsu Province, we fall within the scope of advanced technology enterprises that benefit from key national support for residential companies that employ continuous R&D activities and transformational technical achievements to form core independent intellectual property rights. On this basis, we carry out our business activities within the PRC and Li Bang Kitchen Appliance Co., Limited, one of our PRC subsidiaries, enjoys the advantage of a 15% preferential corporate income tax rate. Our Company approaches technology R&D as the keystone principle to obtain new national invention patents, utility model patents, and for passing a number of system certifications. We have earned a great reputation in the industry by having our products featured in the Government Energy-Saving Equipment Catalog. The future of R&D in the manufacturing sector of commercial kitchen appliance equipment will trend toward automation, scale, service integration, intelligence, energy conservation, and environmental protection, and we expect our market prospects will be broader.
Our Operating Subsidiaries mainly undertake projects of middle-and high-end customer groups by bidding on contracts. Our customer base consists of international hotels, companies, public institutions, educational institutions, hospitals, and other facilities. Our Operating Subsidiaries provide customized design solutions for different types of customer groups. In addition, our Operating Subsidiaries have the qualification certificate of professional engineering construction and installation so that our Operating Subsidiaries can provide independent installation services.
Our Operating Subsidiaries sell products and provide services under our own “Li Bang” brand, and our income comes from these sales, of which installation and after-sales services do not separately generate revenue. Our Operating Subsidiaries have established sustainable business relationships with clients in Shanghai, Jiangsu and Zhejiang by setting up branches and subsidiaries to provide after-sales services for local projects.
At the same time, our Operating Subsidiaries always pay special attention to the extension of services after the delivery of commercial kitchen equipment with our existing clients. Our Operating Subsidiaries vigorously promote our after-sales service module, providing technical consultation, training and guidance, post-sale upgrades, and other comprehensive supporting services to increase customer loyalty. The reputation we foster by doing so is conducive to enlarging our client base through gaining new customers.
Our Operating Subsidiaries are committed to making innovative and high-quality kitchen appliance products, and our Operating Subsidiaries are striving to become a first-class commercial kitchen appliance manufacturer in China. Our goal is to develop into a household name brand synonymous with the products we manufacture.
Our Products and Services
Our Operating Subsidiaries independently research, develop and produce stainless commercial kitchen appliances that include complete sets of kitchen equipment, cooking machinery, food machinery, hotel supplies, kitchen accessories, and so on. At the same time, our Operating Subsidiaries provide comprehensive services from early-stage design of commercial kitchen appliances to equipment installation and after-sales maintenance.
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Our products
Our Operating Subsidiaries offer a range of commercial kitchen accessories covering steaming, cooking, baking, frying, disinfection, conditioning, refrigeration, and so on, in 13 series with more than 80 varieties, as well as stainless steel kitchen equipment, cooking and food preparation instruments, hotel supplies, and kitchen appliance accessories of more than 300 varieties. These products are used by a wide variety of customers such as government, private business, and public institutions. Additionally, our Operating Subsidiaries customize special products according to any customer’s project needs. Our main products are categorized as follows:
Cookers
Our cookers include stoves, stir-fry stoves, steaming cabinets, and soup pots which are used in all kinds of commercial kitchens. Our products are certified by the China Quality Certification Center CQC for energy efficiency, environmental protection and safety, and meet all food contact standards. Our energy-saving steam cabinets and energy-saving gas steam rice boxes were certified as high-tech products by the Jiangsu Provincial Department of Science and Technology in 2017 and 2016, respectively. In November 2025, we obtained the High and New Technology Enterprise Certificate and provincial-level recognition as a Specialized, Refined, Distinctive and Innovative Enterprise from Jiangsu Province.
At present, our core products under production are:
| ● | Intelligent stoves made of stainless-steel board that can be utilized in large catering enterprises, the food processing industry, and canteens of various scales. They are equipped with intelligent controllers and displays. With soft key ignition (to turn on by clicking on the display button to select fire, the cooking process can be controlled by the system automatically after parameters are set) and a multi-position magnetic switch that controls the import of fire and fan and proportional valve, full and stable combustion can be ensured, and the requirements proposed by the national quality supervision and inspection center on product thermal efficiency can be met. Our electromagnetic stoves have been equipped with high-power core sets with fault alarm function. Furthermore, fan operation, gas leakage, ignition, and main-board temperature can be displayed in real time on the display. | |
| ● | Intelligent pressure cookers and intelligent soup cookers are widely used in catering, food processing and other fields. When designing these products, our R&D team pays attention to the pressure sensor, touch screen, liquid level probe, safety valve, and other intelligent components. Our products have one-button releasing and reset functions, with no need for manual operation. In addition, users can set the cooking time and firepower with the touch screen, which can improve product safety, environmental performance, and convenience of operation for catering industry users. |
Fume Emission and Fresh Air Supply Pipe Systems
Fume emission and fresh air supply pipe systems include a fume purifier, fume hood, gas collection hood, and other products. Our oil smoke purification all-in-one equipment obtained the CEP certification of China environmental protection products in 2020 and is in line with the technical requirements of the catering industry for equipment. The fume hood, purification system, and ventilation system are integrated into one piece of equipment to deliver such system functions as fume filtration with negative pressure, particle absorption, and fume discharge, to solve the fume problem in kitchens and clean the kitchen environment.
Our products are suitable for all kinds of commercial kitchens of various scales with such advantages as a flexible structure, energy efficiency, efficient purification, simple maintenance, and so on, and conform to the national industry standards for fume purification.
Other Core Products
Our waste processor is integrated with a crushing system, transmission system, dehydration system, and detection system, and equipped with a shell and frame made of food grade stainless steel. This product is suitable for all kinds of canteen kitchens for crushing and dewatering kitchen waste. The advantages of this product are the centrifugal grinder, the vacuum flexible suction and drainage pump, the drum centrifugal dehydration, the detection system, and other functions that are independently developed by our Company. Connected to the oil and water separator, our product can also effectively alleviate the environmental problems caused by large amounts of kitchen waste.
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Other core products include dining vans, stainless steel grease traps, kitchen waste processors, and plate recycling lines.
Our services
Design and Installation
Our Operating Subsidiaries are dedicated to providing top-line commercial kitchen appliances for governments, enterprises, public institutions, schools, hospitals and hotels. During the planning process for kitchen design and construction, our Operating Subsidiaries customize personalized solutions for each individual kitchen according to factors such as catering use and business scope, cuisine and diet structure, construction scale, investment status, property leasing status, building structure, environmental protection, energy conservation and emissions reduction, working process, use efficiency, kitchen equipment selection, food hygiene, epidemic prevention, and production-related laws and regulations.
In the early stages of a project, our Operating Subsidiaries will conduct a demand analysis to learn about the type of project and the customer’s investment intentions and operation and managerial requirements. Using the materials provided by the customer and their kitchen standards, our Operating Subsidiaries will take into consideration cultural aspects of local food and discuss with the customer the demands and processes for the kitchen facility and related equipment, and, through this, provide a complete kitchen concept design. According to the auditor and the framework determined for the kitchen, our Operating Subsidiaries will consider energy conservation and emission reduction requirements for design optimization, provide a technical process and equipment configuration plan for each kitchen function room, and assist customers in passing their inspections in accordance with the requirements of local health, epidemic prevention, and environmental protection departments.
After the customer reviews and approves the preliminary design, our Operating Subsidiaries will create a detailed mechanical and electrical graphic design. In this process, our Operating Subsidiaries create and provide a full range of kitchen drawings. Next, after the customer reviews and approves the detailed design, our Operating Subsidiaries will purchase materials according to the requirements for kitchen equipment in the documents and prepare for the installation of energy-saving items according to the construction and design drawings. Upon the completion of their kitchen’s physical construction, our Operating Subsidiaries install the equipment according to agreed-upon plan. Finally, our Operating Subsidiaries test all of the equipment they installed and provide written reports to the customer and organize the relevant operational training to ensure that the customer can master the basic operation and use of the equipment.
After-sales Services
We follow the business principle of “satisfying clients” and the service idea of “meeting customers’ rights and interests” to provide professional and excellent after-sales services for both existing. Our professional after-sales service team can provide on-site installation and maintenance services within 72 hours. According to the contracts, the customers do not have options to purchase this service separately, and this promised warranty does not provide the customers with a service in addition to the assurance that the product complies with agreed-upon specifications. The after-sales services are not considered a performance obligation and are accounted for as an assurance warranty. Customers do not need to pay for these services separately. Our service ability has reached the five-star level of the domestic trade standard of “Commodity After-Sales Service Evaluation System.” Given the fact that commercial kitchen appliances are susceptible to natural wear and tear, Our Operating Subsidiaries have presently established branch offices and subsidiaries in Nanjing, Suzhou, Shanghai, Yangzhou for after-sales services. Moving forward, Our Operating Subsidiaries plan to establish an independent after-sales maintenance department specializing in our industry to build a complete after-sales service system. Our Operating Subsidiaries have always been committed to creating advanced and perfected commercial kitchen products with a strict quality control system and an excellent after-sales service system and will continue to do so in the future.
Seasonality
The nature of our business does not appear to be affected by seasonal variations.
Production
Our Operating Subsidiaries have a production base of more than 10,000 square meters in Jiangyin with modern production facilities and mature and scientific operation procedures.
Our Operating Subsidiaries have adopted a production model of determining production based on sales and keeping appropriate inventory; that is, our Operating Subsidiaries make production plans and purchase raw materials and supporting parts according to customer needs and carry out production according to the Company’s internal control and planning process. Our commerce department is responsible for contact with customers. After obtaining the bid-winning notice, our Operating Subsidiaries send the quote and drawings to our design department. The design department makes 3D autocad drawings according to the above-mentioned bid-winning documents, and the purchasing department obtains the relevant information needed to purchase parts and equipment. The production department then makes the production plan according to the delivery date, quantity, model, and other requirements and the supply department makes the necessary purchases accordingly. Finally, the production department organizes and arranges for the production and finishes the production within the planned period.
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The warranty period of our products is 1 to 5 years, depending on the contracts signed with our customers. Our Operating Subsidiaries accept product returns and exchange requests if the design size is not consistent with the on-site size or some small equipment specifications and models need to be changed. Due to our strict product quality control process, there have been no quality disputes, claims, or lawsuits caused by quality problems.
Research & Development
After years of development, our Operating Subsidiaries have accumulated technical know-how for products such as stoves, stockpots, and waste processors. Our Operating Subsidiaries are highly skilled at efficiently transferring technological achievements from one area to another and integrating them into the industrial production of our products. The independent programming capacity of our R&D team allowed us to develop a cloud-based remote monitoring and operating system. The system can be connected with a smartphone app and show users the equipment conditions in real time. Our intelligent system provides our advantage over domestic competitors in that our intelligent stoves monitor gas leakage, stove fire, fan running, and failure conditions, and allow users to proactively address issues before they become problems. While at a base level, users can turn their soup pots and pressure cookers on or off through their phones, large volume users can remotely monitor gas leakage and internal pressure, monitor fume emissions remotely with our Fume Purification machines, and remotely operate our waste processors whiling seeing waste volume and the dehydration process in real time.
As of the date of this report, our Operating Subsidiaries have 26 registered trademarks, 52 registered patents, and 1 registered domain name. For more information, refer to “- 4.D. Property, plants and equipment - Intellectual Property.”
Raw Materials
The raw materials of our products are mainly steel plates; some equipment such as meat grinders, vegetable cutters, etc., and some parts such as electric heaters, stove burners, etc., must be purchased externally. Our Operating Subsidiaries purchase raw materials from a variety of sources and consolidate purchases among our suppliers to improve costs and delivery conditions. Our Operating Subsidiaries have established a supplier-customer file management system and regularly conduct continuous assessment and screening of the suppliers based on various aspects such as price, quality, safety, and supply capability. Our Operating Subsidiaries form long-term supply plans with large suppliers who meet our requirements. At present, our Operating Subsidiaries have built a stable raw material supply channel. While the prices of raw materials have remained generally stable, price volatility may have an adverse impact on our operations. For more information, please refer to “Risks Related to Our Business and Industry - Changes in the availability, quality and cost of key raw materials, transportation and other necessary supplies or services could have a material adverse effect on our business, financial condition and results of operations” at page 10 of this Annual Report.
Sales and Marketing
Our Operating Subsidiaries sell commercial kitchen equipment products in China under our own brand “Li Bang,” and our Operating Subsidiaries undertake projects for medium- and high-end customers mainly by bidding on contracts to provide our services and sell our products.
Our Operating Subsidiaries obtain information about commercial kitchen projects through referrals from national and local design institutes and professional companies. Our Operating Subsidiaries follow local government bidding announcements and participate in bidding under our own name through national public trading and procurement platforms and websites. In addition, large companies and international hotels browse the official procurement platform and select and invite companies with high winning rates to bid. Upon winning a contract through bidding, our Operating Subsidiaries sign procurement contracts with them according to the corresponding bidding process and provide them with a one-stop-shop supporting commercial kitchen products and services.
Our Operating Subsidiaries have established business relationships with more than one hundred organizations nationwide, and our customer base includes international hotels, enterprises and institutions, educational institutions, and hospitals. Presently, our clientele includes Shanghai Guangfulin Hilton Hotel, Changshu Longteng Hilton Hotel, Chongqing Conrad Hotel, and Yancheng Marriott Hotel.
Our Customers
Our customers generally include hotels, hospitals, schools and educational institutions, corporate and institutional customers, and other state-owned entities. Due to product specificity, professionalism, and scale of commercial kitchen equipment, it is difficult to access a large volume of customer resources through traditional social networking and e-commerce platforms. In addition, according to the Government Procurement Law of the PRC, organizations such as government agencies, schools, hospitals, public enterprises and institutions can only establish a business relationship with us through governmental and open procurement platforms. Potential customers set procurement requirements on these procurement platforms to attract enterprises to participate in fair competition and, through evaluation by experts, select high-quality enterprises with good performance and brand reputation. With successful bidding experience on the major provincial government procurement websites and provincial and municipal public resource trading platforms, we are well-recognized and enabled to obtain more customer resources, increase our business volume, improve business performance, and further enhance our brand reputation and market position.
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For the fiscal years ended June 30, 2026, 2025, and 2024, we had 91, 102 and 120 customers, respectively. The approximate proportion of revenue from different customers to our total revenue for the year ended June 30, 2026 is as follows:
| ● | hotels: 44.43% | |
| ● | schools and educational institutions: 2.97% | |
| ● | hospitals: 4.31% | |
| ● | other state-owned enterprises: 34.42% | |
| ● | other enterprises: 13.87% |
Since our establishment, our Operating Subsidiaries developed a good brand reputation in the industry by expanding the market through participating in bidding projects, and our Operating Subsidiaries are also the preferred supplier for high-end hotels in the Yangtze River Delta region (specifically Jiangsu and Shanghai) as well as key cities in central and western China. For a list of our customers who accounted for more than 10% of the Company’s revenues for each fiscal year, refer to Note 17 to the consolidated financial statements.
Our Suppliers
As of the date of this annual report, our Operating Subsidiaries have built a stable raw material supply channel. For steel plates, our Operating Subsidiaries usually make raw material contracts with our supplier, Wuxi Qingzhirui Metal Materials Co., Ltd., Wuxi Tuoyu Metal Technology Co., Ltd. and Wuxi Qingkong Stainless Steel Co., Ltd., and place orders with them according to the actual quantities needed and order deadlines. Our Operating Subsidiaries receive the materials according to the terms of the contracts. Our Operating Subsidiaries currently maintain a certain amount of base stock of about 80 to 100 tons to meet our daily operational production demands. For other materials and equipment, our Operating Subsidiaries generally place orders with long-term suppliers such as Gaoda Food Equipment Co., Ltd. based on the actual quantity needed.
For the years ended June 30, 2026, 2025 and 2024, no supplier accounted for more than 10% of the Company’s total purchases.
Intellectual Property
We rely on trademarks, patents, and know-how, as well as contractual restrictions on information disclosure to protect our intellectual property rights. For more information, please refer to Item 4.D Property, Plants and Equipment - Intellectual Property at page 59 of this annual report.
Competition and Industry Overview
Commercial kitchen appliance is the collective term for kitchen appliance or cooking equipment and tools designed for commercial use. It refers to the large kitchen equipment used in hotels, colleges and universities, and staff canteens. This category generally includes cooking or heating equipment and processing equipment as well as supporting ventilation equipment, fume emission equipment, and so on.
With the development of China’s domestic economy and changes in residents’ consumption, the development space for commercial kitchen appliance is growing. The number of enterprises in the commercial kitchen appliance industry, the size of their personnel, the size of their assets and the size of their income keep growing. The market for commercial kitchen appliances continues to evolve and is highly competitive. We experience competition and expect this competitive environment to continue. Our Operating Subsidiaries encounter direct competition from numerous other commercial kitchen appliances companies in the areas of the Yangtze River Delta. These competitors include Shanghai Jiuzong Restaurant Equipment Co., Ltd., Shanghai Dingda Stainless Steel Kitchen Equipment Manufacturing Co., Ltd., Hangzhou Jiulong Kitchenware Manufacturing Co., Ltd., Hangzhou Zhongxin Stainless Steel Products Co., Ltd., Wuxi Jinda Kitchen Equipment Co., Ltd., Nanjing Guanglong Kitchen Equipment and Engineering Co., Ltd., Yangzhou Hainiu Kictchen Equipment Co., Ltd., and Nanjing Huayi Hotel Equipment Manufacturing Engineering Co., Ltd.
Legal Proceedings
As of the date of this Annual Report, the Company is not involved in any legal or administrative litigation that may have a material adverse effect on the Company’s business, balance sheet, operating performance and cash flow.
We have taken measures to reduce the potential liability of platform operators in relevant regulations, such as data security, network security, etc. Our main subsidiaries registered under Chinese laws have complied with the relevant Chinese laws and regulations currently in force in all major aspects, and have obtained all the necessary licenses and approvals required for our business operations in China from the relevant government departments, and these licenses and approvals are still valid.
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Regulation
Regulations on Production
In February 1993, the Standing Committee of the National People’s Congress passed the “Product Quality Law of the PRC”, which was amended three times in July 2000, August 2009 and December 2018. The law stipulates that enterprises are prohibited from producing and selling industrial products that do not meet the standards and requirements for safeguarding human health and personal or property safety. Producers and sellers shall establish and improve internal product quality management systems and assume responsibility for product quality in accordance with the law.
The Regulations of the PRC on the Administration of Production License for Industrial Products was passed in June 2005 and have been implemented since September 2005. The regulations stipulate that products listed in the catalogue shall apply for a production license to the local competent department. The production license is valid for five years. The enterprise shall ensure that the product quality is stable and qualified, and submit reports to the competent authority on a regular basis. The “Measures for the Implementation of the Regulations of the PRC on the Administration of Production License for Industrial Products” was approved by the General Administration of Quality Supervision, Inspection and Quarantine of the PRC in April 2014, and amended in November 2022, detailing the relevant regulations on industrial production licenses and legal liabilities.
In June 2002, the Standing Committee of the National People’s Congress passed the “Production Safety Law of the PRC”, which was amended three times in August 2009, August 2014, and June 2021. The “Production Safety Law” clarifies that companies should strengthen safety production management, establish and improve all-employee safety production responsibility systems and safety production rules and regulations, increase safety production funds, materials, technology, and staff input, and improve safe production conditions. The State implements a system of investigating the responsibility for production safety accidents.
In November 2011, the Ministry of Health of the PRC issued the “GB 9684-2011 National Food Safety Standard-Stainless Steel Products”, which is applicable to food containers and food production and operation tools and equipment made of stainless steel as the main body. The Ministry of Health has studied the migration of heavy metals in different types of stainless steel and revised the restriction standards to strictly control food safety risks.
Regulations on the Installation of Catering Equipment
“Construction Law of the PRC” was passed in November 1997 and amended in April 2011 and April 2019. The construction activities refer to the construction of various types of houses and their ancillary facilities and installation activities of lines, pipelines, and equipment. Construction activities shall comply with the national construction engineering safety standards.
The Ministry of Housing and Urban-Rural Development of the PRC passed the “Qualification Standards for Construction Enterprises” in November 2014, dividing the professional contracting qualifications of construction mechanical and electrical installation projects into three levels. The first-level can undertake the installation of equipment, lines, and pipelines for various construction projects. The second-level can undertake the installation of equipment, lines, and pipelines for various construction projects less than 20 million yuan in a single contract. The third-level can undertake the installation of equipment, lines, and pipelines for various construction projects less than 10 million yuan in a single contract.
The State Council passed the “Regulations on Quality Management of Construction Projects” in January 2000 and revised some provisions in October 2017 and April 2019. The construction project mentioned in the Regulations refers to civil engineering, construction engineering, installation and decoration engineering of line, pipeline, and equipment. To engage in construction project activities, it is necessary to strictly implement the basic construction procedures and adhere to the principle of the survey, design, and construction in sequence. The construction party shall obtain the qualification certificate of the corresponding level in accordance with the law, and undertake the project within the scope permitted by the qualification level.
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The Standing Committee of the National People’s Congress passed the “Law of the PRC on Tenders and Bids” in August 1999 and revised it in December 2017. The following construction projects within the territory of the PRC, including the survey, design, construction, supervision of the project, and the procurement of important equipment and materials related to the construction of the project, must be tendered: (1) Large-scale infrastructure, public utilities, etc. related to social projects of public interest and safety; (2) Projects that use state-owned funds for investment or state financing in whole or in part; (3) Projects that use loans and aid funds from international organizations or foreign governments. The winning bidder shall perform its obligations in accordance with the contract and complete the winning project.
The “Law of the PRC on Energy Conservation” was passed by the Standing Committee of the National People’s Congress in November 1997, amended in October 2007, and revised twice in July 2016 and October 2018. The construction, design, and supervision parties of projects shall abide by the energy conservation standards.
Regulations on the Safety and Hygiene of Catering Services
The Food Safety Law of the PRC was promulgated on February 28, 2009, and was revised three times in April 2015, December 2018, and April 2021. The law stipulates the basic hygiene requirements and management guidelines for the catering industry’s location and environment, processing and business premises, catering tools and equipment, hygiene management, raw and auxiliary materials, and processing operations.
The “Regulations for the Implementation of the Food Safety Law of the PRC” are formulated in accordance with the “Food Safety Law of the PRC”. It was promulgated by the State Council of the PRC on July 20, 2009, and revised twice in February 2016 and December 2019.
The implementation regulations stipulate that food producers and operators shall engage in activities in accordance with laws, regulations, and food safety standards, establish and improve food safety management systems, and take effective measures to prevent and control food safety risks to ensure food safety.
The National Food Safety Standards Review Committee issued the “General Hygiene Code for Food Production” in 2013, which stipulates the basic requirements and guidelines of places, facilities, and personnel in the procurement, processing, packaging, storage, and transportation of raw materials in the process of food production.
The State Administration for Market Regulation issued the “Code of Practice for Food Safety in Catering Services” in June 2018, which covers standards and basic specifications for all aspects of catering services such as catering service establishments, food handling, cleaning operations, and cleaning of tableware.
The Ministry of Health promulgated the “Sanitary Standards for Disinfection of Food (Drinking) Utensils” in 2007, which is applicable to the food (drinking) utensils of catering enterprises such as hotels, restaurants, canteens, etc. The sanitary standard stipulates that there should be special storage cabinets for disinfection of food (drinking) utensils, and that food (drinking) utensils and disinfection equipment should comply with relevant national health regulations.
In 2001, the country formally promulgated the “Emission Standard of Cooking Fume”, which stipulated the maximum allowable emission concentration of oil fume per unit of the catering industry and the minimum removal efficiency of oil fume purification facilities.
Regulations on Foreign Investment in China
The establishment, operation, and management of companies in China are governed by the PRC Company Law, as amended in 2005, 2013, and 2018. The PRC Company Law applies to both PRC domestic companies and foreign-invested companies. The direct or indirect investment activities of a foreign investor shall be governed by the PRC Foreign Investment Law and its implementation rules. The PRC Foreign Investment Law is promulgated by the National People’s Congress on March 15, 2019, and was effective on January 1, 2020, which replaced the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law, and the PRC Wholly Foreign-owned Enterprise Law. The Foreign Investment Law adopts the administrative system of pre-entry national treatment along with a negative list for foreign investments, establishing the basic framework for the access to, and the promotion, protection, and administration of foreign investments in view of investment protection and fair competition.
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Pursuant to the Foreign Investment Law, “foreign investments” refers to any direct or indirect investment activities conducted by any foreign individual, enterprise, or organization (collectively referred to as “foreign investors”) in the PRC, which includes any of the following circumstances: (i) foreign investors establishing foreign-invested enterprises, or FIEs, in the PRC solely or jointly with other investors; (ii) foreign investors acquiring shares, equity interests, property portions or other similar rights and interests thereof within the PRC; (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors; and (iv) other forms of investments as defined by laws, regulations, or as otherwise stipulated by the State Council. According to the Foreign Investment Law, the State Council shall promulgate or approve a list of special administrative measures for market access of foreign investments, or the Negative List. The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the Negative List. The Foreign Investment Law provides that foreign investors shall not invest in the “prohibited” industries and shall meet certain requirements as stipulated under the Negative List for investing in “restricted” industries.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, (i) that local governments shall abide by their commitments to the foreign investors; (ii) FIEs are allowed to issue stock and corporate bonds; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; (iii) mandatory technology transfer is prohibited; and (iv) the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing fees of intellectual property rights, indemnity or compensation legally obtained, or proceeds received upon settlement by foreign investors within the PRC, may be freely remitted inward and outward in RMB or a foreign currency. Also, foreign investors or FIEs should assume legal liabilities for failing to report investment information in accordance with the requirements. Furthermore, the Implementation Rules of Foreign Investment Law provides that FIEs established prior to the effectiveness of the Foreign Investment Law may maintain their legal form and structure of corporate governance within five years after January 1, 2020.
On December 26, 2019, the State Council further issued the Implementation Rules of Foreign Investment Law, which came into effect on January 1, 2020, and replaced the Regulations on Implementing the PRC Equity Joint Venture Law, Provisional Regulations on the Duration of PRC Equity Joint Venture Law, the Regulations on Implementing the PRC Cooperative Joint Venture Law, and the Regulations on Implementing the PRC Wholly Foreign-owned Enterprise Law. The Regulations on Implementing the PRC Foreign Investment Law restates certain principles of the Foreign Investment Law and further provides that, among others, (i) if an FIE established prior to the effective date of the Foreign Investment Law fails to adjust its legal form or governance structure to comply with the provisions of the Companies Law of the PRC or the Partnership Enterprises Law of the PRC, as applicable, and complete amendment registration before January 1, 2025, the enterprise registration authority will not process other registration matters of the FIE and may public such non-compliance thereafter; and (ii) the provisions regarding equity interest transfer and distribution of profits and remaining assets as stipulated in the contracts among the joint venture parties of an FIE established before the effective date of the Foreign Investment Law may, after adjustment of the legal form and governing structure of such FIE, remain binding upon the parties during the joint venture term of the enterprise.
On June 23, 2020, the National Development and Reform Commission, or the NDRC, and the Ministry of Commerce promulgated the Special Administrative Measures for Access of Foreign Investment (Negative List) (2021 Edition), or the 2021 Negative List, which amended in December 2021 and came into effect on January 1, 2022. In addition, the NDRC and the Ministry of Commerce promulgated the Encouraged Industry Catalogue for Foreign Investment (2020 Edition), or the 2020 Encouraged Industry Catalogue, which was promulgated on December 27, 2020, and came into effect on January 27, 2021 and amended in 2022. Industries not listed in the 2020 Negative List and 2020 Encouraged Industry Catalogue are generally open for foreign investments unless specifically restricted by other PRC laws. The establishment of wholly foreign-owned enterprises is generally allowed in encouraged and permitted industries. Some restricted industries are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority equity interests in such joint ventures. In addition, foreign investment in projects in a restricted category is subject to government approvals. Foreign investors are not allowed to invest in industries in the prohibited category.
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Pursuant to the Provisional Administrative Measures on Establishment and Modifications (Filing) for Foreign Invested Enterprises promulgated by the Ministry of Commerce on October 8, 2016, and amended in 2017 and 2018, establishment and changes of FIEs not subject to approvals under the special entry management measures shall be filed with the relevant commerce authorities. However, as the PRC Foreign Investment Law has taken effect, the Ministry of Commerce and the State Administration for Market Regulation, or the SAMR, jointly approved the Foreign Investment Information Report Measures on December 19, 2019, which has been in effect since January 1, 2020. According to the Foreign Investment Information Report Measures, which repealed the Provisional Administrative Measures on Establishment and Modifications (Filing) for Foreign Invested Enterprises, foreign investors or FIEs shall report their investment-related information to the competent local counterparts of the Ministry of Commerce through Enterprise Registration System and National Enterprise Credit Information Notification System.
Regulations on Intellectual Property Rights
Patent Law
Pursuant to the Patent Law of the PRC, or the Patent Law, promulgated by the SCNPC on March 12, 1984, as amended on October 17, 2020, and became effective on June 1, 2021, and the Implementation Rules of the Patent Law of the PRC, promulgated by the State Council on June 15, 2001, and later amended on January 9, 2010, there are three types of patents in the PRC: invention patent, utility model patent and design patent. The protection period is 20 years for invention patents and 10 years for utility model patents and design patents, commencing from their respective application dates. Any individual or entity that utilizes a patent or conducts any other activity in infringement of a patent without prior authorization of the patentee shall pay compensation to the patentee and is subject to a fine imposed by relevant administrative authorities and, if constituting a crime, shall be held criminally liable in accordance with the law. In the event that a patent is owned by two or more co-owners without an agreement regarding the distribution of revenue generated from the exploitation of any co-owner of the patent, such revenue shall be distributed among all the co-owners.
Existing patents can become narrowed, invalid or unenforceable due to a variety of grounds, including lack of novelty, creativity, and deficiencies in patent application. In China, a patent must have novelty, creativity and practical applicability. Under the Patent Law, novelty means that before a patent application is filed, no identical invention or utility model has been publicly disclosed in any publication in China or overseas or has been publicly used or made known to the public by any other means, whether in or outside of China, nor has any other person filed with the patent authority an application that describes an identical invention or utility model and is recorded in patent application documents or patent documents published after the filing date. Creativity means that, compared with existing technology, an invention has prominent substantial features and represents notable progress, and a utility model has substantial features and represents any progress. Practical applicability means an invention or utility model can be manufactured or used and may produce positive results. Patents in China are filed with the State Intellectual Property Office, or SIPO. Normally, the SIPO publishes an application for an invention patent within 18 months after the filing date, which may be shortened at the request of applicant. The applicant must apply to the SIPO for a substantive examination within 3 years from the date of application.
Regulations on Copyrights
The PRC Copyright Law, which became effective on June 1, 1991 and amended in 2001, 2010 and 2020, provides that Chinese citizens, legal persons, or other organizations own copyrights in their copyrightable works, whether published or not, which include, works of literature, art, natural science, social science, engineering technology, and computer software. Copyright owners enjoy certain legal rights, including right of publication, right of authorship, and right of reproduction. The Copyright Law as revised in 2010 extends copyright protection to internet activities, products disseminated over the internet, and software products. In addition, the Copyright Law provides for a voluntary registration system administered by the China Copyright Protection Center. Pursuant to the Copyright Law, an infringer of a copyright is subject to various civil liabilities, which include ceasing infringement activities, apologizing to the copyright owners, and compensating the loss of the copyright owners. Infringers of copyrights may also be subject to fines and/or administrative or criminal liabilities in severe situations.
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Pursuant to the Computer Software Copyright Protection Regulations promulgated by the State Council on December 20, 2001 and amended in 2013, the software copyright owner may go through the registration formalities with a software registration authority recognized by the State Council’s copyright administrative department. The software copyright owner may authorize others to exercise that copyright and is entitled to receive remuneration.
Trademark Law
Trademarks are protected under the PRC Trademark Law, which was adopted on August 23, 1982 and subsequently amended in 1993, 2001, 2013, and 2019, and the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 2002 and most recently amended in 2014. The Trademark Office under the State Administration for Market Regulation (formally known as the State Administration for Industry and Commerce) handles trademark registrations. The Trademark Office grants a ten-year term to registered trademarks and the term may be renewed for another ten-year period upon request by the trademark owner. A trademark registrant may license its registered trademarks to another party by entering into trademark license agreements, which must be filed with the Trademark Office for the record. As with patents, the Trademark Law has adopted a first-to-file principle with respect to trademark registration. If a trademark applied for is identical or similar to another trademark which has already been registered or subject to a preliminary examination and approval for use on the same or similar kinds of products or services, such a trademark application may be rejected. Any person applying for the registration of a trademark may not infringe on existing trademark rights first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such other party’s use.
Regulations on Domain Names
The MIIT promulgated the Measures on Administration of Internet Domain Names on August 24, 2017, which became effective on November 1, 2017, and replaced the Administrative Measures on China Internet Domain Names promulgated by the MIIT on November 5, 2004. Pursuant to these measures, the MIIT oversees the administration of PRC internet domain names. The domain name registration follows a first-to-file principle. Applicants for registration of domain names must provide the true, accurate, and complete information of their identities to domain name registration service institutions. The applicants will become the holder of such domain names upon the completion of the registration procedure.
Regulations on Foreign Exchange
General Administration of Foreign Exchange
Under the PRC Foreign Currency Administration Rules promulgated on January 29, 1996 and most recently amended in 2008 and various regulations issued by the SAFE, and other relevant PRC government authorities, Renminbi is convertible into other currencies for current account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside China for capital account items, such as direct equity investments, loans, and repatriation of investment, requires the prior approval from SAFE or its local branch.
Payments for transactions that take place in China must be made in Renminbi. Unless otherwise approved, PRC companies may not repatriate foreign currency payments received from abroad or retain the same abroad. FIEs may retain foreign exchange proceeds in accounts with designated foreign exchange banks under the current account items subject to a cap set by SAFE or its local branch. Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from SAFE is generally required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.
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Pursuant to the Circular of SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, which was promulgated on November 19, 2012, became effective on December 17, 2012, and amended in 2015, 2018 and 2019, approval of SAFE is not required for opening a foreign exchange account and depositing foreign exchange proceeds into the accounts relating to the direct investments. This circular also simplifies foreign exchange-related registration required for foreign investors to acquire equity interests of PRC companies and further improves the administration on foreign exchange settlement for FIEs.
The Circular on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Circular 13, which became effective on June 1, 2015 and amended in 2019, cancels the administrative approvals of foreign exchange registration of direct domestic investment and direct overseas investment and simplifies the procedure of foreign exchange-related registration. Pursuant to the SAFE Circular 13, when setting up a new FIE, investors should register with banks for direct domestic investment and direct overseas investment.
The Circular on Reforming the Management Approach Regarding the Settlement of Foreign Capital of Foreign-Invested Enterprise, which was promulgated on March 30, 2015, became effective on June 1, 2015, and amended on December 30, 2019, provides that an FIE may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). Pursuant to this circular: FIEs are allowed to settle 100% of their foreign exchange capital on a discretionary basis; an FIE should truthfully use its capital for its own operational purposes within the scope of its business; and where an ordinary FIE makes a domestic equity investment with the amount of foreign exchanges settled, the FIE must first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.
The Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, which was promulgated and became effective on June 9, 2016, provides that enterprises registered in China may also convert their foreign debts from foreign currency into Renminbi on a self- discretionary basis. This circular also provides an integrated standard for conversion of foreign currency under capital account items (including, but not limited to, foreign currency capital and foreign debts) on a self-discretionary basis, which applies to all enterprises registered in China.
On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, which stipulates several capital control measures with respect to the outbound remittance of profits from domestic entities to offshore entities, including: (i) banks should check board resolutions regarding profit distribution, the original version of tax filing records, and audited financial statements pursuant to the principle of genuine transactions; and (ii) domestic entities should hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to this circular, domestic entities should make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts, and other proof when completing the registration procedures in connection with an outbound investment.
On October 25, 2019, SAFE promulgated the Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, which, among other things, allows all FIEs to use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. However, since this circular is newly promulgated, it is unclear how SAFE and competent banks will carry it out in practice.
Based on the foregoing, if we intend to provide funding to our wholly or majority foreign-owned subsidiaries through capital injection at or after their establishment, we must register the establishment of and any follow-on capital increase in our wholly or majority foreign-owned subsidiaries with the SAMR or its local counterparts, file such via the enterprise registration system, and register such with the local banks for the foreign exchange-related matters.
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Loans by the Foreign Companies to Their PRC Subsidiaries
A loan made by foreign investors as shareholders in an FIE is considered foreign debt in China and is regulated by various laws and regulations, including the PRC Regulation on Foreign Exchange Administration, the Interim Provisions on the Management of Foreign Debts, the Statistical Monitoring of Foreign Debt Tentative Provisions, the Detailed Rules for the Implementation of Provisional Regulations on Statistics and Supervision of Foreign Debt, and the Administrative Measures for Registration of Foreign Debt. Under these rules and regulations, a shareholder loan in the form of foreign debt made to a PRC entity does not require the prior approval of SAFE. However, such foreign debt must be registered with and recorded by SAFE or its local branches within fifteen business days after entering into the foreign debt contract. Pursuant to these rules and regulations, the balance of the foreign debts of an FIE cannot exceed the difference between the total investment and the registered capital of the FIE.
On January 12, 2017, the PBOC, promulgated the Notice of the PBOC on Matters concerning the Macro-Prudential Management of Full-Covered Cross-Border Financing, or PBOC Notice No. 9. Pursuant to PBOC Notice No. 9, within a transition period of one year from January 12, 2017, FIEs may adopt the currently valid foreign debt management mechanism, or the mechanism as provided in PBOC Notice No. 9, at their own discretions. PBOC Notice No. 9 provides that enterprises may conduct independent cross-border financing in Renminbi or foreign currencies as required. Pursuant to PBOC Notice No. 9, the outstanding cross-border financing of an enterprise (the outstanding balance drawn, here and below) will be calculated using a risk-weighted approach and cannot exceed certain specified upper limits. PBOC Notice No. 9 further provides that the upper limit of risk-weighted outstanding cross-border financing for an enterprise is 200% of its net assets, or the Net Asset Limits. Enterprises must file with SAFE in its capital item information system after entering into the relevant cross-border financing contracts and prior to three business days before drawing any money from the foreign debts.
Based on the foregoing, if we provide funding to our wholly or majority foreign-owned subsidiaries through shareholder loans, the balance of such loans (i) cannot exceed the difference between the total investment and the registered capital of the subsidiaries and we will need to register such loans with SAFE or its local branches in the event that the currently valid foreign debt management mechanism applies, or (ii) will be subject to the risk-weighted approach and the Net Asset Limits and we will need to file the loans with SAFE in its information system in the event that the mechanism as provided in PBOC Notice No. 9 applies. Pursuant to PBOC Notice No. 9, after a transition period of one year from January 12, 2017, the PBOC and SAFE would determine the cross-border financing administration mechanism for the FIEs after evaluating the overall implementation of PBOC Notice No. 9. As of the date hereof, neither the PBOC nor SAFE has promulgated and made public any further rules, regulations, notices, or circulars in this regard. It is uncertain which mechanism will be adopted by the PBOC and SAFE in the future and what statutory limits will be imposed on us when providing loans to our PRC Subsidiaries.
Offshore Investment
Under the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, effective July 4, 2014, PRC residents are required to register with the local SAFE branch prior to the establishment or control of an offshore special purpose vehicle, which is defined as an offshore enterprise directly established or indirectly controlled by PRC residents for investment and financing purposes, with the enterprise assets or interests PRC residents hold in China or overseas. The term “control” means to obtain the operating rights, right to proceeds, or decision-making power of a special purpose vehicle through acquisition, trust, holding shares on behalf of others, voting rights, repurchase, convertible bonds, or other means. An amendment to registration or subsequent filing with the local SAFE branch by such PRC residents is also required if there is any change in the basic information of the offshore company or any material change with respect to the capital of the offshore company. At the same time, SAFE has issued the Operation Guidance for the Issues Concerning Foreign Exchange Administration over Round-Trip Investment regarding the procedures for SAFE registration under SAFE Circular 37, which became effective on July 4, 2014, as an attachment of SAFE Circular 37.
Under the relevant rules, failure to comply with the registration procedures set forth in SAFE Circular 37 may result in bans on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliates, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.
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Regulations on Dividend Distributions
The principal laws and regulations regulating the distribution of dividends by FIEs in China include the PRC Company Law, as amended in 2004, 2005, 2013, and 2018, and the 2019 PRC Foreign Investment Law and its Implementation Rules. Under the current regulatory regime in China, FIEs in China may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital, unless laws regarding foreign investment provide otherwise. A PRC company cannot distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Regulations on Taxation
Enterprise Income Tax
On March 16, 2007, the National People’s Congress promulgated the PRC Enterprise Income Tax Law, which was amended on February 24, 2017 and December 29, 2018. On December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law, which became effective on January 1, 2008 and was amended on April 23, 2019. Under the Enterprise Income Tax Law and the relevant implementing regulations, both resident enterprises and non-resident enterprises are subject to tax in China. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within China. Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside China, but have established institutions or premises in China, or have no such established institutions or premises but have income generated from inside China. Under the Enterprise Income Tax Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. However, if non-resident enterprises have not formed permanent establishments or premises in China, or if they have formed permanent establishments or premises in China but there is no actual relationship between the relevant income derived in China and the established institutions or premises set up by them, withholding income tax is set at the rate of 10% with respect to their income sourced from inside the PRC.
Value-Added Tax
The PRC Provisional Regulations on Value-Added Tax were promulgated by the State Council on December 13, 1993, became effective on January 1, 1994, and were subsequently amended from time to time. The Detailed Rules for the Implementation of the PRC Provisional Regulations on Value-Added Tax (2011 Revision) were promulgated by the Ministry of Finance on December 25, 1993 and subsequently amended in 2008 and 2011. On November 19, 2017, the State Council promulgated the Decisions on Abolishing the PRC Provisional Regulations on Business Tax and Amending the PRC Provisional Regulations on Value-Added Tax. Pursuant to these regulations, rules and decisions, all enterprises and individuals engaged in sale of goods, provision of processing, repair, and replacement services, sales of services, intangible assets, real property, and the importation of goods within the PRC are value-added tax, or VAT, taxpayers. On March 20, 2019, the Ministry of Finance, the SAT, and the General Administration of Customs jointly issued the Announcement on Relevant Policies on Deepening the Reform of Value-Added Tax. Pursuant to this announcement, the generally applicable VAT rates are simplified as 13%, 9%, 6%, and 0%, which became effective on April 1, 2019, and the VAT rate applicable to small-scale taxpayers is 3%. If a small-scale taxpayer’s total monthly sales amount does not exceed RMB100 thousand and its quarterly sales volume does not exceed RMB300 thousand, the VAT will be exempted.
Dividend Withholding Tax
The Enterprise Income Tax Law and its implementation rules provide that since January 1, 2008, an income tax withholding rate of 10% will normally apply to dividends declared to non-PRC resident investors that do not have an establishment or place of business in China, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within China.
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Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have met the relevant conditions and requirements under this arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. Pursuant to the Circular on Several Questions regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018 by SAT and became effective on April 1, 2018, when determining the applicant’s status as the “beneficial owner” regarding tax treatment in connection with dividends, interest, or royalties in the tax treaties, several factors, including, without limitation, whether the applicant is obligated to pay more than 50% of his or her income in twelve months to residents in a third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant any tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and such factors will be analyzed according to the actual circumstances of the specific cases.
Tax on Indirect Transfer
On February 3, 2015, SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non PRC Resident Enterprises, or Bulletin 7. Pursuant to Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises, may be recharacterized and treated as a direct transfer of PRC taxable assets if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” in the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have a real commercial nature which is evidenced by their actual function and risk exposure. Pursuant to Bulletin 7, where the payer fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares are acquired on a public stock exchange. On October 17, 2017, SAT issued the Announcement of the SAT on Issues Concerning the Withholding of Non- resident Enterprise Income Tax at Source, or Bulletin 37, which was amended by the Announcement of the SAT on Revising Certain Taxation Normative Documents issued on June 15, 2018 by SAT. Bulletin 37 further elaborates the relevant implemental rules regarding the calculation, reporting, and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of Bulletin 7. Bulletin 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises, being the transferors, are involved.
Regulations on Employment
Labor Contract Law
The PRC Labor Contract Law, which became effective on January 1, 2008 and amended in 2012, primarily aims at regulating rights and obligations of employment relationships, including the establishment, performance, and termination of labor contracts. Pursuant to the Labor Contract Law, labor contracts must be executed in writing if labor relationships are to be or have been established between employers and employees. Employers are prohibited from forcing employees to work above certain time limits and employers must pay employees for overtime work in accordance with national regulations. In addition, employees’ wages must not be lower than local standards on minimum wages and must be paid to employees in a timely manner.
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Social Insurance
As required under the Regulation of Insurance for Labor Injury implemented on January 1, 2004 and amended in 2010, the Provisional Measures for Maternity Insurance of Employees of Corporations implemented on January 1, 1995, the Decisions on the Establishment of a Unified Program for Old-Aged Pension Insurance of the State Council issued on July 16, 1997, the Decisions on the Establishment of the Medical Insurance Program for Urban Workers of the State Council promulgated on December 14, 1998, the Unemployment Insurance Measures promulgated on January 22, 1999, and the PRC Social Insurance Law implemented on July 1, 2011 and amended on December 29, 2018, employers are required to provide their employees in China with welfare benefits covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, and medical insurance. These payments are made to local administrative authorities. Any employer that fails to make social insurance contributions may be ordered to rectify the non-compliance and pay the required contributions within a prescribed time limit and be subject to a late fee. If the employer still fails to rectify the failure to make the relevant contributions within the prescribed time, it may be subject to a fine ranging from one to three times the amount overdue. On July 20, 2018, the General Office of the State Council issued the Plan for Reforming the State and Local Tax Collection and Administration Systems, which stipulated that SAT would become solely responsible for collecting social insurance premiums.
Housing Fund
In accordance with the Regulations on the Administration of Housing Funds, which was promulgated by the State Council in 1999 and amended in 2002 and 2019, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employers and employees are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time.
M&A Rules and Overseas Listing
On August 8, 2006, six PRC governmental and regulatory agencies, including the Ministry of Commerce and the CSRC, promulgated the M&A Rules governing the mergers and acquisitions of domestic enterprises by foreign investors, which became effective on September 8, 2006, and was revised in 2009. The M&A Rules, among other things, require that if an overseas company established or controlled by PRC companies or PRC citizens intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC citizens, such acquisition must be submitted to the Ministry of Commerce for approval. The M&A Rules also require that an offshore special purpose vehicle, or a special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by PRC companies or individuals, shall obtain the approval of the CSRC prior to overseas listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On December 23, 2021, Li Bang Investment (with Feng Huang holding 85% and Funa Li holding 15% of the shares), Wuxi Li Bang’s sole shareholder, transferred 100% of the share equity of Wuxi Li Bang to WFOE. On December 24, 2021, Li Bang Investment, Li Bang Kitchen Appliance’s sole shareholder, transferred 100% of the share equity of Li Bang Kitchen Appliance to WFOE for RMB30,000. On November 24, 2021, Li Bang Investment and Feng Huang transferred all of their share equity in Suzhou Deji to WFOE for free.
On February 17, 2023, the CSRC announced the Circular on the Administrative Arrangements for Filing of Securities Offering and Listing by Domestic Companies, or the Circular, and released a set of new regulations which consists of the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines. On the same date, the CSRC also released the Notice on the Arrangements for the Filing Management of Overseas Listing of Domestic Companies, or the Notice. The Trial Measures came into effect on March 31, 2023. The Trial Measures refine the regulatory system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. Requirements for filing entities, time points and procedures are specified. A PRC domestic company that seeks to offer and list securities in overseas markets shall fulfil the filing procedure with the CSRC per the requirements of the Trial Measures. Where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. The Trial Measures also lay out requirements for the reporting of material events. Breaches of the Trial Measures, such as offering and listing securities overseas without fulfiling the filing procedures, shall bear legal liabilities, including a fine between RMB 1.0 million (approximately $140,000) and RMB 10.0 million (approximately $1.4 million), and the Trial Measures heighten the cost for offenders by enforcing accountability with administrative penalties and incorporating the compliance status of relevant market participants into the Securities Market Integrity Archives.
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According to the Circular, since the date of effectiveness of the Trial Measures on March 31, 2023, PRC domestic enterprises falling within the scope of filing that have been listed overseas or met the following circumstances are “existing enterprises”: before the effectiveness of the Trial Measures on March 31, 2023, the application for indirect overseas issuance and listing has been approved by the overseas regulators or overseas stock exchanges (such as the registration statement has become effective on the U.S. market), it is not required to perform issuance and listing supervision procedures of the overseas regulators or overseas stock exchanges, and the overseas issuance and listing will be completed by September 30, 2023. Existing enterprises are not required to file with the CSRC immediately, and filings with the CSRC should be made as required if they involve refinancings and other filing matters. PRC domestic enterprises that have submitted valid applications for overseas issuance and listing but have not been approved by overseas regulatory authorities or overseas stock exchanges at the date of effectiveness of the Trial Measures on March 31, 2023 can reasonably arrange the timing of filing applications with the CSRC and shall complete the filing with the CSRC before the overseas issuance and listing.
4.C. Organizational structure
Li Bang International was incorporated on July 8, 2021 under the laws of the Cayman Islands. As a holding company with no material operations of our own, we primarily conduct our operations through our PRC subsidiaries including Suzhou Deji, Wuxi Li Bang, Li Bang Kitchen Appliance, Yangzhou Bangshijie and Nanjing Bangshijie, Leiluo Engineering Construction, Shengwosi Cleaning Technology and Aike Robot.
The following chart shows our corporate structure as of the date of this Annual Report, including our majority-owned subsidiaries:
Direct and indirect subsidiaries
Li Bang HK was incorporated on July 26, 2021 under the laws of Hong Kong. Li Bang HK is a wholly owned subsidiary of Li Bang International. It is a holding company and is not actively engaged in any business.
Li Bang Intelligent Technology or Li Bang WFOE was incorporated on August 18, 2021 under the laws of the PRC. Li Bang WFOE is a wholly owned subsidiary of Li Bang HK and is not actively engaged in any business.
Suzhou Deji was incorporated on April 8, 2010 under the laws of the PRC. Suzhou Deji is a wholly owned subsidiary of Li Bang WFOE and is one of our operating entities.
Wuxi Li Bang was incorporated on May 18, 2007 under the laws of the PRC. Wuxi Li Bang is a wholly owned subsidiary of Li Bang WFOE and is one of our operating entities.
Li Bang Kitchen Appliance was incorporated on March 22, 2019 under the laws of the PRC. Li Bang Kitchen Appliance is a wholly owned subsidiary of Li Bang WFOE and is one of our operating entities.
Yangzhou Bangshijie was incorporated on December 2, 2019 under the laws of the PRC. Yangzhou Bangshijie is a majority owned subsidiary of Li Bang Kitchen Appliance and is one of our operating entities.
Nanjing Bangshijie was incorporated on November 25, 2015 under the laws of the PRC. Nanjing Bangshijie is a majority owned subsidiary of Li Bang Kitchen Appliance and is one of our operating entities.
Leiluo Engineering Construction was incorporated on March 21, 2019, under the laws of the PRC. On December 11, 2025, Li Bang WFOE entered into a share transfer agreement with the then sole shareholder of Leiluo Engineering Construction to acquire 100% of the equity interests in Leiluo Engineering Construction for nil consideration. In March 2026, requisite PRC filings were completed to register Leiluo Engineering Construction as a wholly owned subsidiary of Li Bang WFOE. As of the date of this Annual Report, Leiluo Engineering Construction does not have active business operations.
On July 7, 2026, Li Bang WFOE and three natural persons jointly established Shengwosi Cleaning Technology under the laws of the PRC. Shengwosi Cleaning Technology is a majority owned subsidiary of Li Bang WFOE, in which Li Bang WFOE holds a 79% equity interest, and is one of our operating entities engaged in the research, development and production of kitchen equipment.
On October 19, 2026, Li Bang WFOE acquired a 51% equity interest in Aike Robot for nil consideration. Aike Robot is a majority owned subsidiary of Li Bang WFOE, in which Li Bang WFOE holds a 51% equity interest, and is one of our operating entities engaged in the research, development and production of kitchen equipment.
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4.D. Property, Plants and Equipment
Real property
Our Company is headquartered in No. 190 Xizhang Road, Gushan Town, Jiangyin City, Jiangsu Province, PRC. Our Operating Subsidiaries have the legal right to use state-owned land which covers an area of 14,000 square meters. And our Operating Subsidiaries have built our own factory on this land with a building area of 11,560 square meters.
| No. | Location | Area | Term of use | Usage | ||||
| 1 | 190 Xizhang Road, Gushan Town | The building construction area is 11560 square meters | Until August 04, 2059 | Autonomous production and operations | ||||
| 2 | 179 Xizhang Road, Gushan Town | The building construction area is 1999 square meters | Until December 13, 2051 | Production house; lease to third parties(1)(2) |
| (1) | On January 1, 2022, Wuxi Li Bang leased part of the property located at No. 190 Xizhang Road, Gushan Town, Jiangyin City to Leiluo Intelligent Technology (Jiangsu) Co., Ltd. The term was three years and the rent was RMB1,800,000 (US$264,282) in total, and the annual rent is RMB600,000 (US$88,094). On January 1, 2025, Wuxi Li Bang and Leiluo Intelligent Technology (Jiangsu) Co., Ltd. renewed lease for an additional three years from January 1, 2025 to January 1, 2027, with annual rent of RMB480,000 (US$70,475). |
| (2) | On February 10, 2021, Wuxi Li Bang entered into a lease with Jiangyin Shuaina Home Furniture Technology Co., Ltd. The term is six years and the rent is RMB3,750,000 (US$550,588) in total. The rent is paid yearly, RMB 600,000 (US$88,094) for the first three years and RMB 650,000 (US$95,435) for the following three years. |
We believe that, under normal circumstances, our existing facilities are sufficient to meet current demand, but we expect to seek to build other factories to cope with future growth.
Intellectual Property
We rely on trademarks, patents, and know-how, as well as contractual restrictions on information disclosure to protect our intellectual property rights. Our Operating Subsidiaries have signed relevant confidentiality agreements or clauses with our employees, certain customers, and suppliers, and rely on such confidentiality agreements or clauses and other protections of our technical knowledge to maintain our technological advantages in products and designs.
Protecting our intellectual property is a strategic focus of our business. Our Operating Subsidiaries do not rely on intellectual property rights authorized by third parties for our business operations.
As of the date of this report, our Operating Subsidiaries have 26 trademarks, 52 registered patents, and 1 registered domain name.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our CFS and related notes that appear in this report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors.”
A. Operating Results
Overview
We conduct our operations in China through our Operating Subsidiaries in China. The main business of our Operating Subsidiaries is to design, develop, produce and sell stainless steel commercial kitchen equipment in China under our “Li Bang” brand. Additionally, our Operating Subsidiaries provide customers with comprehensive services, from commercial kitchen design in the early stage to equipment installation and after-sales maintenance.
Currently, we have two revenue streams: project and retail sales. Our revenues are primarily derived from project revenues, which accounted for 96.1% and 95.9% of total revenues for the years ended June 30, 2026 and 2025, respectively.in fiscal year 2026, our project sales, including related gross margins, were negatively impacted by the macroeconomic conditions in the PRC. The economic slowdown caused a decline in both the number and contract value of high-margin projects, such as those for schools, hospitals, and hotels. This led to a shift in our customer mix and a deterioration in the overall gross margin.
As a result of the factors discussed above, we experienced an increase in operating losses over the past three years. Furthermore, the decrease in project revenues and profitability, combined with increased business development costs and administrative expenses, directly contributed to the further widening of our operating losses during the year ended June 30, 2026.
Our total revenues decreased by approximately $3.4 million or 31.0%, from $11.1 million for the year ended June 30, 2025 to $7.7 million for the year ended June 30, 2026. Our gross profit decreased by approximately $1.8 million or 55.2% from $3.3 million for the year ended June 30, 2025, to $1.5 million the year ended June 30, 2026. Gross margin decreased by 10.2% to 19.0% for the year ended June 30, 2026, from 29.2% for the year ended June 30, 2025. We had net loss of $3.8 million and $1.0 million for the years ended June 30, 2026 and 2025, respectively.
Our total revenues increased by approximately $0.3 million or 2.9%, from $10.8 million for the year ended June 30, 2024 to $11.1 million for the year ended June 30, 2025. Our gross profit increased by approximately $0.6 million or 20.0% from $2.7 million for the year ended June 30, 2024, to $3.3 million the year ended June 30, 2025. Gross margin increased by 4.1% to 29.2% for the year ended June 30, 2025, from 25.1% for the year ended June 30, 2024. We had net loss of $1.0 million and $1.4 million for the years ended June 30, 2025 and 2024, respectively.
Factors Affecting Our Results of Operations
Economic conditions
We have derived most of our revenues to date from providing stainless steel commercial kitchen equipment to various companies. Our customers’ success is closely tied to overall economic conditions in China and is particularly sensitive to factors such as consumer spending in the restaurant sector, commercial real estate conditions, the performance of the travel and hospitality industry, and fluctuations in raw material prices. Demand for our services could be harmed by volatility in those industries. There can be no assurance that we will be able to continue our historical revenue growth or sustain our profitability on a quarterly or annual basis or that our results of operations will not be adversely affected by continuing or future volatility in those industries.
Government policies may impact our business and operating results.
We have not seen any significant impact of unfavorable government policies upon our business in recent years. However, our business and operating results will be affected by the overall economic growth and government policies in the PRC, and our products are currently eligible for certain favorable government tax and other incentives. Unfavorable changes in government policies and these incentives could affect the demand for our products and could materially and adversely affect our results of operations. However, we will seek to make adjustments as required if and when government policies shift.
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5.A. Operating Results.
Comparison of Results of Operations for the Years Ended June 30, 2026 and 2025
The following table summarizes our results of operations for the years ended June 30, 2026 and 2025, respectively, and provides information regarding the dollar and percentage variance during the relevant years.
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Amount | % of revenue | Amount | % of revenue | Amount | % | |||||||||||||||||||
| Revenues | $ | 7,661,787 | 100.0 | % | $ | 11,106,078 | 100.0 | % | $ | (3,444,291 | ) | (31.0 | )% | |||||||||||
| Cost of revenues | (6,205,368 | ) | (81.0 | )% | (7,857,589 | ) | (70.8 | )% | 1,652,221 | (21.0 | )% | |||||||||||||
| Gross profit | 1,456,419 | 19.0 | % | 3,248,489 | 29.2 | % | (1,792,070 | ) | (55.2 | )% | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling and marketing | 758,725 | 9.9 | % | 742,029 | 6.7 | % | 16,696 | 2.3 | % | |||||||||||||||
| General and administrative | 3,450,758 | 45.0 | % | 2,867,091 | 25.8 | % | 583,667 | 20.4 | % | |||||||||||||||
| Provision for expected credit losses | 1,593,891 | 20.8 | % | 995,725 | 9.0 | % | 598,166 | 60.1 | % | |||||||||||||||
| Total operating expenses | 5,803,374 | 75.7 | % | 4,604,845 | 41.5 | % | 1,198,529 | 26.0 | % | |||||||||||||||
| Loss from operations | (4,346,955 | ) | (56.7 | )% | (1,356,356 | ) | (12.3 | )% | (2,990,599 | ) | 220.5 | % | ||||||||||||
| Other income: | ||||||||||||||||||||||||
| Interest income (expense), net | 339,158 | 4.4 | % | (166,333 | ) | (1.5 | )% | 505,491 | (303.9 | )% | ||||||||||||||
| Other income, net | 194,923 | 2.5 | % | 480,861 | 4.3 | % | (285,938 | ) | (59.5 | % | ||||||||||||||
| Total other income, net | 534,081 | 6.9 | % | 314,528 | 2.8 | % | 219,553 | 69.8 | % | |||||||||||||||
| Loss before income taxes | (3,812,874 | ) | (49.8 | )% | (1,041,828 | ) | (9.5 | )% | (2,771,046 | ) | 266.0 | % | ||||||||||||
| Income tax expense (benefit) | 7,765 | 0.1 | % | (26,249 | ) | (0.2 | )% | 34,014 | (129.6 | )% | ||||||||||||||
| Net loss | (3,820,639 | ) | (49.9 | )% | (1,015,579 | ) | (9.3 | )% | (2,805,060 | ) | 276.2 | % | ||||||||||||
| Net loss attributable to non-controlling interests | (2,931 | ) | 0.0 | % | (2,004 | ) | 0.0 | % | (927 | ) | 46.3 | % | ||||||||||||
| Net loss attributable to ordinary shareholders | $ | (3,817,708 | ) | (49.9 | )% | $ | (1,013,575 | ) | (9.3 | )% | $ | (2,804,133 | ) | 276.7 | % | |||||||||
Revenues
Currently, we have two revenue streams: project and retail sales. Total revenue decreased by $3,444,291, or 31.0% to $7,661,787 for the year ended June 30, 2026 from $11,106,078 for fiscal year 2025. The decrease was mainly attributable to the decrease in the revenue from project sales.
The following table sets forth the breakdown of our revenues for the years ended June 30, 2026 and 2025:
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Project revenues | $ | 7,366,656 | 96.1 | % | $ | 10,645,337 | 95.9 | % | $ | (3,278,681 | ) | (30.8 | )% | |||||||||||
| Retail revenues | 295,131 | 3.9 | % | 460,741 | 4.1 | % | (165,610 | ) | (35.9 | )% | ||||||||||||||
| Total | $ | 7,661,787 | 100.0 | % | $ | 11,106,078 | 100.0 | % | $ | (3,444,291 | ) | (31.0 | )% | |||||||||||
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Revenues from project sales. The decrease in revenues from project sales was primarily due to the economic slowdown, which caused a decline in both the number and contract value of high-margin projects, such as those for schools, hospitals, and hotels. The number of projects declined by 10 to 33 for the year ended June 30, 2026 from 43 for fiscal year 2025, and average revenue per project decreased by $20,841 to $127,011 for the year ended June 30, 2026 from $147,852 for fiscal year 2025.
Revenues from retail sales. The decrease in revenues from retail sales was primarily due to the decrease in average retail price. Average revenue decreased by $1,847 to $2,459 for the year ended June 30, 2026 from $4,306 for fiscal year 2025.
Cost of Revenues
The following table sets forth the breakdown of our cost of revenue for the years ended June 30, 2026 and 2025:
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Project cost | $ | 5,910,870 | 95.3 | % | $ | 7,515,070 | 95.6 | % | $ | (1,604,200 | ) | (21.3 | )% | |||||||||||
| Retail cost | 294,498 | 4.7 | % | 342,519 | 4.4 | % | (48,021 | ) | (14.0 | )% | ||||||||||||||
| Total | $ | 6,205,368 | 100.0 | % | $ | 7,857,589 | 100.0 | % | $ | (1,652,221 | ) | (21.0 | )% | |||||||||||
The decrease in cost of revenues was mainly due to the decrease in related sales revenue.
Gross Profit
Our gross profit and gross margin by revenue types were as follows:
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Gross profit | Margin % | Gross profit | Margin % | Gross profit | Margin % | |||||||||||||||||||
| Project revenues | $ | 1,455,786 | 19.8 | % | $ | 3,130,267 | 29.4 | % | $ | (1,674,481 | ) | (9.6 | )% | |||||||||||
| Retail revenues | 633 | 0.2 | % | 118,222 | 25.7 | % | (117,589 | ) | (25.4 | )% | ||||||||||||||
| Total | $ | 1,456,419 | 19.0 | % | $ | 3,248,489 | 29.2 | % | $ | (1,792,070 | ) | (10.2 | )% | |||||||||||
The decrease in gross profit for project sales was due to a lower number of projects for the year ended June 30, 2026, which resulted in reduced production volume and higher labor and manufacturing costs per order.
The negative variance in gross profit for retail sales was principally due to increase in labor and manufacturing costs per order in fiscal year 2026.
We expect this downward trend to continue in the short term, primarily due to the ongoing macroeconomic downturn in the PRC. To mitigate the impact, management is actively implementing cost control measures, strengthening expense management, expanding market and sales network to partially offset the decline in gross profit.
Operating Expenses
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Selling and marketing | $ | 758,725 | 13.1 | % | $ | 742,029 | 16.1 | % | $ | 16,696 | 2.3 | % | ||||||||||||
| General and administrative | 3,450,758 | 59.4 | % | 2,867,091 | 62.3 | % | 583,667 | 20.4 | % | |||||||||||||||
| Provision for expected credit losses | 1,593,891 | 27.5 | % | 995,725 | 21.6 | % | 598,166 | 60.1 | % | |||||||||||||||
| Total operating expenses | $ | 5,803,374 | 100.0 | % | $ | 4,604,845 | 100.0 | % | $ | 1,198,529 | 26.0 | % | ||||||||||||
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Selling and Marketing Expenses
The increase in selling expenses was mainly due to the increase in market expansion costs. Despite the economic slowdown, we continued to enhance brand awareness to secure new projects and explore revenue streams. We believe our selling expenses could increase as the Company further expands its market presence in other targeted markets in the PRC.
General and Administrative Expenses
The increase in general and administrative expenses (“G&A expenses”) was mainly due to the increase in consulting fees and legal service fees associated with the management of overseas entities for the year ended June 30, 2026. We believe our G&A expenses could increase due to higher compliance and management requirements post the Company’s IPO.
Provision for expected credit losses
The increase in provision for expected credit losses was mainly due to an allowance of $1,315,200 recognized for expected credit losses on a loan receivable, partially offset by favorable collection of accounts receivable during the year ended June 30, 2026. The allowance on a loan receivable was based on our assessment of borrower’s intent and ability to repay the loan, taking into consideration of the current and future economic conditions.
Other income, net
Interest income (expense), net
Interest income increased by $505,491, or 303.9%, to $339,158 for the year ended June 30, 2026, from expense of $166,333 for fiscal year 2025, which was mainly due to the increase in loans provided to third parties in fiscal year 2026 as compared to fiscal year 2025, which resulted in higher interest income during fiscal year 2026.
Other income, net
Other income, net decreased by $285,938, or 59.5%, to $194,923 for the year ended June 30, 2026, from $480,861 for fiscal year 2025. The decrease was mainly due to the decrease in government subsidies, as the Company received a government IPO subsidy in fiscal year 2025.
Income tax expense (benefit)
Our income tax expense was $7,765 for the year ended June 30, 2026, an increase of $34,014, or 129.6% from benefit of $26,249 for fiscal year 2025. The increase is due mainly to the increase in taxable loss in fiscal year 2026.
| ● | Income tax expense for the year ended June 30, 2026 was primarily due to the full valuation allowance recorded against the Company’s deferred tax assets (DTA). Since the Company may not generate sufficient future taxable income to utilize its net operating loss carryforwards, management recognized a full valuation allowance, which resulted in an income tax expense for fiscal year 2026. | |
| ● | Income tax benefit for the year ended June 30, 2025 was primarily due to the net loss incurred in this period, and the recognition of deferred tax assets (DTA) and income tax benefit related to the expected credit losses. |
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Net loss
As a result of the foregoing, our net loss increased from $1,015,579 for the year ended June 30, 2025 to $3,820,639 for fiscal year 2026.
Net loss attributable to non-controlling interests
Non-controlling interests are recognized to reflect the portion of net income that is not attributable, directly or indirectly, to the Company from the controlling shareholder. For the Company’s consolidated subsidiaries, non-controlling interests are a minority shareholder’s 10% and 5% ownership interest in Yangzhou Bangshijie and Nanjing Bangshijie, respectively. The net loss attributable to non-controlling interests was $2,931 and $2,004 for the years ended June 30, 2026 and 2025, respectively.
Net loss income attributable to ordinary shareholders
Net loss attributable to the Company’s ordinary shareholders increased by $2,804,133, or 276.7% from 1,013,575 for the year ended June 30, 2025, to $3,817,708 for the year ended June 30, 2026.
Comparison of Results of Operations for the Years Ended June 30, 2025 and 2024
The following table summarizes our results of operations for the years ended June 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage variance during the relevant years.
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % of revenue | Amount | % of revenue | Amount | % | |||||||||||||||||||
| Revenues | $ | 11,106,078 | 100.0 | % | $ | 10,794,015 | 100.0 | % | $ | 312,063 | 2.9 | % | ||||||||||||
| Cost of revenues | (7,857,589 | ) | (70.8 | )% | (8,086,367 | ) | (74.9 | )% | 228,778 | (2.8 | )% | |||||||||||||
| Gross profit | 3,248,489 | 29.2 | % | 2,707,648 | 25.1 | % | 540,841 | 20.0 | % | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling and marketing | 742,029 | 6.7 | % | 831,252 | 7.7 | % | (89,223 | ) | (10.7 | )% | ||||||||||||||
| General and administrative | 2,867,091 | 25.8 | % | 2,509,143 | 23.2 | % | 357,948 | 14.3 | % | |||||||||||||||
| Provision for expected credit losses | 995,725 | 9.0 | % | 1,084,649 | 10.0 | % | (88,924 | ) | (8.2 | )% | ||||||||||||||
| Total operating expenses | 4,604,845 | 41.5 | % | 4,425,044 | 40.9 | % | 179,801 | 4.1 | % | |||||||||||||||
| Loss from operations | (1,356,356 | ) | (12.3 | )% | (1,717,396 | ) | (15.8 | )% | 361,040 | (21.0 | )% | |||||||||||||
| Other income: | ||||||||||||||||||||||||
| Interest expense, net | (166,333 | ) | (1.5 | )% | (332,137 | ) | (3.1 | )% | 165,804 | (49.9 | )% | |||||||||||||
| Other income, net | 480,861 | 4.3 | % | 487,926 | 4.5 | % | (7,065 | ) | (1.4 | )% | ||||||||||||||
| Total other income, net | 314,528 | 2.8 | % | 155,789 | 1.4 | % | 158,739 | 101.9 | % | |||||||||||||||
| Loss before income taxes | (1,041,828 | ) | (9.5 | )% | (1,561,607 | ) | (14.4 | )% | 519,779 | (33.3 | )% | |||||||||||||
| Income tax benefit | (26,249 | ) | (0.2 | )% | (187,720 | ) | (1.7 | )% | 161,471 | (86.0 | )% | |||||||||||||
| Net loss | (1,015,579 | ) | (9.3 | )% | (1,373,887 | ) | (12.7 | )% | 358,308 | (26.1 | )% | |||||||||||||
| Net loss attributable to non-controlling interests | (2,004 | ) | 0.0 | % | (2,746 | ) | 0.0 | % | 742 | (27.0 | )% | |||||||||||||
| Net loss attributable to ordinary shareholders | $ | (1,013,575 | ) | (9.3 | )% | $ | (1,371,141 | ) | (12.7 | )% | $ | 357,566 | (26.1 | )% | ||||||||||
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Revenues
Currently, we have two revenue streams: project and retail sales. Total revenue increased by $312,063, or 2.9% to $11,106,078 for the year ended June 30, 2025 from $10,794,015 for fiscal year 2024. The increase was attributable to the increase in the revenue from project sales and retail sales.
The following table sets forth the breakdown of our revenues for the years ended June 30, 2025 and 2024:
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Project revenues | $ | 10,645,337 | 95.9 | % | $ | 10,426,039 | 96.6 | % | $ | 219,298 | 2.1 | % | ||||||||||||
| Retail revenues | 460,741 | 4.1 | % | 367,976 | 3.4 | % | 92,765 | 25.2 | % | |||||||||||||||
| Total | $ | 11,106,078 | 100.0 | % | $ | 10,794,015 | 100.0 | % | $ | 312,063 | 2.9 | % | ||||||||||||
Revenues from project sales. Revenues from project sales accounted for 95.9% and 96.6% of our total revenues for the years ended June 30, 2025 and 2024, respectively. Revenue for project sales increased by $219,298 or 2.1% to $10,645,337 for the year ended June 30, 2025 from $10,426,039 for fiscal year 2024. The increase was primarily due to the increase in average project price. Average revenue per project increased by $33,717 to $147,852 for the year ended June 30, 2025 from $114,135 for fiscal year 2024.
Revenues from retail sales. Revenues from retail sales accounted for 4.1% and 3.4% of our total revenues for the years ended June 30, 2025 and 2024, respectively. Revenues from retail sales increased by $92,765 or 25.2% to $460,741 for the year ended June 30, 2025 from $367,976 for fiscal year 2024. The change in retail revenues is due primarily to 19 more retail orders completed in the year ended June 30, 2025 compared to fiscal year 2024.
Cost of Revenues
The following table sets forth the breakdown of our cost of revenue for the years ended June 30, 2025 and 2024:
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Project cost | $ | 7,515,070 | 95.6 | % | $ | 7,814,985 | 96.6 | % | $ | (299,915 | ) | (3.8 | )% | |||||||||||
| Retail cost | 342,519 | 4.4 | % | 271,382 | 3.4 | % | 71,137 | 26.2 | % | |||||||||||||||
| Total | $ | 7,857,589 | 100.0 | % | $ | 8,086,367 | 100.0 | % | $ | (228,778 | ) | (2.8 | )% | |||||||||||
Cost of project sales decreased by $299,915, or 3.8%, to $7,515,070 for the year ended June 30, 2025 from $7,814,985 for fiscal year 2024. The decrease was due primarily to the decrease in the prices of raw materials. The highest unit price of main materials (stainless steel) decreased by 8.3% in fiscal year 2025.
Cost of retail sales increased by $71,137 or 26.2% to $342,519 for the year ended June 30, 2025 from $271,382 for fiscal year 2024. The increase was due mainly to the increase in the completion and delivery of retail projects in fiscal year 2025.
Gross Profit
Gross profit was $3,248,489 for the year ended June 30, 2025, an increase of $540,841 from $2,707,648 for fiscal year 2024. Gross margin increased by 4.1%, to 29.2% for the year ended June 30, 2025, from 25.1% for fiscal year 2024.
Our gross profit and gross margin by revenue types were as follows:
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Gross profit | Margin % | Gross profit | Margin % | Gross profit | Margin % | |||||||||||||||||||
| Project revenues | $ | 3,130,267 | 29.4 | % | $ | 2,611,054 | 25.0 | % | $ | 519,213 | 4.4 | % | ||||||||||||
| Retail revenues | 118,222 | 25.7 | % | 96,594 | 26.3 | % | 21,628 | (0.6 | )% | |||||||||||||||
| Total | $ | 3,248,489 | 29.2 | % | $ | 2,707,648 | 25.1 | % | $ | 540,841 | 4.1 | % | ||||||||||||
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Gross profit for project sales increased by $519,213 to $3,130,267 for the year ended June 30, 2025, as compared to $2,611,054 for fiscal year 2024. Gross margin increased by 4.4%, to 29.4% for the year ended June 30, 2025, from 25.0% for fiscal year 2024. The increase in gross profit was due to higher average project price in couple with lower cost of main materials (stainless steel) in the year ended June 30, 2025.
Gross profit for retail sales increased to $118,222 for the year ended June 30, 2025 from $96,594 for fiscal year 2024. Gross margin decreased by 0.6%, to 25.7% for the year ended June 30, 2025, from 26.3% for fiscal year 2024.
We expect to expand market, develop new customers, and enhance operational efficiency to improve gross margin.
Operating Expenses
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Selling and marketing | $ | 742,029 | 16.1 | % | $ | 831,252 | 18.8 | % | $ | (89,223 | ) | (10.7 | )% | |||||||||||
| General and administrative | 2,867,091 | 62.3 | % | 2,509,143 | 56.7 | % | 357,948 | 14.3 | % | |||||||||||||||
| Provision for expected credit losses | 995,725 | 21.6 | % | 1,084,649 | 24.5 | % | (88,924 | ) | (8.2 | )% | ||||||||||||||
| Total operating expenses | $ | 4,604,845 | 100.0 | % | $ | 4,425,044 | 100.0 | % | $ | 179,801 | 4.1 | % | ||||||||||||
Selling and Marketing Expenses
Selling expenses were $742,029 for the year ended June 30, 2025, a decrease of $89,223, or 10.7%, from $831,252 for fiscal year 2024. The decrease was mainly due to the decrease in market expansion costs. In the year ended June 30, 2024, the Company expanded into the central and western regions of China, such as Chongqing and Xian to enhanced brand awareness, resulting in higher market expansion costs in fiscal year 2024. The fluctuation in selling expenses is mainly attributable to refinement in our marketing strategy in fiscal year 2025. We believe our selling expenses could increase as the Company further expands its market presence in other targeted markets in the PRC.
General and Administrative Expenses
Our general and administrative expenses (“G&A expenses”) were $2,867,091 for the year ended June 30, 2025, an increase of $357,948 or 14.3%, from $2,509,143 for fiscal year 2024. The increase in our G&A expenses was mainly due to the increase in consulting fees by $392,958, partially offset by a decrease in depreciation expense of $51,022. We believe our G&A expenses could increase due to higher compliance and management requirements post the Company’s IPO.
Provision for expected credit losses
Our provision for expected credit losses was $995,725 for the year ended June 30, 2025, a decrease of $88,924 or 8.2%, from $1,084,649 for fiscal year 2024. The decrease was mainly due to the favorable collection experience in fiscal year 2025.
Other income, net
Interest expense, net
Interest expense decreased by $165,804, or 49.9%, to $166,333 for the year ended June 30, 2025, from $332,137 for fiscal year 2024, which was due to: a) the decrease in interest rates of bank loans in fiscal year 2025 as compared to fiscal year 2024. Our average loan balances were $10,619,333 and $10,321,053 for the years ended June 30, 2025 and 2024, respectively. And b) the increase in loans provided to third parties in fiscal year 2025 as compared to fiscal year 2024, which resulted in higher interest income.
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Other income, net
Other income, net decreased by $7,065, or 1.4%, to $480,861 for the year ended June 30, 2025, from $487,926 for fiscal year 2024. The increase was mainly due to: a) increase in government subsidies by $127,263, which primarily consisted of IPO subsidy; partially offset by c) decrease in consulting service revenue by $122,473.
Income tax benefit
Our income tax benefit was $26,249 for the year ended June 30, 2025, a decrease of $161,471, or 86.0% from $187,720 for fiscal year 2024. The decrease is due mainly to the increase in taxable income in fiscal year 2025.
| ● | Income tax benefit for the year ended June 30, 2025 was primarily due to the net loss incurred in this period, and the recognition of deferred tax assets (DTA) and income tax benefit related to the expected credit losses. | |
| ● | Income tax benefit for the year ended June 30, 2024 was primarily due to reversal of income tax payable provisioned in previous years, which was no longer payable. |
Net loss
As a result of the foregoing, we reduced our net loss from $1,373,887 for the year ended June 30, 2024 to $1,015,579 for fiscal year 2025.
Net loss attributable to non-controlling interests
Non-controlling interests are recognized to reflect the portion of net income that is not attributable, directly or indirectly, to the Company from the controlling shareholder. For the Company’s consolidated subsidiaries, non-controlling interests are a minority shareholder’s 10% and 5% ownership interest in Yangzhou Bangshijie and Nanjing Bangshijie, respectively. The net loss attributable to non-controlling interests was $2,004 and $2,746 for the years ended June 30, 2025 and 2024, respectively.
Net (loss) income attributable to ordinary shareholders
Net (loss) income attributable to the Company’s ordinary shareholders decreased by $1,987,959, or 322.3% from net income of $616,818 for the year ended June 30, 2023, to net loss of $1,371,141 for the year ended June 30, 2024.
5.B. Liquidity and Capital Resources
Our principal sources of liquidity came from bank loans and equity financing. As of June 30, 2026 and 2025, we had cash of $242,965 and $933,826, respectively. Our current assets were $16,759,775 and $19,940,088 as of June 30, 2026 and 2025, respectively. Our current liabilities were $20,897,630 and $16,946,870 as of June 30, 2026 and 2025, respectively. Our current ratios as of June 30, 2026 and 2025 were 0.79 and 1.18, respectively. Total shareholders’ equity as of June 30, 2026 and 2025 was $42,788,996 and $7,877,975, respectively. Our outstanding bank loans were approximately $11.8 million and $10.6 million as of June 30, 2026 and 2025, respectively.
As of June 30, 2025 and 2024, we had cash of $933,826 and $153,914, respectively. Our current assets were $19,940,088 and $15,718,168 as of June 30, 2025 and 2024, respectively. Our current liabilities were $16,946,870 and $17,018,014 as of June 30, 2025 and 2024, respectively. Our current ratios as of June 30, 2025 and 2024 were 1.18 and 0.92, respectively. Total shareholders’ equity as of June 30, 2025 and 2024 was $7,877,975 and $4,316,848, respectively. Our outstanding bank loans were approximately $10.7 million as of both June 30, 2025 and June 30, 2024.
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The deterioration in working capital was primarily attributable to the Company’s use of collected accounts receivable and maturing time deposits during the fiscal year 2026 to fund the construction of the intelligent kitchen manufacturing facility and to provide loans to third parties. This resulted in a decrease in cash and cash equivalents, alongside corresponding increases in construction in progress and loans receivable, thereby reduced the working capital balance as of June 30, 2026.
Our working capital requirements are influenced by the level of our operations and timing of accounts receivable collections. With the uncertainty of the current market and macroeconomic conditions, we believe it is necessary to enhance collection of outstanding accounts receivable and loans receivable, and to be cautious on operational decisions and project selection. We closely monitor the related credit risk related to the Company’s accounts receivable and loan receivables and has established respective allowance to account for their expected credit losses.
Going Concern
As reflected in our consolidated financial statements, we reported recurring net losses of approximately $3.8 million, $1.0 million and $1.4 million for the years ended June 30, 2026, 2025 and 2024, respectively, and had a working capital deficit and an accumulated deficit of approximately $4.3 million and $3.3 million, respectively, as of June 30, 2026. These conditions raise substantial doubt about our ability to continue as a going concern for a period of at least twelve months from the date these consolidated financial statements are issued. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended June 30, 2026 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Our consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities, that might be necessary should we be unable to continue as a going concern. See Note 2 to our consolidated financial statements beginning on page F-9 and “Item 5. Key Information –D. Risk Factors - There is substantial doubt about our ability to continue as a going concern, and our independent registered public accounting firm has included a going concern explanatory paragraph in its report on our consolidated financial statements.”
In assessing our liquidity, management monitors our working capital requirements and our ability to generate sufficient cash flows to meet our operating and capital expenditure commitments. Our ability to manage our liquidity risk is dependent upon our ability to reduce our accounts and loans receivable, maintain our gross profit, and control our operating expenses. To strengthen our ability to continue as a going concern, management has developed the following measures: (i) growing our revenue base through strategic partnerships; (ii) raising funds through the capital markets; and (iii) implementing cost-control initiatives to reduce our fixed overheads. There can be no assurance that these measures will be successful, that we will be able to raise additional financing on acceptable terms or at all, or that the net proceeds of any such financing, together with our existing cash resources and cash flows from operations, will be sufficient to fund our operations.
During July 2026, we sold 116,743,749 Class A ordinary shares (583,719 shares post share consolidation) through an at-the-market program under the Sales Agreement dated February 13, 2026. Gross proceeds amounted to approximately $8.7 million. After deducting fees to the sales agent, we received net proceeds of approximately $7.6 million. We believe our current cash and anticipated cash flow from operations and equity financing will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months. If the Company requires additional funding to finance its operations and fund its working capital, Mr. Feng Huang and Ms. Funa Li, as our major shareholders, have indicated their intent and ability to provide additional financial support to the Company up to a total maximum of $1,000,000.
Cash Flows Analysis
Year Ended June 30, 2026 Compared to Year Ended June 30, 2025
The following table sets forth a summary of our cash flows for the years indicated:
| 2026 | 2025 | |||||||
| Net cash used in operating activities | $ | (47,209 | ) | $ | (926,667 | ) | ||
| Net cash used in investing activities | (38,863,800 | ) | (3,366,649 | ) | ||||
| Net cash provided by financing activities | 38,421,795 | 5,138,754 | ||||||
| Effect of foreign exchange rate on cash and restricted cash | 23,982 | (80 | ) | |||||
| Net (decrease) increase in cash and restricted cash | (465,232 | ) | 845,358 | |||||
| Cash and restricted cash at the beginning of the year | 1,079,565 | 234,207 | ||||||
| Cash and restricted cash at the end of the year | $ | 614,333 | $ | 1,079,565 | ||||
Operating Activities
Net cash used in operating activities was $47,209 for the year ended June 30, 2026, an decrease of $879,458 from net cash used of $926,667 for fiscal year 2025. The decrease was mainly due to: a) an increase of $4,563,717 in cash provided by accounts receivable and notes receivable, for the increase in collections of project receivables in the current and prior periods; and b) a decrease of $278,453 in cash used in accounts payable and notes payable; net of c) an increase of $2,805,060 in net loss; (d) a decrease of $407,979 and $212,749 in cash used in inventories and advance to suppliers, primarily due to the decrease in procurement for hotel projects; d) a decrease of $570,559 in cash provided by advances from customers, for the decrease in the number of projects secured by the Company.
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Investing Activities
Net cash used in investing activities was $38,863,800 for the year ended June 30, 2026. It was primarily due to: a) an increase of $34,698,024 in loans lent to third parties; b) the purchase of property and equipment of $326,045, c) construction of intelligent kitchen manufacturing facility of $5,553,063; and d) advance to an investment consultant of $2,000,000; net of e) proceeds from repayment of loans receivable from third parties of $1,000,000 and f) maturity and full settlement of fixed deposits of $2,712,968.
Net cash used in investing activities was $3,366,649 for the year ended June 30, 2025. It was primarily due to: a) an increase of $4,515,050 in loans lent to third parties; b) the purchase of property and equipment of $273,823; net of c) refund of the land use right payment of $1,396,668.
Financing Activities
Net cash provided by financing activities was $38,421,795 for the year ended June 30, 2026. On December 22, 2025, the Company entered into a securities purchase agreement with certain investors for a private placement offering and received net proceeds of RMB 210 million (approximately $30.0 million). On February 13, 2026, the Company entered into a Sales Agreement with a sales agent through an at-the-market program, pursuant to which it raised net proceeds of $7.7 million during February and March 2026. In addition, the Company obtained borrowings of $10,809,036 via bank loans as working capital, which were offset by the repayment of $10,095,097.
Net cash provided by financing activities was $5,138,754 for the year ended June 30, 2025. During the year ended June 30, 2025, the Company completed its IPO on the Nasdaq Capital Market and received total net proceeds of approximately $5.4 million.
Year Ended June 30, 2025 Compared to Year Ended June 30, 2024
The following table sets forth a summary of our cash flows for the years indicated:
| 2025 | 2024 | |||||||
| Net cash used in operating activities | $ | (926,667 | ) | $ | (646,479 | ) | ||
| Net cash used in investing activities | (3,366,649 | ) | (87,189 | ) | ||||
| Net cash provided by financing activities | 5,138,754 | 419,486 | ||||||
| Effect of foreign exchange rate on cash and restricted cash | (80 | ) | 7,262 | ) | ||||
| Net increase (decrease) in cash and restricted cash | 845,358 | (306,920 | ) | |||||
| Cash and restricted cash at the beginning of the year | 234,207 | 541,127 | ||||||
| Cash and restricted cash at the end of the year | $ | 1,079,565 | $ | 234,207 | ||||
Operating Activities
Net cash used in operating activities was $926,667 for the year ended June 30, 2025, an increase of $280,188 from net cash used of $646,479 for fiscal year 2024. The increase was mainly due to: (a) a decrease of $79,176 in cash provided by advances from customers, for the decrease in procurement for hotel projects; (b) an increase of $871,713 in cash used in accounts payable, for the increase in procurement payments for hotel projects from previous years. These were partially offset by a decrease of $410,913 and $267,162 in cash used in inventories and advance to suppliers, primarily due to the decrease in procurement for hotel projects.
Investing Activities
Net cash used in investing activities was $3,366,649 for the year ended June 30, 2025. It was primarily due to: a) an increase of $4,515,050 in loans lent to third parties; b) the purchase of property and equipment of $273,823; net of c) refund of the land use right payment of $1,396,668.
Net cash used in investing activities was to $87,189 for the year ended June 30, 2024. It was primarily due to: a) the purchase of property and equipment of $104,523; and b) proceeds from disposal of property and equipment of $17,334.
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Financing Activities
Net cash provided by financing activities was $5,138,754 for the year ended June 30, 2025. During the year ended June 30, 2025, the Company completed its IPO on the Nasdaq Capital Market and received total net proceeds of approximately $5.4 million.
Net cash provided by financing activities was $419,486 for the year ended June 30, 2024. During fiscal year 2024, we borrowed $7.97 million in bank loans for working capital from Jiangsu Jiangyin Rural Commercial Bank, Jiangsu Suzhou Rural Commercial Bank, Bank of Jiangsu, Bank of Hangzhou, China Merchants Bank, and Shenzhen Qianhai Webank, which were offset by the repayment of $7.42 million. In addition, in fiscal year 2024, the Company paid deferred registration fees of $127,300.
Loan Facilities
For disclosures on loan facilities, please refer to Note 10 - Bank Loans in our consolidated financial statements.
Contingencies
From time to time, the Company may be subject to certain legal proceedings, claims, and disputes that arise in the ordinary course of business. Amounts accrued, as well as the total amount of possible losses with respect to such matters, individually and in the aggregate, are not currently considered to be material to the consolidated financial statements.
Contractual Obligations
The Company leases certain offices premises and apartments in Suzhou, Jiangyin, Nanjing, Hefei and Hangzhou for employees under operating lease with terms that are less than one year in duration.
On June 12, 2025, the Company entered into a lease agreement with Jiangyin Gushan Investment Co., Ltd. for a land use right to construct an intelligent kitchen manufacturing facility. The leased land is located on Fuqian East Road, Gushan Town, covering an area of 13,335 square meters and is zoned for industrial use. The lease term is from June 15, 2025 to June 15, 2028, with an annual rent of RMB 400,050 ($58,737). The Company recognized this lease as an operating lease and recognized a right-of-use asset and a lease liability.
Future minimum lease payments are $65,568 for the 12 months ending June 30, 2027.
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our CFS. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity, or market risk support to such entity. Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit support to us or engages in leasing, hedging, or research and development services with us.
Seasonality
The nature of our business does not appear to be affected by seasonal variations.
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5.C. Research and Development
With a variety of new technologies, processes, and materials in the production of kitchen appliances, requirements and regulations are becoming far more stringent for kitchen appliance manufacturers’ R&D and manufacturing capacities.
Our Operating Subsidiaries have currently been granted 69 patents, including 4 invention patents, 63 utility model patents, and 2 design patents. Our Operating Subsidiaries, as a Wuxi large-scale, energy-saving commercial kitchen equipment engineering technology research center, were awarded the title of “Jiangsu Science and Technology Small and Medium-sized Enterprises” in 2015. In 2017, Wuxi Li Bang received the “Wuxi Science and Technology Research and Development Institution Certificate” issued by the Wuxi Science and Technology Bureau. Our Operating Subsidiaries have made technical improvements in optimizing the performance of our industry’s leading products, improving equipment reliability, simplifying the maintenance needed to maintain consistent operation, increasing the energy efficiency of our products, and enhancing energy saving and environmental protection in our plant, all of this through our R&D department.
The core team of our R&D department currently consists of three professionals who are in charge of project design, mechanical engineering, and electromechanical engineering.
The director of the design department, Qingshun Zhang, has served many highly respected companies, such as Taiwan DKSH Co., Ltd. and Shanghai Diyuan International Trade Co., Ltd., and has years of experience in domestic and international catering projects. He led the team which designed and implemented the kitchen project for Duke University in Kunshan in 2015 and successfully crafted the products required from the technical drawings provided by Duke’s American designer.
Jianjun Guo, who is in charge of mechanical design and manufacturing, has worked as a mechanical engineer in the R&D and design department of many mechanical equipment companies, mastering the professional knowledge of mechanical design and manufacturing and automation. Guo is a master of both AutoCAD and SW modeling, sheet metal, engineering drawings, rendering, animation, finite element plan design, pricing, and parts selection through the production process.
Jianda Zhou, who is in charge of mechanical and electrical engineering, was the project manager of Shanghai Haier Electric and the development manager of Weihao Electric and has experience in plumbing and electrical engineering projects.
Please also refer to “Item 4. Information on the Company – D. Property, Plant and Equipment – Intellectual Property.”
5.D. Trend Information
Development Trends in the Industry
The commercial kitchen appliance market is expanding
With rapid economic development, the commercial kitchen appliance industry has witnessed rapid growth. The market for commercial kitchen appliance industry in northern China and central China continued to grow in recent years, while eastern China is currently the largest demand area of China’s commercial kitchen appliance industry. Consumer demand in the Pearl River Delta region is also expanding. According to the China Industry Research Network, it is expected that the market scale of commercial kitchen appliance industry in China in 2024 could be RMB 88.27 billion.
The major consumer groups of the commercial kitchen appliance industry attach importance to individualized products and have relatively high requirements for product quality and craft design. To compete in this industry, businesses must always understand the latest market consumption demand, pursue their own innovations and development, and provide more diversified, humanized, intelligent products and services.
Brand services speed up enterprise development
Answering the question of how to market the brand services of traditional kitchen equipment enterprises is key to our development. By reflecting differentiation in brand services and consistently satisfying user experience will have the effect of establishing a strong brand. Market expansion provides both an opportunity and challenge for current kitchen equipment companies. Optimizing the product mix to make more beautiful, fashionable, environmentally friendly, and energy-saving products are key to our further long-term development.
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5.E. Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities. On an ongoing basis, we evaluate our estimates, including those estimates that may have a significant effect on our financial condition and results of operations. Our significant accounting policies are disclosed in Note 3 to our consolidated financial statements. We base our estimates and judgment on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We consider an accounting estimate to be critical if:
| (a) | the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and | |
| (b) | the impact of the estimate on financial condition or operating performance is material. |
Expected Credit Losses
The Company follows Accounting Standards Update 326, Credit Losses (“ASC 326”) to account for expected credit losses related to its accounts receivable.
The Company assesses collectability by reviewing receivables on a collective basis where similar characteristics exist, primarily based on the size and nature of specific customer’s receivables (the “CECL model”). In determining the allowance for expected credit losses, the Company considers not only the input from its CECL model but also historical collectability based on past due status, the age of the receivable balances, credit quality of customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers.
With respect to advance to vendors, the Company evaluates associated credit and performance risks and recoverability of its advance to each vendor periodically, taking into account the vendor’s financial condition and ability to fulfil its contractual obligations. The Company makes specific allowance for expected credit losses when there is doubt as to the ability of vendors in delivering their respective contractual obligations or refund the advance.
With respect to loans to third parties, on a periodic basis, the Company evaluates the collection risk related to its loans receivable, considering each borrower’s financial condition and ability to repay the loan, its payment history and current economic conditions. The Company will establish (or adjust) its allowance for expected credit losses related to its loans receivable at each reporting date.
There were no significant changes in the Company’s policy on allowance for expected credit losses throughout the periods presented.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and Management
The following table provides information regarding our executive officers and directors as of the date of this annual report.
| Name | Age | Position(s) | ||
| Feng Huang | 44 | Chief Executive Officer, Director, Chairman of the Board | ||
| Liang Xia | 47 | Chief Financial Officer | ||
| Jianhua Wu | 46 | Chief Operating Officer | ||
| Funa Li | 39 | Director | ||
| Libing Yan | 49 | Independent Director, Chair of Nominating Committee* | ||
| Lianyong Song | 54 | Independent Director, Chair of Audit Committee* | ||
| Liqi Xi | 29 | Independent Director, Chair of Compensation Committee* |
Note:
| * | Each of Libing Yan, Lianyong Song and Liqi Xi has been determined by us to satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and Rule 10A-3 under the Exchange Act. |
The business address of each of the officers and executive directors is No. 190 Xizhang Road, Gushan Town, Jiangyin City, Jiangsu Province, People’s Republic of China.
Feng Huang, Chief Executive Officer and Chairman of the Board
Mr. Feng Huang has served as our Chief Executive Officer and Chairman of the Board since December 16, 2021 and is mainly responsible for presiding over the Company’s daily operations and handling business with external parties. He has more than 12 years of marketing and operations experience in the commercial kitchen appliance industry. He worked as a sales manager in Suzhou Hongtu Sanbao Technology Development Co., Ltd. from July 2004 to September 2007 during which he was in charge of product sales. Mr. Huang has been acting as the general manager of Wuxi Li Bang Kitchen Appliance Co., Limited since October 2007 and is responsible for operations, management, and marketing. He worked as a general manager of Li Bang Kitchen Appliance Co., Limited from March 2019 until now, during which he has been responsible for strategic and new project planning. Mr. Huang received a college degree in Computer Application from Silicon Lake Vocational and Technical School College in June 2004. Since September 2020, he has been a graduate student in Information Engineering at the School of Information Engineering, Jiangsu Open University.
Liang Xia, Chief Financial Officer
Mr. Liang Xia has a wealth of experience in financial management. He is proficient in finance, taxation, financing and financial information management. He has large-scale financial department management experience and cross-functional team management experience. From 2019 to April 2024, he acted as the Financial Manager at Li Bang Kitchen Appliance Co., Limited, and was responsible for overall accounting and financial management, project management. From 2014 to 2019, he acted as the Financial Manager at Wuxi Li Bang Kitchen Appliance Co., Limited. Prior to this, he worked at the Jiangyin Industrial and Commercial Consulting Center from 2000 to 2014. His responsibilities have consistently involved key roles in financial management and business consulting.
Mr. Liang Xia graduated with an associate degree in Business Administration from Yangzhou University Business School in 2000. He furthered his education by obtaining a bachelor’s degree in Accounting from Yangzhou University in 2004.
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Jianhua Wu, Chief Operating Officer
Mr. Jianhua Wu has served as our Chief Operating Officer since December 16, 2021 and is mainly responsible for formulating the Company’s operating rules and work plans. He is also in charge of managing the work between various departments to ensure the overall functioning of the Company’s operating system. He has more than 10 years of operating and management experience. Mr. Wu has been acting as the Sales Manager of Dachang International (Shanghai) Co., Ltd. since July 2003. His activities include execution of regional sales plans and market development. From June 2007 to May 2016, he worked for Winterhalter Trading (Shanghai) Co., Ltd. as Sales Director during which he was responsible for kitchen renovation projects of Shanghai Jinmao Grand Hyatt Hotel and Shanghai Sheraton Hotel etc. He works as the General Manager of Wuxi Li Bang Kitchen Appliance Co., Ltd. Shanghai Branch since June 2016 until now, during which he is responsible for operations and management of the Company’s daily business. Mr. Wu obtained his bachelor’s degree in business management from Hefei University of Technology in June 2003.
Funa Li, Director
Ms. Funa Li has served as a director since May 14, 2022. Ms. Li has extensive experience in project management and bidding of the engineering industry. Since June 2021, she has been the General Manager of Jiangsu Zongchi Engineering Management Co., Ltd., where she is in charge of the daily operating and management of the company. From November 2009 to May 2021, she was the General Manager of Suzhou Zongchi Bidding Consulting Service Co., Ltd., during which she was responsible for managing the bidding operation. From July 2007 to October 2009, she served as the Sales of Suzhou Zhenghua Engineering Cost Consulting Co., Ltd. Ms. Li obtained her Technical Secondary School degree in Mechatronics from Shaanxi Institute of Technology in June 2006. Ms. Li is the spouse of Mr. Huang, our Chief Executive Officer and Chairman of the Board.
Libing Yan, Independent Director and Chair of Nominating Committee
Mr. Libing Yan has served as our director since May 2025. He has been serving as a lawyer at Beijing Dacheng (Wuxi) Law Offices since August 2017. He is a member of the Labor and Human Resources Professional Committee of Dacheng. Mr. Yan has been licensed to practice law in the PRC since February 2019 and has long focused on labor and social security law, with extensive experience in both legal practice and human resources management. Prior to joining Dacheng, Mr. Yan worked in enterprise human resources management, where he developed substantial practical expertise in labor compliance, workplace policy review, compensation design, workforce restructuring, and legal risk management. Mr. Yan is the pioneer of the first nationwide “Comprehensive Systematic Legal Risk Solution in Labor Law” product and has developed a full series of labor law compliance courses, which he regularly offers as public interest programs. He has represented numerous well-known companies in labor dispute cases, several of which have been recognized as representative cases by Jiangsu Province and Wuxi City. Mr. Yan graduated from Jiangsu Judicial School (currently known as Jiangsu Police Institute) in July 1998 and graduated from Nankai University with a bachelor degree in laws in December 2009.
Lianyong Song, Independent Director and Chair of Audit Committee
Mr. Lianyong Song has served as our director since March 2025. He has over thirty years of experience in auditing. From February 2013 until now, he has been a partner at Zhongqinwanxin (Beijing) Accounting Firm, during which he is responsible for personnel management, client relations, and business development. He independently manages a 10-person audit department and represents clients, including Wahaha Group (Red Bull Group), China State Construction Engineering Corporation USA, Wanrun Co., Ltd., and others. From June 2005 to February 2013, Mr. Song served as a senior audit manager at Deloitte Hua Yong CPA Firm (Beijing), during which he managed the company’s Chinese subsidiaries and oversaw projects related to the Capital Markets. Mr. Song familiarized himself with accounting regulations (including China GAAP, US GAAP, and IFRS). He represented clients, including Founder Broadband, Starbucks, IATA, MSN, Panasonic, TAL Education Group (NYSE: XRS), New Oriental Education (NYSE: EDU), and others. From December 1998 to June 2005, Mr. Song served as vice manager at Tianjian CPA firm, during which he was Responsible for personnel management, client relations, and business development. He familiarized himself with China GAAP and represented clients, including China Telecom, China Mobile, National Development Bank, Minsheng Bank, Guodian Nanjing (Shanghai: 600406). Mr. Song started his career at China Financial and Accounting Consulting Company. Mr. Song has a bachelor’s degree from Beijing Wuzi University.
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Liqi Xi, Independent Director and Chair of Compensation Committee
Mr. Liqi Xi has served as our director since May 2025. He is an experienced sales and business development professional specializing in the commercial kitchen and cold chain equipment industry. From March 2020 to February 2024, Mr. Xi served as general manager of the e-commerce department at Jiangsu Tianyi Garment Co., Ltd., and was later promoted to head of the sales department, where he managed distribution channel sales. Since August 2024, he has served as general manager of Shanghai Huaxinhai Cold Chain Equipment Co., Ltd. In this role, he is responsible for developing and maintaining key client relationships and driving overall sales performance. His work includes exploring new markets, acquiring and retaining clients, monitoring industry trends and competitors, analyzing market conditions, and adapting sales strategies to meet evolving customer needs. He earned an associate degree in business administration from Southwest University of Science and Technology in January 2019.
Family Relationships
Ms. Funa Li, a director, is the wife of Mr. Feng Huang, our Chief Executive Officer and Chairman of the Board. Other than that, there are no family relationships among our directors or executive officers.
6.B. Compensation
Employment Agreements with Executive Officers
Our employment agreements with our officers generally provide for employment for a specific term and pay annual salary, health insurance, pension insurance, and paid vacation and family leave time. The agreement may be terminated by either party as permitted by law. In the event of a breach or termination of the agreement by our company, we may be obligated to pay the employee twice the ordinary statutory rate. In the event of a breach or termination causing loss to our company by the employee, the employee may be required to indemnify us against loss. We have executed employment agreements with Feng Huang, Funa Li, Liang Xia and Jianhua Wu.
For the years ended June 30, 2026, 2025 and 2024, we paid $90,965, $60,135 and $59,901, respectively, in cash to our executive officers and employee directors. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors.
On December 16, 2024, Li Bang International entered into an employment agreement with our Chief Executive Officer, Mr. Feng Huang, for a term of three years. The position is up for re-appointment every year by the BOD. Mr. Huang is entitled to US$30,000 for each calendar year, payable quarterly.
On April 28, 2024, Li Bang International entered into an employment agreement with our Chief Financial Officer, Mr. Liang Xia, for a term of three years. The position is up for re-appointment every year by the BOD Mr. Xia is entitled to US$30,000 for each calendar year, payable monthly.
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On December 16, 2024, Li Bang International entered into an employment agreement with our Chief Operating Officer, Mr. Jianhua Wu, for a term of three years. The position is up for re-appointment every year by the BOD. Mr. Wu is entitled toUS$30,000 for each calendar year, payable quarterly.
On May 14, 2022, Ms. Funa Li, a director, has received and signed the offer letter provided by Li Bang International. The term shall continue until her successor is duly elected and qualified. The Board may terminate the position as a director for any or no reason. The position is up for re-appointment every year by the BOD of the Company. Ms. Li is entitled to US$30,000 for each calendar year, payable monthly.
2025 Share Incentive Plan
We have adopted our 2025 Share Incentive Plan (the “2025 Plan”), effective as of December 31, 2025, pursuant to an ordinary resolution by our shareholders at our Annual General Meeting of Shareholders held on December 30, 2025. As of the date of this annual report, we have not issued any shares or awards under the 2025 Plan.
Clawback Policy adopted by the Board
On August 21, 2024, the Board adopted an Executive Compensation Recovery Policy (the “Clawback Policy”) providing for the recovery of certain incentive-based compensation from current and former executive officers of the Company in the event the Company is required to restate any of its financial statements filed with the SEC under the Exchange Act in order to correct an error that is material to the previously-issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Adoption of the Clawback Policy was mandated by new Nasdaq listing standards introduced pursuant to Exchange Act Rule 10D-1. The Clawback Policy is in addition to Section 304 of the Sarbanes-Oxley Act of 2002 which permits the SEC to order the disgorgement of bonuses and incentive-based compensation earned by a registrant issuer’s chief executive officer and chief financial officer in the year following the filing of any financial statement that the issuer is required to restate because of misconduct, and the reimbursement of those funds to the issuer. A copy of the Clawback Policy has been filed herewith as Exhibit 97.1.
6.C. Board Practices
Board of Directors and Board Committees
Our board of directors currently consists of five directors, three of whom are independent as such term is defined by the Nasdaq Capital Market.
Subject to the provisions of our amended and restated articles of association, a director may vote in respect of any contract or transaction in which he is interested, provided, however that the nature of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter. A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof of the nature of a director’s interest shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating to any particular transaction. A director may be counted for a quorum upon a motion in respect of any contract or arrangement which he shall make with our company, or in which he is so interested and may vote on such motion.
Board Committees
We established three committees under the board of directors: an audit committee, a compensation committee and a nominating committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
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Audit Committee. Our Audit Committee consists of Libing Yan, Lianyong Song and Liqi Xi. Lianyong Song serves as the chairperson of our audit committee. We have determined that these three individuals satisfy the “independence” requirements of Nasdaq Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. Our Board determined that Lianyong Song qualifies as an audit committee financial expert and has the accounting or financial management expertise as required under Item 407(d)(5)(ii) and (iii) of Regulation S-K of the SEC. The primary duties of the Audit Committee are, among other things:
| ● | Make recommendations to the Board in relation to the appointment of the external auditor; |
| ● | Re-appointment and removal of the external auditor; |
| ● | Monitor the reporting of our Company’s financial statements, annual reports, accounts and half-year reports; and |
| ● | Review and supervise our financial controls, internal control and risk management systems. |
Compensation Committee. Our compensation committee consists of Libing Yan, Lianyong Song and Liqi Xi. Liqi Xi serves as the chairperson of our compensation committee. The primary duties of the compensation committee are, among other things:
| ● | Make recommendations to the Board in relation to our policy and structure for all Directors’ and senior management’s compensation; |
| ● | Make recommendations to the Board on the compensation packages of individual directors and senior management personnel; and |
| ● | Review performance-based compensation and to ensure that none of the Directors determine their own compensation. |
Nominating Committee. Our nominating committee consists of Libing Yan, Lianyong Song and Liqi Xi. Libing Yan serves as the chairperson of our nominating committee. The primary duties of the Nominating Committee are, among other things:
| ● | Review the structure, size and composition of the Board on a regular basis |
| ● | Identify individuals suitably qualified to become Board members |
| ● | Assess the independence of independent directors; and |
| ● | Make recommendations to the Board in relation to the appointment or re-appointment of Directors. |
Copy of our committee charters are also available on the Company’s website at https://ir.libangco.cn and in print upon request.
Duties of Directors
Under Cayman Islands law, our directors owe to us fiduciary duties, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfiling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our company may have the right to seek damages if a duty owed by our directors is breached.
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Interested Transactions
A director shall not, as a director, vote in respect of any contract, transaction, arrangement or proposal in which he has an interest which (together with any interest of any person connected with him) is a material interest (otherwise than by virtue of his interests, direct or indirect, in shares or debentures or other securities of, or otherwise in or through, us) and if he shall do so his vote shall not be counted, nor in relation thereto shall he be counted in the quorum present at the meeting, but (in the absence of some other material interest than is mentioned below) none of these prohibitions shall apply to:
| (a) | the giving of any security, guarantee or indemnity in respect of: |
| (i) | money lent or obligations incurred by him or by any other person for our benefit or any of our subsidiaries; or |
| (ii) | a debt or obligation of ours or any of our subsidiaries for which the director himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security; |
| (b) | where we or any of our subsidiaries is offering securities in which offer the director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the director is to or may participate; |
| (c) | any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with him) does not to his knowledge hold an interest representing one percent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to shareholders of the relevant body corporate; |
| (d) | any act or thing done or to be done in respect of any arrangement for the benefit of the employees of us or any of our subsidiaries under which he is not accorded as a director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; or |
| (e) | any matter connected with the purchase or maintenance for any director of insurance against any liability or (to the extent permitted by the Cayman Islands Companies Act) indemnities in favor of directors, the funding of expenditure by one or more directors in defending proceedings against him or them or the doing of anything to enable such director or directors to avoid incurring such expenditure. |
A director may, as a director, vote (and be counted in the quorum) in respect of any contract, transaction, arrangement or proposal in which he has an interest which is not a material interest or as described above, provided that the nature of the interest in such contract, transaction arrangement or proposal shall be disclosed by him at or prior to its consideration and any vote on that matter.
Remuneration
All directors hold office until their successors have been duly elected and qualified. The directors may receive such remuneration as our BOD may determine from time to time. Each director is entitled to be paid all traveling, hotel and other expenses properly incurred in going to attending and returning from meetings of our board of directors or committees of our board of directors or shareholder meetings or separate meetings of the holders of any class of shares or otherwise in connection with the business of the Company. The compensation committee will assist the directors in reviewing the compensation structure for the directors.
Terms of Directors and Officers
Our officers are elected by and serve at the discretion of the board of directors. Each director is not subject to a term of office and holds office until such time as his successor takes office or until the earlier of his death, resignation or removal from office by ordinary resolution of our shareholders. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) is made subject to any law relating to mental health or incompetence, whether by court order or otherwise; (iii) resigns by notice in writing to our company; (iv) is prohibited by Cayman Islands law from being a director; or (v) is removed from office pursuant to any other provisions of the Memorandum and Articles of Association.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor has any been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Related Party Transactions,” our directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
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6.D. Employees
We had 136 employees as of the June 30, 2026. The following table sets forth a breakdown of our employees by function:
| Department | As of the June 30, 2026 | |||
| Administration | 9 | |||
| Technical | 17 | |||
| Sales | 11 | |||
| Accounting | 2 | |||
| Production | 79 | |||
| Procurement | 1 | |||
| Design | 1 | |||
| Logistics | 10 | |||
| Maintenance | 6 | |||
| Total | 136 | |||
Our employees are not protected by representatives of labor organizations and collective bargaining agreements. We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes. According to the laws of the PRC, we are required to make contributions to the employee welfare plan based on specific percentages of employee salaries, bonuses and certain allowances, and the maximum amount is set by the local government from time to time. According to Chinese regulations, we participate in various employee social security programs organized by local governments. We have paid social insurance for some employees, including housing provident funds and social insurance including pension, work-related injury and unemployment.
We strengthened staff training, implemented performance appraisals and other measures to improve staff monetization and work efficiency. We believe that we maintain a good relationship with our employees.
6.E. Share Ownership
The following table sets forth information with respect to beneficial ownership of our ordinary shares as of the date of this annual report by:
| ● | Each person who is known by us to beneficially own more than 5% of our outstanding ordinary shares; |
| ● | Each of our director, director nominees and named executive officers; and |
| ● | All directors and named executive officers as a group. |
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As of the date of this Annual Report, the Company’s authorized share capital is US$35,000 divided into 3,150,000,000 Class A Ordinary Shares of par value US$0.00001 each and 350,000,000 Class B Ordinary Shares of par value US$0.00001 each. Each Class A Ordinary Share entitles the holder thereof to one (1) vote on all matters submitted to shareholders for approval at a general meeting, and each Class B Ordinary Share entitles the holder thereof to fifteen (15) votes on all matters submitted to shareholders for approval at a general meeting.
The number and percentage of ordinary shares beneficially owned are based on 621,418 Class A Ordinary Shares and 89,008 Class B Ordinary Shares issued and outstanding as of the date of this annual report. Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our ordinary shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person has voting or investment power with respect to securities. In computing the number of ordinary shares beneficially owned by a person listed below and the percentage ownership of such person, ordinary shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this annual report are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all ordinary shares shown as beneficially owned by them.
| Class A Ordinary Shares Beneficially Owned | Class B Ordinary Shares Beneficially Owned | Total Ordinary Shares | Voting Power | |||||||||||||||||||||||||
| Name of Beneficial Owner | Number | % | Number | % | Number | % | % | |||||||||||||||||||||
| Directors and executive officers: | ||||||||||||||||||||||||||||
| Feng Huang(1) | - | - | 89,008 | 100 | % | 89,008 | 12.5 | % | 68.2 | % | ||||||||||||||||||
| Liang Xia | - | - | - | - | - | - | - | |||||||||||||||||||||
| Jianhua Wu | - | - | - | - | - | - | - | |||||||||||||||||||||
| Funa Li(2) | - | - | 15,220 | 17.1 | % | 15,220 | 2.1 | % | 11.7 | % | ||||||||||||||||||
| Libing Yan | - | - | - | - | - | - | - | |||||||||||||||||||||
| Lianyong Song | - | - | - | - | - | - | - | |||||||||||||||||||||
| Liqi Xi | - | - | - | - | - | - | - | |||||||||||||||||||||
| Directors and executive officers as a group | - | - | 89,008 | 100 | % | 89,008 | 12.5 | % | 68.2 | % | ||||||||||||||||||
| 5% or Greater Shareholders: | ||||||||||||||||||||||||||||
| Maple Huang Holdings Limited(1) | - | - | 89,008 | 100 | % | 89,008 | 12.5 | % | 68.2 | % | ||||||||||||||||||
| (1) | Feng Huang, through Maple Huang Holdings Limited, is deemed to beneficially own 89,008 Class B Ordinary Shares, of which 73,788 shares are held of record by Maple Huang Holdings Limited, a company incorporated in the British Virgin Islands and solely owned by Mr. Huang, and 15,220 shares are held of record by Funa Lee Holdings Limited, a company incorporated in the British Virgin Islands and solely owned by Ms. Li, spouse of Mr. Huang and a director of the Company. Mr. Huang and Ms. Li have an understanding that Mr. Huang has sole decision-making authority with respect to how the Class B Ordinary Shares held of record by each of their respectively wholly owned entities are voted, converted, transferred or otherwise disposed of. Accordingly, Mr. Huang, through Maple Huang Holdings Limited, may be deemed to beneficially own all the 89,008 Class B Ordinary Shares held of record by Maple Huang Holdings Limited and Funa Lee Holdings Limited. Maple Huang Holdings Limited’s current registered address is Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. |
| (2) | Funa Li is deemed to beneficially own 15,220 Class B Ordinary Shares that are held of record by Funa Lee Holdings Limited, a British Virgin Islands company solely owned by Ms. Li. Since Ms. Li owns 100% of Funa Lee Holdings Limited, she has the voting and dispositive power of all the shares held by Funa Lee Holdings Limited. Funa Lee Holdings Limited’s current registered address is Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. |
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6.F. Disclosure of Action to Recover Erroneously Awarded Compensation
There was no erroneously awarded compensation that was required to be recovered pursuant to the Company’s Executive Compensation Recovery Policy during the fiscal year ended June 30, 2026.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees - 6.E. Share Ownership.”
7.B. Related Party Transactions
Terms of Directors and Officers
See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Terms of Directors and Officers.”
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees—B. Compensation-Employment Agreements with Executive Officers.”
Other Related Party Transactions
The table below sets forth the major related parties and their relationships with the Company as of June 30, 2026:
| Name of related parties | Relationship with the Group | |
| Feng Huang | Ultimate majority shareholder of Li Bang International, CEO and Chairman of the Board | |
| Funa Li | Director, spouse of Mr. Feng Huang |
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The following are related party balances which are non-interest bearing as of the date of this report, June 30, 2026 and 2025:
| Date of this report | 2026 | 2025 | ||||||||||
| US$ | US$ | US$ | ||||||||||
| Amounts due to related parties: | ||||||||||||
| Feng Huang (1) | $ | 302,458 | $ | 318,981 | $ | 210,490 | ||||||
| (1) | The balances represent primarily business expenses paid by Mr. Huang of the Company in the normal course of business, which amounts are to be reimbursed by the Company. |
The following are related party transactions for the subsequent period up to the reporting date and for the years ended June 30, 2026 and 2025:
| Subsequent period up to the reporting date | 2026 | 2025 | ||||||||||
| US$ | US$ | US$ | ||||||||||
| Equity Transaction (1): | ||||||||||||
| Feng Huang | $ | 248,700 | $ | - | $ | - | ||||||
| Funa Li | 51,300 | - | - | |||||||||
| $ | 300,000 | $ | - | $ | - | |||||||
| (1) | On August 13, 2026, the Company entered into a Securities Purchase Agreement whereby the Company sold 73,147 Class B ordinary shares to Maple Huang Holdings Limited (an entity wholly owned and controlled by Feng Huang, ultimate majority shareholder of the Company) and 15,088 Class B ordinary shares to Funa Lee Holdings Limited (an entity wholly owned and controlled by Funa Li, a director of the Company and the spouse of Mr. Huang), at a price of $3.40 per share for an aggregate purchase price of $300,000. The shares were issued and sold on August 17, 2026. |
7.C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
Please refer to “Item 18. Financial Statements.”
Legal and Administrative Proceedings
Please refer to “Item 4. Information on the Company - Legal Proceedings.”
Dividend Policy
We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our BOD and will depend on a number of factors, including future earnings, capital requirements, financial condition, and future prospects, and other factors the board of directors may deem relevant.
Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business.
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Pursuant to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC “resident enterprise” to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for preferential tax treatment.
If we determine to pay dividends on any of our ordinary shares in the future, as a holding company, we will be dependent on receipt of funds from our operating subsidiaries. Current PRC regulations permit our PRC Subsidiaries to pay dividends to Li Bang HK only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. And if the PRC tax authorities determine that Li Bang International is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ordinary shares. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. Our subsidiaries in China are required to set aside statutory reserves and have done so.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.
Cash dividends, if any, on our ordinary shares will be paid in U.S. dollars. Li Bang HK may be considered a non-resident enterprise for tax purposes, so that any dividends Li Bang WFOE pays to Li Bang HK may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%.
8.B. Significant Changes
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
9.A. Offer and listing details
Our Class A Ordinary Shares are listed on the Nasdaq Capital Market under the symbol “LBGJ.” The Class A Ordinary Shares began trading on The Nasdaq Capital Market on November 21, 2025, under our symbol “LGBJ”. The CUSIP number of our Class A Ordinary Shares is currently G5480M128.
Our ordinary shares began trading on October 23, 2024 on the Nasdaq Capital Market.
9.B. Plan of distribution
Not applicable for annual reports on Form 20-F.
9.C. Markets
Our Class A Ordinary Shares are listed on the Nasdaq Capital Market under the symbol “LBGJ.”
9.D. Selling shareholders
Not applicable for annual reports on Form 20-F.
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9.E. Dilution
Not applicable for annual reports on Form 20-F.
9.F. Expenses of the issue
Not applicable for annual reports on Form 20-F.
ITEM 10. ADDITIONAL INFORMATION
10.A. Share capital
Not applicable.
10.B. Memorandum and articles of association
The following are summaries of the material provisions of our amended and restated memorandum and articles of association and the Cayman Islands Companies Act, insofar as they relate to the material terms of our ordinary shares. Copies of our amended and restated memorandum and articles of association are filed as exhibits to this annual report. As a convenience to potential investors, we provide the below description of Cayman Islands law and our amended and restated articles of association.
General
All of our issued and outstanding ordinary shares are fully paid and non-assessable. Our ordinary shares are issued in registered form, and are issued when registered in our register of members. Unless the BOD determine otherwise, each holder of our ordinary shares will not receive a certificate in respect of such ordinary share. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their ordinary shares. We may not issue shares or warrants to bearer.
Subject to the provisions of the Cayman Islands Companies Act and our articles of association regarding redemption and purchase of our shares, our directors have general and unconditional authority to allot (with or without confirming rights of renunciation), grant options over or otherwise deal with any unissued shares to such persons, at such times and on such terms and conditions as they may decide. Such authority could be exercised by our directors to allot shares which carry rights and privileges that are preferential to the rights attaching to ordinary share. No share may be issued at a discount to par value except in accordance with the provisions of the Cayman Islands Companies Act. Our directors may refuse to accept any application for shares and may accept any application in whole or in part, for any reason or for no reason.
As of the date of this annual report, there are 621,418 Class A Ordinary Shares and 89,008 Class B Ordinary Shares issued and outstanding, all of which are fully paid and non-assessable.
Dividends
Subject to the provisions of the Cayman Islands Companies Act and our memorandum and articles of association, our directors may declare dividends or distributions out of our funds which are lawfully available for that purpose.
Subject to the requirements of the Cayman Islands Companies Act regarding the application of a company’s share premium account, dividends may be declared and paid out of our share premium account. Dividends may also be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which the BOD determines is no longer needed. Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Our directors when paying dividends to shareholders may make such payment in cash.
Unless provided by the rights attached to a share, no dividend shall bear interest against the Company.
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Voting Rights
Subject to any special rights or restrictions as to voting attached to any shares, on a show of hands every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote. On a poll, every shareholder who is present in person or by duly authorized representative and every person representing a shareholder by proxy shall have one (1) vote for each Class A Ordinary Share of which he or the person represented is the holder and fifteen (15) votes for each Class B Ordinary Share of which he or the person represented is the holder. In addition, all shareholders holding shares of a particular class are entitled to vote at a meeting of the holders of that class of shares. Votes may be given personally, by duly authorized representative or by proxy.
Variation of Rights Attaching to of Shares
Whenever our share capital is divided into different classes of shares, the rights attaching to any class of share (unless otherwise provided by the terms of issue of the shares of that class) may be varied either with the consent in writing of the holders of more than one half of the issued shares of that class, or with the sanction of a resolution passed by a majority of more than one half of the holders of shares of the class or series present in person or by proxy at a separate general meeting of the holders of shares of that class.
Unless the terms on which a class of shares was issued state otherwise, the rights conferred on the shareholder holding shares of any class shall not be deemed to be varied by the creation or issue of further shares ranking pari passu with the existing shares of that class or subsequent or in priority to them.
Alteration of Share Capital
Subject to the Cayman Islands Companies Act, our shareholders may, by ordinary resolution:
| (a) | increase our share capital by new shares of the amount fixed by that ordinary resolution and with the attached rights, priorities and privileges set out in that ordinary resolution; |
| (b) | consolidate and divide all or any of our share capital into shares of larger amount than our existing shares; |
| (c) | convert all or any of our paid-up shares into stock, and reconvert that stock into paid up shares of any denomination; |
| (d) | sub-divide our shares or any of them into shares of an amount smaller than that fixed, so, however, that in the sub-division, the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; and |
| (e) | cancel shares which, at the date of the passing of that ordinary resolution, have not been taken or agreed to be taken by any person. |
Subject to the Cayman Islands Companies Act, our shareholders may, by special resolution, reduce our share capital and any capital redemption reserve in any manner.
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Calls on Shares and Liens
Subject to the terms of allotment, our directors may make calls on the shareholders in respect of some or all of any monies unpaid on their shares including any unpaid premium and each shareholder shall (subject to receiving at least 14 days’ notice specifying when payment is to be made), pay to us at the time or times so specified the amount called on his shares. Shareholders registered as the joint holders of a share shall be jointly and severally liable to pay all calls in respect of the share. If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid at the rate fixed by the terms of allotment of the share or in the notice of the call or if no rate is fixed, at the rate of 6 percent per annum. Our directors may, at their discretion, waive payment of the interest wholly or in part.
We have a first and paramount lien on every partly-paid or unpaid share for all monies called or payable to us in respect of that share. Our liens on such shares extend to dividends payable thereon.
At any time our directors may declare any share to be wholly or partly exempt from the lien on shares provisions of our articles of association.
We may sell, in such manner as our directors may determine, any share on which the sum in respect of which the lien exists is presently payable, if due notice that such sum is payable has been given (as prescribed by our articles of association) and, within 14 days of the date on which the notice is deemed to be given under our articles of association, such notice has not been complied with.
Unclaimed Dividend
A dividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remain owing by, the Company.
Forfeiture of Shares
If a shareholder fails to pay any call, our directors may give to such shareholder not less than 14 days’ notice requiring payment to be made. The notice shall also contain a warning that if the notice is not complied with, the shares in respect of which the call is made will be liable to be forfeited.
If such notice is not complied with, our directors may, before the payment required by the notice has been received, resolve that any share the subject of that notice be forfeited (which forfeiture shall include all dividends or other monies payable in respect of the forfeited share and not paid before such forfeiture).
A forfeited share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as our directors determine and at any time before a sale, re-allotment or disposition the forfeiture may be cancelled on such terms as our directors think fit.
A person whose shares have been forfeited shall cease to be a shareholder in respect of the forfeited shares, but shall, notwithstanding such forfeit, remain liable to pay to us all monies which at the date of forfeiture were payable by him to us in respect of the shares, together with all expenses and interest from the date of forfeiture until payment.
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A certificate in writing under the hand of any of our directors or officers stating that a share has been duly forfeited on the date stated in the certificate shall be conclusive evidence that the particular shares have been forfeited on the stated date.
Redemption and Purchase of Own Shares
Subject to the Cayman Islands Companies Act and any rights for the time being conferred on the shareholders holding a particular class of shares, we may:
| (a) | issue shares that are to be redeemed or liable to be redeemed, at our option or the shareholder holding those redeemable shares, on the terms and in the manner its directors determine before the issue of those shares; |
| (b) | purchase all or any of our own shares of any class including any redeemable shares on the terms and in the manner which our directors determine at the time of such purchase; and |
| (c) | permit the surrender of fully paid shares for no consideration. |
We may make a payment in respect of the redemption or purchase of our own shares in any manner authorized by the Cayman Islands Companies Act, including out of any combination of capital, our profits and the proceeds of a fresh issue of shares.
When making a payment in respect of the redemption or purchase of shares, our directors may make the payment in cash or in specie (or partly in one and partly in the other) if so authorized by the terms of the allotment of those shares or by the terms applying to those shares, or otherwise by agreement with the shareholder holding those shares.
Transfer of Shares
Provided that a transfer of ordinary shares complies with applicable rules of the Nasdaq, a shareholder may transfer ordinary shares to another person by completing an instrument of transfer in a common form or in a form prescribed by Nasdaq or in any other form approved by the directors, executed:
| (a) | where the ordinary shares are fully paid, by or on behalf of that shareholder; and |
| (b) | where the ordinary shares are unpaid or partly paid or where otherwise required by our directors, by or on behalf of that shareholder and the transferee. |
The transferor shall be deemed to remain the holder of an ordinary share until the name of the transferee is entered into the register of members of the Company.
Where the ordinary shares in question are not listed on or subject to the rules of Nasdaq, the BOD may, in its absolute discretion, decline to register any transfer of any ordinary share that has not been fully paid up or is subject to a company lien. The BOD may also decline to register any transfer of such ordinary share unless:
| (a) | the instrument of transfer is lodged with us, accompanied by the certificate (if any) for the ordinary shares to which it relates and such other evidence as the BOD may reasonably require to show the right of the transferor to make the transfer; |
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| (b) | the instrument of transfer is in respect of only one class of ordinary share; |
| (c) | the instrument of transfer is properly stamped, if required; |
| (d) | the ordinary share transferred is fully paid and free of any lien in favor of us; |
| (e) | any fee related to the transfer has been paid to us; and |
| (f) | in the case of a transfer to joint holders, the transfer is not to more than four joint holders. |
If our directors refuse to register a transfer, they are required, within two months after the date on which the instrument of transfer was lodged, to send to the transferee notice of such refusal.
The registration of transfers may, on not less than 14 calendar days’ notice being given by advertisement in one or more newspapers or by electronic means or any other means, be suspended at such times and for such periods as the BOD may from time to time determine. The registration of transfers, however, shall not be suspended for more than 30 calendar days in any year.
Inspection of Books and Records
Holders of our ordinary shares have no general right under the Cayman Islands Companies Act to inspect or obtain copies of our register of members or our corporate records (other than copies of our memorandum and articles of association and register of mortgages and charges, and any special resolutions passed by our shareholders). Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”
General Meetings
As a Cayman Islands exempted company, we are not obligated by the Cayman Islands Companies Act to call shareholders’ annual general meetings; accordingly, we may, but shall not be obliged to, in each year hold a general meeting as an annual general meeting. Any annual general meeting held shall be held at such time and place as may be determined by the BOD. All general meetings other than annual general meetings shall be called extraordinary general meetings.
Any of our directors may convene general meetings whenever such director thinks fit. General meetings shall also be convened on the written requisition of one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than 10 percent of the rights to vote at such general meeting, specifying the purpose of the meeting and signed by each of the shareholders making the requisition. If our directors do not convene such meeting for a date not later than 21 clear days’ after the date of receipt by the Company of the written requisition, the requisitionists, or any of them representing at least one-half of the total voting rights of all of the requisitionists, may themselves convene a general meeting, but any meeting so convened shall be held no later than the day which falls three months after the expiration of the said twenty-one day period.
At least five days’ notice (exclusive of the day on which notice is served or deemed to be served, but inclusive of the day for which notice is given) of general meeting shall be given to shareholders entitled to attend and vote at such meeting. The notice shall specify the place, the day and the hour of the meeting and the general nature of the business to be conducted at the meeting. In addition, if a resolution is proposed as a special resolution, the text of that resolution shall be given to all shareholders. Notice of every general meeting shall also be given to the directors and our auditors.
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A meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person, through their authorized representative or by proxy one or more shareholders who, together, hold at least one third of all of the issued shares entitled to attend and vote thereat.
If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same time and place or to such other day, time and place as our directors may determine, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the shareholders present shall be a quorum.
At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless the BOD demands before the meeting that voting shall be conducted by poll or a poll is (before, or on, the declaration of the result of the show of hands) demanded by the chairman of the meeting or by any other shareholder or shareholders collectively present in person or by proxy (or in the case of a corporation or other non-natural person, by its duly authorized representative or proxy) and holding at least ten percent of all of the issued shares giving a right to attend and vote at the meeting. Unless a poll is so demanded, a declaration by the chairman as to the result of a resolution and an entry to that effect in the minutes of the meeting, shall be conclusive evidence of the outcome of a show of hands, without proof of the number or proportion of the votes recorded in favor of, or against, that resolution.
If a poll is duly demanded, it shall be taken in such manner as the chairman directs and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.
Directors
We may by ordinary resolution, from time to time, fix the maximum and minimum number of directors to be appointed. Under our articles of association, we are required to have a minimum of one director and the maximum number of Directors shall be unlimited unless otherwise determined by our shareholders by ordinary resolution.
A director may be appointed by ordinary resolution or by our directors. Any appointment may be to fill a vacancy or as an additional director.
Our directors shall be entitled to such remuneration as our directors may determine.
The shareholding qualification for directors may be fixed by our shareholders by ordinary resolution and unless and until so fixed there shall be no shareholding qualification for directors.
A director may be removed by ordinary resolution.
A director may at any time resign or retire from office by giving us notice in writing. Unless the notice specifies a different date, the director shall be deemed to have resigned on the date that the notice is delivered to us.
Subject to the provisions of our articles of association, the office of a director shall be vacated forthwith if:
| (a) | he is prohibited by the law of the Cayman Islands from acting as a director; |
| (b) | he is made bankrupt or makes an arrangement or composition with his creditors generally; |
| (c) | he resigns his office by notice to us; |
| (d) | he only held office as a director for a fixed term and such term expires; |
| (e) | in the opinion of a registered medical practitioner by whom he is being treated he becomes physically or mentally incapable of acting as a director; |
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| (f) | he is given notice by the majority of the other directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such director); |
| (g) | he is made subject to any law relating to mental health or incompetence, whether by court order or otherwise; or |
| (h) | without the consent of the other directors, he is absent from meetings of directors for a continuous period of six months. |
Each of the compensation committee and the nominating and corporate governance committee shall consist of at least three directors and the majority of the committee members shall be independent within the meaning of the Nasdaq corporate governance rules. The audit committee shall consist of at least three directors, all of whom shall be independent within the meaning of the Nasdaq corporate governance rules and will meet the criteria for independence set forth in Rule 10A-3 or Rule 10C-1 of the Exchange Act.
Powers and Duties of Directors
Subject to the provisions of the Cayman Islands Companies Act and our memorandum and articles of association, our business shall be managed by our directors, who may exercise all our powers. No prior act of our directors shall be invalidated by any subsequent alteration of our memorandum or articles of association. However, to the extent allowed by the Cayman Islands Companies Act, shareholders may by special resolution validate any prior or future act of the directors which would otherwise be in breach of their duties.
Our directors may delegate any of their powers to any committee consisting of one or more persons who need not be shareholders and may include non-directors so long as the majority of those persons are directors; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by our directors. The BOD has established an audit committee, compensation committee, and nomination and corporate governance committee.
The BOD may establish any local or divisional board of directors or agency and delegate to it its powers and authorities (with power to sub-delegate) for managing any of our affairs whether in the Cayman Islands or elsewhere and may appoint any persons to be members of a local or divisional board of directors, or to be managers or agents, and may fix their remuneration.
Our directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, either generally or in respect of any specific matter, to be our agent with or without authority for that person to delegate all or any of that person’s powers.
Our directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, whether nominated directly or indirectly by our directors, to be our attorney or our authorized signatory and for such period and subject to such conditions as they may think fit. The powers, authorities and discretions, however, must not exceed those vested in, or exercisable, by our directors under our articles of association.
The BOD may remove any person so appointed and may revoke or vary the delegation.
Our directors may exercise all of our powers to borrow money and to mortgage or charge its undertaking, property and assets both present and future and uncalled capital or any part thereof, to issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of ours or our parent undertaking (if any) or any subsidiary undertaking of us or of any third party.
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A director shall not, as a director, vote in respect of any contract, transaction, arrangement or proposal in which he has an interest which (together with any interest of any person connected with him) is a material interest (otherwise then by virtue of his interests, direct or indirect, in shares or debentures or other securities of, or otherwise in or through, us) and if he shall do so his vote shall not be counted, nor in relation thereto shall he be counted in the quorum present at the meeting, but (in the absence of some other material interest than is mentioned below) none of these prohibitions shall apply to:
| (a) | the giving of any security, guarantee or indemnity in respect of: |
| (i) | money lent or obligations incurred by him or by any other person for our benefit or any of our subsidiaries; or |
| (ii) | a debt or obligation of ours or any of our subsidiaries for which the director himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security; |
| (b) | where we or any of our subsidiaries is offering securities in which offer the director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the director is to or may participate; |
| (c) | any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with him) does not to his knowledge hold an interest representing one percent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to shareholders of the relevant body corporate; |
| (d) | any act or thing done or to be done in respect of any arrangement for the benefit of the employees of us or any of our subsidiaries under which he is not accorded as a director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; or |
| (e) | any matter connected with the purchase or maintenance for any director of insurance against any liability or (to the extent permitted by the Cayman Islands Companies Act) indemnities in favor of directors, the funding of expenditure by one or more directors in defending proceedings against him or them or the doing of anything to enable such director or directors to avoid incurring such expenditure. |
A director may, as a director, vote (and be counted in the quorum) in respect of any contract, transaction, arrangement or proposal in which he has an interest which is not a material interest or as described above, provided that the nature of the interest in such contract, transaction arrangement or proposal shall be disclosed by him at or prior to its consideration and any vote on that matter.
Capitalization of Profits
Our directors may resolve to capitalize:
| (a) | any part of our profits not required for paying any preferential dividend (whether or not those profits are available for distribution); or |
| (b) | any sum standing to the credit of our share premium account or capital redemption reserve, if any. |
The amount resolved to be capitalized must be appropriated to the shareholders who would have been entitled to it had it been distributed by way of dividend and in the same proportions.
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Liquidation Rights
If we are wound up, the shareholders may, subject to our articles of association and any other sanction required by the Cayman Islands Companies Act, pass a special resolution allowing the liquidator to do either or both of the following:
| (a) | to divide in specie among the shareholders the whole or any part of our assets and, for that purpose, to value any assets and to determine how the division shall be carried out as between the shareholders or different classes of shareholders; and |
| (b) | to vest the whole or any part of our assets in trustees for the benefit of shareholders and those liable to contribute to the winding up. |
Register of Members
Under the Cayman Islands Companies Act, we must keep a register of members and there should be entered therein:
| ● | the names and addresses of our shareholders, together with a statement of the shares held by each shareholder, such statement shall confirm (i) the amount paid or agreed to be considered as paid, on the shares of each shareholder; (ii) the number and category of shares held by each member, and (iii) whether each relevant category of shares held by a member carries voting rights under the articles of association of the company, and if so, whether such voting rights are conditional; |
| ● | the date on which the name of any person was entered on the register as a shareholder; and |
| ● | the date on which any person ceased to be a shareholder. |
Under the Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (that is, the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a person who has agreed to become a shareholder and who is registered in the register of members is deemed, as a matter of the Cayman law, to have legal title to the shares as set against its name in the register of members.
Differences in Corporate Law
Cayman Islands companies are governed by the Companies Act which is modeled on English law but does not follow recent English statutory enactments. In addition, the Cayman Islands Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Cayman Islands Companies Act applicable to us and the comparable laws applicable to companies incorporated in the State of Delaware in the U.S.
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Mergers and Similar Arrangements
In certain circumstances, the Companies Act permits mergers or consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies provided that the laws of the foreign jurisdiction permit such merger or consolidation.
Where the merger or consolidation is between two Cayman Islands companies, the directors of each company must approve a written plan of merger or consolidation containing certain prescribed information. That plan of merger or consolidation must then be authorized by (i) a special resolution of the shareholders of each company; and (ii) such other authorization, if any, as may be specified in such constituent company’s articles of association. No shareholder resolution is required for a merger between a parent company (i.e., a company that holds issued shares that together represent 90% of the votes at a general meeting of the subsidiary company) and its subsidiary company, if a copy of the plan of merger is given to every member of each subsidiary company to be merged unless that member agrees otherwise.
The consent of each holder of a fixed or floating security interest of a constituent company must be obtained, unless the court waives such requirement. If the Cayman Islands Registrar of Companies is satisfied that the requirements of the Companies Act (which includes certain other formalities) have been complied with, the Registrar of Companies will register the plan of merger or consolidation.
Where the merger or consolidation involves a foreign company, the procedure is similar, save that with respect to the foreign company, the directors of the Cayman Islands company are also required to make a declaration to the effect that, having made due enquiry, they are of the opinion that certain requirements have been met, including the following requirements: (i) that the merger or consolidation is permitted or not prohibited by the constitutional documents of the foreign company and by the laws of the jurisdiction in which the foreign company is incorporated, and that those laws and any requirements of those constitutional documents have been or will be complied with; (ii) that no petition or other similar proceeding has been filed and remains outstanding or order made or resolution adopted to wind up or liquidate the foreign company in any applicable jurisdictions; (iii) that no receiver, trustee, administrator or other similar person has been appointed in any jurisdiction and is acting in respect of the foreign company, its affairs or its property or any part thereof; (iv) that no scheme, order, compromise or other similar arrangement has been entered into or made in any jurisdiction whereby the rights of creditors of the foreign company are and continue to be suspended or restricted; and (v) there is no other reason why it would be against the public interest to permit the merger or consolidation.
Where the surviving company is the Cayman Islands exempted company, the directors of the Cayman Islands exempted company are further required to make a declaration to the effect that, having made due enquiry, they are of the opinion that the following requirements have been met: (i) that the foreign company is able to pay its debts as they fall due and that the merger or consolidation is bona fide and not intended to defraud unsecured creditors of the foreign company; (ii) that in respect of the transfer of any security interest granted by the foreign company to the surviving or consolidated company (a) consent or approval to the transfer has been obtained, released or waived; (b) the transfer is permitted by and has been approved in accordance with the constitutional documents of the foreign company; and (c) the laws of the jurisdiction of the foreign company with respect to the transfer have been or will be complied with; and (iii) that the foreign company will, upon the merger or consolidation becoming effective, cease to be incorporated, registered or exist under the laws of the relevant foreign jurisdiction.
The Companies Act provides for a right of dissenting shareholders to be paid the fair value of their shares upon their dissenting to the merger or consolidation in certain circumstances if they follow a prescribed procedure. In essence, where such rights apply, that procedure is as follows: (i) the shareholder must give his written objection to the merger or consolidation to the constituent company before the vote on the merger or consolidation, including a statement that the shareholder proposes to demand payment for their shares if the merger or consolidation is authorized by the vote; (ii) within 20 days following the date on which the merger or consolidation is authorized by the shareholders, the constituent company must give written notice to each shareholder who made a written objection; (iii) a shareholder who elects to dissent must within 20 days following receipt of such notice from the constituent company, give the constituent company a written notice of his intention to dissent including, among other details, a demand for payment of the fair value of their shares; (iv) within seven days following the date of the expiration of the period set out in clause (iii) above or seven days following the date on which the plan of merger or consolidation is filed, whichever is later, the constituent company, the surviving company or the consolidated company must make a written offer to each dissenting shareholder to purchase their shares at a price that the company determines is the fair value and if the company and the shareholder agree the price within 30 days following the date on which the offer was made, the company must pay the shareholder such amount; and (v) if the company and the shareholder fail to agree on a price within such 30 day period, within 20 days following the date on which such 30 day period expires, the company must (and any dissenting shareholder may) file a petition with the Grand Court of the Cayman Islands to determine the fair value of all dissenting shares and such petition by the company must be accompanied by a list of the names and addresses of the dissenting shareholders with whom agreements as to the fair value of their shares have not been reached by the company. At the hearing of that petition, the court has the power to determine the fair value of the shares together with a fair rate of interest, if any, to be paid by the company upon the amount determined to be the fair value. Any dissenting shareholder whose name appears on the list filed by the company may participate fully in all proceedings until the determination of fair value is reached. A shareholder who dissents must do so in respect of all shares that that person holds in the constituent company. Upon the giving of a notice of dissent under clause (iii) above, the shareholder to whom the notice relates shall cease to have any of the rights of a shareholder except the right to be paid the fair value of that person’s shares and certain rights specified in the Companies Act. These rights of a dissenting shareholder are not available in certain circumstances, for example, to dissenting shareholders holding shares of any class in respect of which an open market exists on a recognized stock exchange or recognized interdealer quotation system at the relevant date, where the consideration for such shares to be contributed are shares of any company listed on a national securities exchange or shares of the surviving or consolidated company.
Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate the reconstruction or amalgamation of companies in certain circumstances, commonly referred to in the Cayman Islands as a “scheme of arrangement”, which may be tantamount to a merger. Schemes of arrangement will generally be more suited for complex mergers or other transactions involving widely held companies. In the event that a merger was sought pursuant to a scheme of arrangement (the procedures for which are more rigorous and take longer to complete than the procedures typically required to consummate a merger in the United States), the arrangement in question must be approved (i) in relation to a compromise or arrangement between a company and its creditors or any class of them, a majority in number of such creditors or class of creditors with whom the arrangement is to be made and who must in addition represent 75% in value of such creditors or class of creditors, as the case may be, that are present and voting either in person or by proxy at a meeting summoned for that purpose; and (ii) in relation to a compromise or arrangement between a company and its shareholders or any class of them, shareholders who represent 75% in value of the company’s shareholders or class of shareholders, as the case may be, that are present and voting either in person or by proxy at a meeting summoned for that purpose. The convening of the meetings and subsequently the terms of the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:
| ● | the company is not proposing to act illegally or beyond the scope of its corporate authority and the statutory provisions as to the required majority vote have been complied with; |
| ● | the shareholders have been fairly represented at the meeting in question; |
| ● | the arrangement is such as a businessman would reasonably approve; and |
| ● | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act or that would amount to a “fraud on the minority”. |
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The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority shareholders upon a tender offer. When a tender offer is made and accepted by holders of 90.0% of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith, collusion or inequitable treatment of shareholders.
If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted in accordance with the foregoing statutory procedures, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits
In principle, we will normally be the proper plaintiff in any claim based on a breach of duty owed to us, and a claim against (for example) our directors or officers usually may not be brought by a shareholder. However, based both on Cayman Islands authorities and on English authorities, which would in all likelihood be of persuasive authority and be applied by a court in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:
| ● | a company acts or proposes to act illegally or ultra vires and is therefore incapable of ratification by the shareholders; |
| ● | the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and |
| ● | those who control the company are perpetrating a “fraud on the minority”. |
Indemnification of Directors and Executive Officers and Limitation of Liability
The Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against indemnified person’s own fraud or dishonesty or willful default or willful neglect or against the consequences of committing a crime . Our Amended and Restated Memorandum and Articles provide that, to the extent permitted by law, we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors, other than by reason of such person’s own dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we intend to enter into indemnification agreements with our directors and executive officers that will provide such persons with additional indemnification beyond that provided in our articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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Anti-Takeover Provisions in Our Articles of Association
Some provisions of our articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize the BOD to issue shares at such times and on such terms and conditions as the BOD may decide without any further vote or action by our shareholders.
Under the Cayman Islands Companies Act, our directors may only exercise the rights and powers granted to them under our articles of association for what they believe in good faith to be in the best interests of our company and for a proper purpose.
Directors’ Fiduciary Duties
Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company -a duty to act bona fide in what the director considers to be the best interests of the company, a duty not to make a profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholders an express right to put any proposal before the annual meeting of shareholders, but in keeping with common law, Delaware corporations generally afford shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions in the certificate of incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
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The Cayman Islands Companies Act provides shareholders with only limited rights to requisition a general meeting and does not provide shareholders with any right to put any proposal before a general meeting. Our articles of association provide that general meetings shall be convened on the written requisition of one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than 10 percent of the rights to vote at such general meeting, specifying the purpose of the meeting and signed by each of the shareholders making the requisition. If our directors do not convene such meeting for a date not later than twenty-one days’ after the date of receipt of the written requisition, those shareholders who requested the meeting (or any of them who, together, hold at least half of the voting rights of all of them) may convene the general meeting themselves within three months after the end of such period of twenty-one days in which case reasonable expenses incurred by them as a result of our directors failing to convene a meeting shall be reimbursed by us. Our articles of association provide no other right to put any proposals before annual general meetings or extraordinary general meetings. As a Cayman Islands exempted company, we are not obligated by law to call shareholders’ annual general meetings.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under Cayman Islands law, but our articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors
Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Subject to the provisions of our articles of association (which include the removal of a director by ordinary resolution), the office of a director shall be vacated forthwith if (a) he is prohibited by the laws of the Cayman Islands from acting as a director, (b) he is made bankrupt or makes an arrangement or composition with his creditors generally, (c) he resigns his office by notice to us, (d) he only held office as a director for a fixed term and such term expires, (e) in the opinion of a registered medical practitioner by whom he is being treated he becomes physically or mentally incapable of acting as a director, (f) he is given notice by the majority of the other directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such director), (g) he is made subject to any law relating to mental health or incompetence, whether by court order or otherwise, or (h) without the consent of the other directors, he is absent from meetings of directors for continuous period of six months.
Transactions with Interested Shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation or bylaws that is approved by its shareholders, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting stock or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
The Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although the Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.
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Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the BOD approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the BOD may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the BOD.
Under the Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its shareholders or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its shareholders. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Act and our articles of association, our company may be dissolved, liquidated, or wound up by a special resolution of our shareholders.
Variation of Rights Attaching to Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under the Cayman Islands Companies Act and our articles of association, if our share capital is divided into more than one class of shares, the rights attaching to any class of share (unless otherwise provided by the terms of issue of the shares of that class) may be varied either with the consent in writing of the holders of a majority of the issued shares of that class, or with the sanction of a resolution passed by a majority of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of shares of that class.
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s certificate of incorporation may be amended only if adopted and declared advisable by the board of directors and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amended with the approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the board of directors. Under the Cayman Islands Companies Act and our articles of association, our articles of association may only be amended by special resolution of our shareholders.
Anti-money Laundering-Cayman Islands
To comply with legislation or regulations aimed at the prevention of money laundering, we are required to adopt and maintain anti-money laundering procedures, and may require subscribers to provide evidence to verify their identity and source of funds. Where permitted, and subject to certain conditions, we may also delegate the maintenance of our anti-money laundering procedures (including the acquisition of due diligence information) to a suitable person.
We reserve the right to request such information as is necessary to verify the identity of a subscriber. In some cases the directors may be satisfied that no further information is required since an exemption applies under the Anti-Money Laundering Regulations (Revised) of the Cayman Islands, as amended and revised from time to time (the “Regulations”). Depending on the circumstances of each application, a detailed verification of identity might not be required where:
| (a) | the subscriber makes the payment for their investment from an account held in the subscriber’s name at a recognized financial institution; or |
| (b) | the subscriber is regulated by a recognized regulatory authority and is based or incorporated in, or formed under the law of, a recognized jurisdiction; or |
| (c) | the application is made through an intermediary which is regulated by a recognized regulatory authority and is based in or incorporated in, or formed under the law of a recognized jurisdiction and an assurance is provided in relation to the procedures undertaken on the underlying investors. |
For the purposes of these exceptions, recognition of a financial institution, regulatory authority, or jurisdiction will be determined in accordance with the Regulations by reference to those jurisdictions recognized by the Cayman Islands Monetary Authority as having equivalent anti-money laundering regulations.
In the event of delay or failure on the part of the subscriber in producing any information required for verification purposes, we may refuse to accept the application, in which case any funds received will be returned without interest to the account from which they were originally debited.
We also reserve the right to refuse to make any redemption payment to a shareholder if our directors or officers suspect or are advised that the payment of redemption proceeds to such shareholder might result in a breach of applicable anti-money laundering or other laws or regulations by any person in any relevant jurisdiction, or if such refusal is considered necessary or appropriate to ensure our compliance with any such laws or regulations in any applicable jurisdiction.
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If any person resident in the Cayman Islands knows or suspects or has reason for knowing or suspecting that another person is engaged in criminal conduct or is involved with terrorism or terrorist property and the information for that knowledge or suspicion came to their attention in the course of their business in the regulated sector, or other trade, profession, business or employment, the person will be required to report such knowledge or suspicion to (i) a nominated officer (appointed in accordance with the Proceeds of Crime Act (As Revised) of the Cayman Islands) or the Financial Reporting Authority of the Cayman Islands, pursuant to the Proceeds of Crime Act (As Revised), if the disclosure relates to criminal conduct or money laundering or (ii) to a police constable or a nominated officer (pursuant to the Terrorism Act (As Revised) of the Cayman Islands) or the Financial Reporting Authority, pursuant to the Terrorism Act (As Revised), if the disclosure relates to involvement with terrorism or terrorist financing and terrorist property. Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise.
10.C. Material contracts
Other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions-B. Related Party Transactions” or elsewhere in this annual report, we have not entered into any material contract during the two years immediately preceding the date of this annual report on Form 20-F.
10.D. Exchange controls
The Cayman Islands Hong Kong, and the United States currently have no exchange control regulations or currency restrictions.
Under existing PRC foreign exchange regulations, payment of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements. Therefore, our PRC Subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approval from, or registration with, appropriate government authorities is, however, required where the RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. Current PRC regulations permit our PRC Subsidiaries to pay dividends to Li Bang International only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. As of the date of this annual report, there are no restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to the PRC), except for the transfer of funds involving money laundering and criminal activities. Cayman Islands law prescribes that a company may only pay dividends out of its profits or share premium, and that a company may only pay dividends if, immediately following the date on which the dividend is paid, the company remains able to pay its debts as they fall due in the ordinary course of business. Other than that, there are no restrictions on Li Bang International’s ability to transfer cash to investors. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China.”
10.E. Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands, or produced before a Cayman Islands court.
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Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of the shares, nor will gains derived from the disposal of the shares be subject to Cayman Islands income or corporation tax.
PRC Enterprise Taxation
Income Tax in PRC
Under the PRC Enterprise Income Tax Law, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income as well as tax reporting obligations. Under the Implementation Rules, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise.
In addition, SAT Circular 82 issued in April 2009 specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the following conditions are met: (a) senior management personnel and core management departments in charge of the daily operations of the enterprises have their presence mainly in the PRC; (b) their financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and files of their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’ directors or senior management personnel with voting rights habitually reside in the PRC. Further to SAT Circular 82, the SAT issued Announcement of the SAT on Printing and Distributing the Administrative Measures for Income Tax on Chinese-controlled Resident Enterprises Incorporated Overseas (Trial Implementation) (the “SAT Bulletin 45”) on July 27, 2011, which took effect on September 1, 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on PRC resident enterprise status and administration on post-determination matters. If the PRC tax authorities determine that Haoxi Cayman is a PRC resident enterprise for PRC enterprise income tax purposes, a number of PRC tax consequences could follow. For example, Haoxi Cayman may be subject to enterprise income tax at a rate of 25% with respect to its worldwide taxable income. Also, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ordinary shares and potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual shareholders from transferring our shares or ordinary shares.
The SAT and the MOF issued the Notice of MOF and SAT on Several Issues relating to Treatment of Corporate Income Tax Pertaining to Restructured Business Operations of Enterprises (the “SAT Circular 59”) in April 2009, which took effect on January 1, 2008. On October 17, 2017, the SAT issued the SAT Circular 37. By promulgating and implementing the SAT Circular 59 and the SAT Circular 37, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-PRC resident enterprise.
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United States Federal Income Tax Considerations
The following discussion is a summary of United States federal income tax considerations relating to the ownership and disposition of our ordinary shares by a U.S. holder (as defined below) that holds our ordinary shares as “capital assets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended (the “Code”). This discussion is based upon existing United States federal income tax law, which is subject to differing interpretations and may be changed, possibly with retroactive effect. No ruling has been sought from the IRS with respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (for example, banks or other financial institutions, insurance companies, broker-dealers, pension plans, cooperatives, traders in securities that have elected the mark-to-market method of accounting for their securities, partnerships and their partners, regulated investment companies, real estate investment trusts, and tax-exempt organizations (including private foundations)), holders who are not U.S. holders, holders who own (directly, indirectly, or constructively) 10% or more of our voting shares, holders who will hold their ordinary shares as part of a straddle, hedge, conversion, constructive sale, or other integrated transaction for United States federal income tax purposes, or investors that have a functional currency other than the United States dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this discussion does not discuss any non-United States, alternative minimum tax, state, or local tax considerations, or the Medicare tax on net investment income. Each U.S. holder is urged to consult its tax advisors regarding the United States federal, state, local, and non-United States income and other tax considerations with respect to the ownership and disposition of our ordinary shares.
General
For purposes of this discussion, a “U.S. holder” is a beneficial owner of our ordinary shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a United States person under applicable United States Treasury regulations.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our ordinary shares and partners in such partnerships are urged to consult their tax advisors as to the particular United States federal income tax consequences of an investment in our ordinary shares.
Passive Foreign Investment Company Considerations
A non-United States corporation, such as our company, will be a “passive foreign investment company,” or “PFIC,” for United States federal income tax purposes, if, in any particular taxable year, either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the average quarterly value of its assets (as determined on the basis of fair market value) during such year produce or are held for the production of passive income. For this purpose, cash is categorized as a passive asset and the company’s unbooked intangibles associated with active business activities may generally be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.
Although we do not believe we were a PFIC for the taxable years ended June 30, 2025, 2024 and 2023 and do not anticipate becoming a PFIC in the foreseeable future, the determination of whether we are or will become a PFIC will depend in part upon the value of our goodwill and other unbooked intangibles (which will depend upon the market value of our ordinary shares from time-to-time, which may be volatile). In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our market capitalization. Among other matters, if our market capitalization is less than anticipated or subsequently declines, we may be or become a PFIC for the current or future taxable years. It is also possible that the IRS may challenge our classification or valuation of our goodwill and other unbooked intangibles, which may result in our company being or becoming a PFIC for the current or one or more future taxable years.
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The determination of whether we will be or become a PFIC will also depend, in part, on the composition of our income and assets. Because our PFIC status for any taxable year is a factual determination that can be made only after the close of a taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year. If we are a PFIC for any year during which a U.S. holder held our ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. holder held our ordinary shares.
The discussion below under “Dividends” and “Sale or Other Disposition of Ordinary Shares” is written on the basis that we will not be or become a PFIC for United States federal income tax purposes. The United States federal income tax rules that apply if we are a PFIC for the current taxable year or any subsequent taxable year are generally discussed below under “Passive Foreign Investment Company Rules.”
Dividends
Subject to the PFIC rules discussed below, any cash distributions (including the amount of any tax withheld) paid on our ordinary shares out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will generally be includible in the gross income of a U.S. holder as dividend income on the day actually or constructively received by the U.S. holder. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution paid will generally be reported as a “dividend” for United States federal income tax purposes. A non-corporate recipient of dividend income will generally be subject to tax on dividend income from a “qualified foreign corporation” at a reduced United States federal tax rate rather than the marginal tax rates generally applicable to ordinary income provided that certain holding period requirements are met.
A non-United States corporation (other than a corporation that is a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be considered to be a qualified foreign corporation (a) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (b) with respect to any dividend it pays on stock which is readily tradable on an established securities market in the United States. In the event we are deemed to be a resident enterprise under the PRC Enterprise Income Tax Law, we may be eligible for the benefits of the United States-PRC income tax treaty (which the U.S. Treasury Department has determined is satisfactory for this purpose) and in that case we would be treated as a qualified foreign corporation with respect to dividends paid on our ordinary shares. Each non-corporate U.S. holder is advised to consult its tax advisors regarding the availability of the reduced tax rate applicable to qualified dividend income for any dividends we pay with respect to our ordinary shares. Dividends received on the ordinary shares will not be eligible for the dividends received deduction allowed to corporations.
Dividends will generally be treated as income from foreign sources for United States foreign tax credit purposes and will generally constitute passive category income. In the event that we are deemed to be a PRC “resident enterprise” under the Enterprise Income Tax Law, a U.S. holder may be subject to PRC withholding taxes on dividends paid on our ordinary shares. In that case, a U.S. holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on ordinary shares. A U.S. holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for United States federal income tax purposes, in respect of such withholdings, but only for a year in which such U.S. holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. holders are advised to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
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Sale or Other Disposition of Ordinary Shares
Subject to the PFIC rules discussed below, a U.S. holder will generally recognize capital gain or loss upon the sale or other disposition of ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the U.S. holder’s adjusted tax basis in such ordinary shares. Any capital gain or loss will be long-term if the ordinary shares have been held for more than one year and will generally be United States source gain or loss for United States foreign tax credit purposes. Long-term capital gain of non-corporate U.S. holders is generally eligible for a reduced rate of taxation. The deductibility of a capital loss may be subject to limitations. In the event that we are treated as a PRC “resident enterprise” under the Enterprise Income Tax Law and gain from the disposition of the ordinary shares is subject to tax in the PRC, a U.S. holder that is eligible for the benefits of the income tax treaty between the United States and the PRC may elect to treat the gain as PRC source income. U.S. holders are advised to consult its tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our ordinary shares, including the availability of the foreign tax credit under their particular circumstances and the election to treat any gain as PRC source.
Passive Foreign Investment Company Rules
If we are a PFIC for any taxable year during which a U.S. holder holds our ordinary shares, and unless the U.S. holder makes a mark-to-market election (as described below), the U.S. holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, for subsequent taxable years, on (i) any excess distribution that we make to the U.S. holder (which generally means any distribution paid during a taxable year to a U.S. holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. holder’s holding period for the ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ordinary shares. Under the PFIC rules:
| ● | such excess distribution and/or gain will be allocated ratably over the U.S. holder’s holding period for the ordinary shares; | |
| ● | such amount allocated to the current taxable year and any taxable years in the U.S. holder’s holding period prior to the first taxable year in which we are a PFIC, or pre-PFIC year, will be taxable as ordinary income; | |
| ● | such amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for that year; and | |
| ● | an interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year. |
If we are a PFIC for any taxable year during which a U.S. holder holds our ordinary shares and any of our non-United States subsidiaries is also a PFIC, such U.S. holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. holders are advised to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. holder of “marketable stock” in a PFIC may make a mark-to-market election. Since our ordinary shares are listed on the Nasdaq, a U.S. holder holds ordinary shares will be eligible to make a mark-to-market election if we are or were to become a PFIC. If a mark-to-market election is made, the U.S. holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ordinary shares held at the end of the taxable year over the adjusted tax basis of such ordinary shares and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ordinary shares over the fair market value of such ordinary shares held at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. holder’s adjusted tax basis in the ordinary shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. holder makes an effective mark-to-market election, in each year that we are a PFIC any gain recognized upon the sale or other disposition of the ordinary shares will be treated as ordinary income and loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If a U.S. holder makes a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ordinary shares are no longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election.
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If a U.S. holder makes a mark-to-market election in respect of a PFIC and such corporation ceases to be a PFIC, the U.S. holder will not be required to take into account the mark-to-market gain or loss described above during any period that such corporation is not a PFIC.
Because a mark-to-market election cannot be made for any lower-tier PFICs that a PFIC may own, a U.S. holder who makes a mark-to-market election with respect to our ordinary shares may continue to be subject to the general PFIC rules with respect to such U.S. holder’s indirect interest in any of our non-United States subsidiaries if any of them is a PFIC.
We do not intend to provide information necessary for U.S. holders to make qualified electing fund elections, which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.
As discussed above under “Dividends,” dividends that we pay on our ordinary shares will not be eligible for the reduced tax rate that applies to qualified dividend income if we are a PFIC for the taxable year in which the dividend is paid or the preceding taxable year. In addition, if a U.S. holder owns our ordinary shares during any taxable year that we are a PFIC, such holder would generally be required to file an annual IRS Form 8621. Each U.S. holder is advised to consult its tax advisors regarding the potential tax consequences to such holder if we are or become a PFIC, including the possibility of making a mark-to-market election.
Information Reporting
Certain U.S. holders may be required to report information to the IRS relating to an interest in “specified foreign financial assets,” including shares issued by a non-United States corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds US$50,000 (or a higher dollar amount prescribed by the IRS), subject to certain exceptions (including an exception for shares held in custodial accounts maintained with a United States financial institution). These rules also impose penalties if a U.S. holder is required to submit such information to the IRS and fails to do so.
In addition, U.S. holders may be subject to information reporting to the IRS with respect to dividends on and proceeds from the sale or other disposition of our ordinary shares. Each U.S. holder is advised to consult with its tax advisor regarding the application of the United States information reporting rules to their particular circumstances.
10.F. Dividends and paying agents
Not applicable for annual reports on Form 20-F.
10.G. Statement by experts
Not applicable for annual reports on Form 20-F.
10.H. Documents on display
We are subject to the information requirements of the Exchange Act. In accordance with these requirements, the Company files reports and other information with the SEC. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC.
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10.I. Subsidiary Information
For a list of our subsidiaries, see “Item 4. Information of the Company—C. Organizational Structure.”
10.J. Annual Report to Security Holders.
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
Currency risk
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other Company foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
As of June 30, 2026, 2025 and 2024, all cash balances held in PRC banks are covered by insurance.
Concentration and credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable, notes receivable, advances to suppliers and amount due from related parties. A portion of the Company’s sales are credit sales which are to the customers whose ability to pay is dependent upon industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivable is limited due to most clients of the Company are state-owned enterprises. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. As of June 30, 2026, $5.60 million or 44% of the Company’s accounts receivable were from state-owned enterprises. As of June 30, 2025, $9.28 million or 58% of the Company’s accounts receivable were from state-owned enterprises. As of June 30, 2024, $10.47 million or 52% of the Company’s accounts receivable were from state-owned enterprises.
Interest rate risk
Fluctuations in market interest rates may negatively affect the Company’s financial condition and results of operations. The Company is exposed to floating interest rate risk principally on floating rate borrowings, and the risks due to changes in interest rates is not considered material. The Company has not used any derivative financial instruments to manage the Company’s interest risk exposure.
Inflation risk
Inflationary factors, such as increases in the cost of raw materials, personnel and overhead costs, could impair our operating results. Although we do not believe inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenue if the revenues from our products do not increase with such increased costs. Considering that there is no sign of inflation in China’s current economic environment, this risk should not affect the Company’s operations.
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Other uncertainty risks
The Company’s major operations are in the PRC. Accordingly, the political, economic, and legal environment in the PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition, and results of operations.
The Company’s major operations in the PRC are subject to considerations and risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes it is in compliance with existing laws, this may not be indicative of future results.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12.A. Debt Securities
Not applicable.
12.B. Warrants and Rights
Not applicable.
12.C. Other Securities
Not applicable.
12.D. American Depositary Shares
Not applicable.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
We do not have any material defaults in the payment of principal, interest, or any instalments under a sinking or purchase fund.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS
Material Modifications to the Rights of Security Holders
On June 27, 2025, our shareholders approved an amendment and restatement of our memorandum and articles of association to adopt a dual-class share structure by:
| (a) | re-designating, on a one-for-one basis, all of the then issued and outstanding Ordinary Shares into Class A ordinary shares of a par value of US$0.0001 each, each having one (1) vote per share and the other rights attached to it as set out in the Company’s amended and restated memorandum and articles of association (the “Amended and Restated M&A”); | |
| (b) | re-designating, on a one-for-one basis, 50,000,000 of the authorized but unissued Ordinary Shares into Class B ordinary shares of a par value of US$0.0001 each, each having fifteen (15) votes per share and the other rights attached to it as set out in the Amended and Restated M&A; and | |
| (c) | re-designating, on a one-for-one basis, all of the remaining authorized but unissued Ordinary Shares into Class A ordinary shares. |
Following the adoption of the dual-class share structure, we intend to repurchase an aggregate of 15,436,000 Class A ordinary shares held by Maple Huang Holdings Limited and Funa Lee Holdings Limited and issue an equal number of new Class B ordinary shares to such shareholders in consideration therefor. Mr. Feng Huang, our Chief Executive Officer and Chairman of the Board of Directors, has the voting and dispositive power of all the shares held by Maple Huang Holdings Limited. Ms. Funa Li, our director and the spouse of Mr. Huang, has the voting and dispositive power of all the shares held by Funa Lee Holdings Limited. Mr. Huang and Ms. Li beneficially own all of our outstanding Class B ordinary shares and control a vast majority of our total voting power following completion of the aforementioned repurchase and issuance transactions.
The Class A ordinary shares began trading on The Nasdaq Capital Market on November 21, 2025, under the same symbol “LGBJ” and the same CUSIP number of G5480M102. The Class B ordinary shares are not be listed and traded on The Nasdaq Capital Market or any other exchange.
Use of Proceeds
None.
ITEM 15. CONTROLS AND PROCEDURES
| (a) | Evaluation of Disclosure Controls and Procedures. |
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.
Based upon that evaluation, our management has concluded that, as of June 30, 2026, our disclosure controls and procedures were not effective as our management has identified the following “material weaknesses” in our internal control over financial reporting (“ICFR”), as defined in the standards established by the PCAOB, and other control deficiencies. A “material weakness” is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses identified are related to:
| ● | Lack of qualified personnel who are knowledgeable about U.S. GAAP and pertinent SEC reporting requirements; and | |
| ● | Lack of well-established financial and SEC reporting processes to ensure timely review and detection of errors or inaccuracies in the Company’s consolidated financial statements. |
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In response to the material weaknesses identified previously, we are implementing a number of measures to address the abovementioned material weaknesses, including but not limited to (a) hire additional finance and accounting staff with qualifications and work experiences in SEC reporting requirements to formalize and strengthen the Company’s key internal control over financial reporting; and (b) allocate sufficient resources to prepare and review financial statements and related disclosures in accordance with US GAAP and SEC reporting requirements.
We have taken steps to address the material weaknesses and continue to implement our remediation plan, which we believe will address their underlying causes. We have engaged seasoned financial reporting advisors to provide assistance in the areas of U.S. GAAP and SEC reporting, ICFR, and financial accounting in the short term and to evaluate and document the design and operating effectiveness of our internal controls and assist with the remediation and implementation of our internal controls as required. We are evaluating the longer-term resource needs of our various financial functions. These remediation measures may be time consuming, costly, and might place significant demands on our financial and operational resources. Although we have made enhancements to our control procedures in this area, the material weaknesses will not be remediated until the necessary controls have been implemented and are operating effectively. We do not know the specific time frame needed to fully remediate the material weakness identified.
(b) Management’s annual report on internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate ICFR, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our management evaluated the effectiveness of our ICFR, as required by Rule 13a-15(c) of the Exchange Act, based on criteria established in the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was not effective as of June 30, 2026 due to the material weaknesses identified in our ICFR as described above.
Because of its inherent limitations, ICFR may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness of our ICFR to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
(c) Attestation report of the registered public accounting firm.
As a company with less than US$1.235 billion in net revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act (“JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of the emerging growth company’s ICFR. Therefore, this annual report on Form 20-F does not include an attestation report of our registered public accounting firm.
(d) Changes in ICFR.
There have been no changes in our ICFR that occurred during the fiscal year ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, our ICFR.
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ITEM 16. [RESERVED]
None.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Company’s board of directors determined that Lianyong Song qualifies as an “audit committee financial expert” in accordance with applicable Nasdaq Capital Market standards. The Company’s board of directors has also determined that members of the Audit Committee are all “independent” in accordance with the applicable Nasdaq Capital Market standards.
ITEM 16B. CODE OF ETHICS
The Company adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers, employees and advisors. The Code of Business Conduct and Ethics is attached as an exhibit to this annual report. Copy of the Code of Business Conduct and Ethics is also available on our website at https://ir.libangco.cn.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Wei, Wei & Co., LLP was appointed by the Company to serve as its independent registered public accounting firm for fiscal year ended June 30, 2026. Audit services provided by Wei, Wei & Co., LLP for fiscal years ended June 30, 2026, 2025 and 2024 included the examination of the consolidated financial statements of the Company.
Fees Paid To Independent Registered Public Accounting Firm
Audit Fees
Wei, Wei & Co’s fee for the fiscal years ended June 30, 2026, 2025 and 2024 was $290,000, $230,000 and $340,000, respectively.
Audit-Related Fees
There was no audit-related service fees incurred from Wei, Wei & Co for the fiscal years ended June 30, 2026, 2025 or 2024.
Tax Fees
There was no tax service fees incurred from Wei, Wei & Co for the fiscal years ended June 30, 2026, 2025 or 2024.
All Other Fees
There were no other services fees incurred from Wei, Wei & Co in fiscal year ended June 30, 2026, 2025 or 2024.
Audit Committee Pre-Approval Policies
Wei, Wei & Co’s engagement by the Company to render audit or non-audit services was approved and ratified by the Company’s audit committee. All services rendered by Wei, Wei & Co have been so approved and ratified.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
| 107 |
ITEM 16G. CORPORATE GOVERNANCE
As a company listed on the Nasdaq Capital Market, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards.
We elected to follow home country practice exemption for:
(i) Rule 5605(b)(1) of the Nasdaq Listing Rules, which requires that a majority of a company’s BOD be comprised of independent directors.
(ii) Rule 5605(b)(2) of the Nasdaq Listing Rules, which requires that the independent directors of a company to have regularly scheduled meetings with only the independent directors present.
(iii) Rule 5605(e)(1) of the Nasdaq Listing Rules, which requires that director nominees must either be selected, or recommended for the board’s selection, either by (A) independent directors constituting a majority of the board’s independent directors in a vote in which only independent directors participate, or (B) a nominations committee comprised solely of independent directors.
(iv) Rule 5620(a) of the Nasdaq Listing Rules, which requires that each company listing common stock or voting preferred stock, and their equivalents, hold an annual meeting of shareholders within one year of the end of each fiscal year of the company.
(v) Rule 5620(b) of the Nasdaq Listing Rules, which requires that each company that is not a limited partnership shall solicit proxies and provide proxy statements for all meetings of shareholders and shall provide copies of such proxy solicitation to Nasdaq.
(vi) Rule 5620(c) of the Nasdaq Listing Rules, which requires that each company that is not a limited partnership shall provide for a quorum as specified in its by-laws for any meeting of the holders of common stock; provided, however, that in no case shall such quorum be less than 33 1/3 % of the outstanding shares of the company’s common voting stock.
(vii) Rule 5630(a) of the Nasdaq Listing Rules, which requires that each company that is not a limited partnership shall conduct an appropriate review and oversight of all related party transactions for potential conflict of interest situations on an ongoing basis by the company’s audit committee or another independent body of the board of directors.
(vii) Rule 5635(a) of the Nasdaq Listing Rules, which requires that shareholder approval be obtained in certain circumstances prior to an issuance of securities in connection with the acquisition of the stock or assets of another company.
(ix) Rule 5635(b) of the Nasdaq Listing Rules, which requires that shareholder approval be obtained prior to the issuance of securities when the issuance or potential issuance will result in a change of control of the company.
(x) Rule 5635(c) of the Nasdaq Listing Rules, which requires that shareholder approval be obtained prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants, subject to certain exceptions.
(xi) Rule 5635(d) of the Nasdaq Listing Rules, which requires that shareholder approval be obtained prior to a 20% Issuance at a price that is less than the Minimum Price, where (a) “Minimum Price” means a price that is the lower of: (i) the Nasdaq Official Closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq Official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement, and (b) “20% Issuance” means a transaction, other than a public offering as defined in IM-5635-3, involving the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable for common stock), which alone or together with sales by officers, directors or substantial shareholders of the company, equals 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance.
| 108 |
Subject to Nasdaq Rules, we may also opt to rely on additional home country practice exemptions in the future.
Our shareholders may be afforded less protection than they otherwise would under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Class A Ordinary Shares—Because we are a foreign private issuer and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.”
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
We
have
ITEM 16K. CYBERSECURITY
| 109 |
PART III
ITEM 17. FINANCIAL STATEMENTS
See “Item 18. Financial Statements.”
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial statements are included at the end of this annual report, beginning with page F-1.
ITEM 19. EXHIBITS
| Exhibit No. | Description of Exhibit | |
| 1.1* | Amended and Restated Memorandum of Association of Li Bang International Corporation Inc. | |
| 1.2* | Amended and Restated Articles of Association of Li Bang International Corporation Inc. | |
| 2.1* | Description of Securities Registered under Section 12 of the Exchange Act | |
| 2.2 | Form of Underwriter’s Warrant (incorporated by reference to Exhibit 4.1 to our registration statement on Form F-1 (File No. 333-262367), as amended, initially filed with the SEC on January 27, 2022) | |
| 4.1 | Employment Agreement with Feng Huang (incorporated by reference to Exhibit 10.1 to our registration statement on Form F-1 (File No. 333-262367), as amended, initially filed with the SEC on January 27, 2022) | |
| 4.2 | Employment Agreement with Liang Xia (incorporated by reference to Exhibit 10.2 to our registration statement on Form F-1 (File No. 333-262367), as amended, initially filed with the SEC on January 27, 2022) | |
| 4.3 | Employment Agreement with Jianhua Wu (incorporated by reference to Exhibit 10.3 to our registration statement on Form F-1 (File No. 333-262367), as amended, initially filed with the SEC on January 27, 2022) | |
| 4.4 | Director Offer Letter with Funa Li (incorporated by reference to Exhibit 10.4 to our registration statement on Form F-1 (File No. 333-262367), as amended, initially filed with the SEC on January 27, 2022) | |
| 4.5* | Independent Director Offer Letter with Libing Yan | |
| 4.6* | Independent Director Offer Letter with Lianyong Song | |
| 4.7* | Independent Director Offer Letter with Liqi Xi | |
| 4.8 | Form of the Securities Purchase Agreement dated December 22, 2025 between the Company and certain investors (incorporated by reference to Exhibit 10.1 to our current report on Form 6-K (File No. 001-42378), filed with the SEC on December 29, 2025) | |
| 4.9 | 2025 Share Incentive Plan of the Company (incorporated herein by reference to Exhibit 99.4 to our current report on Form 6-K filed with the SEC on December 22, 2025) | |
| 4.10 | Sales Agreement between Li Bang International Corporation Inc. and AC Sunshine Securities LLC, dated February 13, 2026 (incorporated by reference to Exhibit 1.1 to our current report on Form 6-K (File No. 001-42378), filed with the SEC on February 17, 2026) | |
| 4.11 | English translation of the share purchase agreement between Jiangsu Li Bang Intelligent Technology Co., Ltd., a wholly-owned subsidiary of Li Bang International Corporation Inc., and certain shareholders of Suzhou Yufengyuan Food Distribution Co., Ltd., dated February 25, 2026 (incorporated by reference to Exhibit 10.1 to our current report on Form 6-K (File No. 001-42378), filed with the SEC on March 2, 2026) | |
| 4.12 | English translation of the equity transfer agreement between Jiangsu Li Bang Intelligent Technology Co., Ltd., a wholly-owned subsidiary of Li Bang International Corporation Inc., and certain shareholders of Suzhou Yufengyuan Food Distribution Co., Ltd., dated April 17, 2026. (incorporated by reference to Exhibit 10.1 to our amended current report on Form 6-K/A (File No. 001-42378), filed with the SEC on April 22, 2026) | |
| 4.13 | Amendment No. 1 to the Sales Agreement, dated June 11, 2026, by and between the Company and AC Sunshine Securities LLC (incorporated by reference to Exhibit 1.1 to our current report on Form 6-K (File No. 001-42378), filed with the SEC on June 12, 2026) | |
| 4.14 | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to our current report on Form 6-K (File No. 001-42378), filed with the SEC on August 19, 2026) | |
| 4.15 | Form of Termination Letter by and among Jiangsu Li Bang Intelligent Technology Co., Ltd., a wholly-owned subsidiary of Li Bang International Corporation Inc., and certain shareholders of Suzhou Yufengyuan Food Distribution Co., Ltd., dated October 8, 2026 (incorporated by reference to Exhibit 10.1 to our current report on Form 6-K (File No. 001-42378), filed with the SEC on October 9, 2026). | |
| 4.16 | Share Purchase Agreement, dated November 3, 2026, by and among Li Bang International Corporation Inc., Jiangsu Libang Intelligent Technology Co., Ltd., a wholly-owned subsidiary of Li Bang International Corporation Inc., Jiangsu Xinsheng Synthetic Materials Co., Ltd., and the two shareholders of Jiangsu Xinsheng Synthetic Materials Co., Ltd. (incorporated by reference to Exhibit 10.1 to our current report on Form 6-K (File No. 001-42378), filed with the SEC on November 3, 2026) | |
| 4.17* | English transaction of the Loan Assignment Agreement by and among Jiangyin Huiheng Investment Co., Ltd., Jiangsu Libang Intelligent Technology Co., Ltd., and Jiangyin Yuhua Aluminum Co., Ltd., dated May 25, 2026. | |
| 8.1* | List of Subsidiaries |
| 110 |
| 11.1 | Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to our registration statement on Form F-1 (File No. 333-262367), as amended, initially filed with the SEC on January 27, 2022) | |
| 11.2 | Insider Trading Policies (incorporated by reference to Exhibit 11.2 to the annual report on Form 20-F for the fiscal year ended June 30, 2024) | |
| 12.1* | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 12.2* | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 13.1** | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 13.2** | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 15.1* | Consent of Wei, Wei & Co., LLP | |
| 15.2* | Consent of Appleby | |
| 15.3* | Consent of Beijing Kangda Law Firm Hangzhou Office | |
| 97.1 | Executive Compensation Recovery Policy (incorporated by reference to Exhibit 97.1 to the annual report on Form 20-F for the fiscal year ended June 30, 2024) | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed with this annual report on Form 20-F |
| ** | Furnished with this annual report on Form 20-F |
| 111 |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Li Bang International Corporation Inc.
| By: | /s/ Feng Huang | |
| Name: | Feng Huang | |
| Title: | Chief Executive Officer and Chairman of the Board |
Date: November 13, 2026
| 112 |
LI BANG INTERNATIONAL CORPORATION INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| CONTENTS | Page(s) | |
| Report of Independent Registered Public Accounting Firm (PCAOB ID: |
F-2 | |
| Consolidated Balance Sheets as of June 30, 2026 and 2025 | F-3 | |
| Consolidated Statements of Loss and Comprehensive Loss for the Years Ended June 30, 2026, 2025 and 2024 | F-4 | |
| Consolidated Statements of Changes in Equity for the Years Ended June 30, 2026, 2025 and 2024 | F-5 | |
| Consolidated Statements of Cash Flows for the Years Ended June 30, 2026, 2025 and 2024 | F-6 | |
| Notes to Consolidated Financial Statements | F-7 |
| F-1 |
 |
 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Li Bang International Corporation Inc.
Opinion on the Financial Statements
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the consolidated financial statements, the Company incurred recurring net loss for the years ended June 30, 2026, 2025 and 2024, and had a working capital deficit and an accumulated deficit of approximately $4.3 million and $3.3 million, respectively, as of June 30, 2026. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
We have served as the Company’s auditor since 2021.
November 13, 2026 |
| F-2 |
LI BANG INTERNATIONAL CORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Fixed deposits | ||||||||
| Accounts receivable, net | ||||||||
| Notes receivable | ||||||||
| Advance to vendors, net | ||||||||
| Inventories | ||||||||
| Loans receivable | ||||||||
| Prepaid expenses and other current assets, net | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Non-current accounts receivable | ||||||||
| Non-current loans receivable, net | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use asset, net | ||||||||
| Deferred tax assets, net | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Bank loans | $ | $ | ||||||
| Accounts payable | ||||||||
| Notes Payable | ||||||||
| Advance from customers | ||||||||
| Taxes payable | ||||||||
| Due to related parties | ||||||||
| Lease liability | ||||||||
| Other payables and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current Liabilities: | ||||||||
| Non-current bank loans | ||||||||
| Non-current lease liability | ||||||||
| Total non-current liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Equity: | ||||||||
| Ordinary shares (par value $ per share, shares authorized, shares issued and outstanding as of June 30, 2025) * | ||||||||
| Class A Ordinary Shares (par value $ per share, shares authorized, shares issued and outstanding as of June 30, 2026) * | ||||||||
| Class B Ordinary Shares (par value $ per share, shares authorized, shares issued and outstanding as of June 30, 2026) * | ||||||||
| Subscription receivable | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| (Accumulated deficit) retained earnings | ( | ) | ||||||
| Accumulated other comprehensive gain (loss) | ( | ) | ||||||
| Total shareholders’ equity of the Company | ||||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
LI BANG INTERNATIONAL CORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
For the Years Ended June 30, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Revenues: | ||||||||||||
| Project revenues | $ | $ | $ | |||||||||
| Retail revenues | ||||||||||||
| Total revenues | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing | ||||||||||||
| General and administrative | ||||||||||||
| Provision for expected credit losses | ||||||||||||
| Total operating expenses | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Other income: | ||||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||||||
| Other income, net | ||||||||||||
| Total other income, net | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Less: net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
| Net loss attributable to ordinary shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Comprehensive loss | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ( | ) | ||||
| Foreign currency translation gain (loss) | ( | ) | ||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive loss attributable to ordinary shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Loss per ordinary share | ||||||||||||
| – Basic and diluted | $ | ) | $ | ) | $ | ) | ||||||
| Weighted average number of ordinary shares outstanding | ||||||||||||
| – Basic and diluted* | ||||||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
LI BANG INTERNATIONAL CORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED JUNE 30, 2026, 2025 AND 2024
| Ordinary Shares* | Class A Ordinary Shares* | Class B Ordinary Shares* | Subscription | Additional Paid-in | Statutory | Retained Earnings (Accumulated | Accumulated other Comprehensive | Total Shareholders’ | Non- controlling | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| shares | Amount | shares | Amount | shares | Amount | Receivable | Capital | Reserve | Deficit) | Loss | Equity | interests | Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with initial public offering | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Appropriation to statutory reserve | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||
| Shares re-designated and re-classified | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares in private placement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares via ATM Program | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share capital reorganization | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the year | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2026 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
LI BANG INTERNATIONAL CORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended June 30, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Loss (gain) on disposal of property and equipment | ( | ) | ( | ) | ||||||||
| Provision for expected credit losses | ||||||||||||
| Deferred income tax | ( | ) | ( | ) | ||||||||
| Non-cash lease expense | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | ( | ) | ( | ) | ||||||||
| Notes receivable | ( | ) | ||||||||||
| Advance to suppliers | ( | ) | ( | ) | ||||||||
| Inventories | ( | ) | ( | ) | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||||||
| Accounts payable and notes payable | ( | ) | ( | ) | ||||||||
| Advance from customers | ( | ) | ( | ) | ( | ) | ||||||
| Taxes payable | ( | ) | ( | ) | ||||||||
| Due to related parties | ( | ) | ||||||||||
| Other payables and other current liabilities | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Loans to third parties | ( | ) | ( | ) | ||||||||
| Loans repayment by third parties | ||||||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Payments for construction in progress | ( | ) | ( | ) | ||||||||
| Proceeds from disposal of property and equipment | ||||||||||||
| Refund of the land use right payment | ||||||||||||
| Advance to investment consultants | ( | ) | ||||||||||
| Proceeds from redemption of time deposits | ||||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from bank loans | ||||||||||||
| Repayments of bank loans | ( | ) | ( | ) | ( | ) | ||||||
| Payment of offering costs | ( | ) | ( | ) | ||||||||
| Net proceeds from initial public offering | ||||||||||||
| Proceeds from private placement | ||||||||||||
| Net proceeds from issuance of ordinary shares via ATM program | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Effect of foreign exchange rate on cash | ( | ) | ||||||||||
| Net (decrease) increase in cash and restricted cash | ( | ) | ( | ) | ||||||||
| Cash and restricted cash at the beginning of the year | ||||||||||||
| Cash and restricted cash at the end of the year | $ | $ | $ | |||||||||
| Reconciliation of cash and restricted cash | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Restricted cash | ||||||||||||
| Total cash and restricted cash shown in the statements of cash flows | $ | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Interest paid | $ | $ | $ | |||||||||
| Income taxes paid | $ | $ | $ | |||||||||
| Non-cash transactions: | ||||||||||||
| Operating right-of-use assets recognized for related operating lease liabilities | $ | $ | $ | |||||||||
| Purchases of construction in progress included in accounts payable and notes payable | $ | $ | $ | |||||||||
| Reclassification of deferred offering cost | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
LI BANG INTERNATIONAL CORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2026, 2025 and 2024
NOTE 1 –ORGANIZATION AND BUSINESS DESCRIPTION
Li
Bang International Corporation Inc. (“Li Bang International”) was incorporated in the Cayman Islands on
Initial Public Offering (the IPO”)
On
October 23, 2024, Li Bang International completed its IPO and was listed on the Nasdaq Capital Market. It issued ( shares
post share consolidation) ordinary shares with a par value of $ ($ post share consolidation) per share and at $ (US$
post share consolidation) per share, with gross proceeds of $
The Company’s corporate structure as of June 30, 2026 was as follows:
| F-7 |
Below is an overview of the Company’s principal subsidiaries as of June 30, 2026:
| Legal Entity | Place of Incorporation | Date
of Incorporation |
Percentage of beneficial ownership | Principal activities | ||||
| Li Bang International Hong Kong Holdings Limited (“Li Bang HK”) | ||||||||
| Jiangsu Li Bang Intelligent Technology Co., Limited (“Li Bang Intelligent Technology” or “WFOE”) | ||||||||
| Suzhou Deji Kitchen Engineering Co., Limited (“Suzhou Deji”) | ||||||||
| Wuxi Li Bang Kitchen Appliance Co., Limited (“Wuxi Li Bang”) | ||||||||
| Li Bang Kitchen Appliance Co., Limited (“Li Bang Kitchen Appliance”) | ||||||||
| Yangzhou Bangshijie Kitchen Appliance Co., Ltd. (“Yangzhou Bangshijie”) | ||||||||
| Nanjing Bangshijie Kitchen Appliance Co., Ltd. (“Nanjing Bangshijie”) | ||||||||
| Leiluo Engineering Construction (Jiangsu) Co., Ltd. (“Leiluo Engineering Construction”) |
| F-8 |
Adoption of Dual-Class Share Structure
On
June 27, 2025, the Company’s shareholders approved an amendment to the memorandum and articles of association to adopt a dual-class
share structure. All of the then issued and outstanding ordinary shares of par value $ ($ post share consolidation) each were
re-designated into Class A ordinary shares of par value $ ($ post share consolidation) each; ( shares post
share consolidation) of the then authorized but unissued ordinary shares were re-designated into Class B ordinary shares of par value
$ ($ post share consolidation) each; and all of the remaining authorized but unissued ordinary shares were re-designated into
Class A ordinary shares of par value $ ($ post share consolidation) each. Under the new structure, the Company’s share
capital consists of Class A Ordinary Shares and Class B Ordinary Shares.
Concurrent with the adoption of the dual-class structure, the Company redeemed an aggregate of ( shares post share consolidation) ordinary shares held by Maple Huang Holdings Limited and Funa Lee Holdings Limited and issued an equal number of new Class B Ordinary Shares to such shareholders in consideration therefor. Mr. Feng Huang (“Mr. Huang”), Chief Executive Officer and Chairman of the Board of Directors, has the voting and dispositive power of all the shares held by Maple Huang Holdings Limited. Ms. Funa Li (“Ms. Li”), director and the spouse of Mr. Huang, has the voting and dispositive power of all the shares held by Funa Lee Holdings Limited. As of the date of this report, Mr. Huang and Ms. Li beneficially own all the Company’s outstanding Class B shares and control a vast majority of our total voting power.
Effective November 21, 2025, the new Class A ordinary shares began trading on the Nasdaq Capital Market, replacing the previously listed ordinary shares. The Class B ordinary shares are not listed on any exchange.
NOTE 2 – LIQUIDITY AND GOING CONCERN
The
accompanying consolidated financial statements (“CFS”) were prepared assuming the Company will continue as a going concern,
which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying CFS do
not include any adjustments related to the recoverability and or classification of the recorded asset amounts and or the classification
of the liabilities that might be necessary should the Company be unable to continue as a going concern. As reflected in the accompanying
CFS, the Company reported recurring net loss of approximately $
In assessing its liquidity, management monitors the Company’s working capital requirements and ability to generate sufficient cash flows to meet its operating and capital expenditure commitments. The Company’s ability to manage its liquidity risk is dependent upon its ability to reduce its accounts and loans receivable, maintain its gross profit and control its operating expenses. As of the date of this report, management has developed the following measures to strengthen its ability as a going concern by (i) growing its revenue base via strategic partnerships, (ii) raising funds through the capital market and (iii) implementing cost-control initiatives to reduce its fixed overheads.
In
July 2026, the Company sold Class A ordinary shares (
| F-9 |
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The CFS and related notes of the Company were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). All adjustments necessary to present fairly in all material respects the financial position, results of operations and cash flows for all periods presented were made. Certain prior year balances have been reclassified to conform to current year’s presentation. These reclassifications had no effect on the reported results of operations.
Principles of consolidation
The CFS include the financial statements of the Company and its majority-owned subsidiaries. All significant intercompany transactions and balances were eliminated in consolidation. The CFS were prepared on a historical cost basis, except for financial assets and financial liabilities which were measured at fair value. The functional currency of the Company’s PRC subsidiaries are the Chinese Renminbi (“RMB”). The determination of functional currency is based on the criteria of Accounting Standard Codifications (“ASC”) as promulgated by the Financial Accounting Standards Board (“FASB”), ASC 830, Foreign Currency Matters (“ASC 830”). The Company uses U.S. dollars (“US$” or “USD”) as its reporting currency.
Non-controlling interests
Non-controlling
interests (“NCI”) are recognized to reflect the portion of their equity that is not attributable, directly or indirectly,
to the Company as the controlling shareholder. For the Company’s consolidated subsidiaries, non-controlling interests represent
a minority shareholder’s
NCI are presented as a separate line item in the equity section of the Company’s consolidated balance sheets and were separately disclosed in the Company’s consolidated statements of operations and comprehensive income to distinguish the interests from that of the Company.
Use of estimates
In preparing the consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the assessment of the allowance for expected credit losses, valuation of inventories, useful lives of property and equipment and intangible assets, uncertain tax positions and realization of deferred tax assets. Actual results could differ from those estimates.
On
March 27, 2026, the Company effectuated the 1-for-
| F-10 |
Cash
Cash
includes cash on hand and demand deposits in accounts maintained with commercial banks. The Company maintains its bank accounts in Mainland
China and Cayman Islands. In accordance with China’s Deposit Insurance Regulation that became effective in May 2015, pursuant to
which banking financial institutions, such as commercial banks, established in the PRC are required to purchase deposit insurance for
deposits in RMB and in foreign currency placed with them. The insurance limit is RMB
Restricted cash
Restricted cash consists of guarantee that is not freely available for immediate use. It’s the amount the Company puts aside and holds to ensure project performance. With the progress of the project, the liability under this guarantee is discharged and the restricted cash is converted within three months after the end of the reporting period. The Company presents restricted cash in the consolidated financial statements as a current asset.
Fixed deposits
Fixed
deposits are time deposits with banks with a maturity date over one year. Interest earned is recorded as interest income in the statements
of (loss) income and comprehensive (loss) income. In May 2023, the Company purchased a three-year fixed deposit of RMB
Accounts receivable and allowance for expected credit losses
Accounts receivable is presented net of an allowance for expected credit losses. In accordance with FASB ASC 210-10-45, non-current accounts receivable are the amounts the Company does not reasonably expect to be realized during the normal operating cycle of the Company. Considering the payment period in the contract, in accordance with ASC 210-10-45, the operating cycle of the Company is not identifiable. Therefore, the Company uses a one-year period as the basis for the separation of current and non-current accounts receivable.
The
Company signs contracts with its customers and provides products according to the sales contract or sales list. The payment clause in
the sales contracts generally stipulates that customers will pay
In accordance with ASC 326, Credit Losses, the Company maintains an allowance for expected credit losses and updates its allowance, if warranted, as an offset to its accounts receivable. The estimated credit losses is charged to the allowance and reported as provision for expected credit losses in the consolidated statements of loss/income and comprehensive loss/income. The Company assesses collectability by reviewing receivables on a collective basis where similar characteristics exist, primarily based on the size and nature of specific customers’ receivables (the “CECL model”). In determining the amount of the allowance for expected credit losses, the Company considers not only the input from its CECL model but also the historical collectability based on past due status, the age of the receivable balances, credit quality of the Company’s customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from its customers. Known credit losses are written off as incurred.
| F-11 |
Notes receivable
Notes
receivable are trade accounts receivable from customers where the customers’ banks guaranteed the underlying payment to the Company.
The notes receivable is non-interest bearing and generally range from three to six months from the date of issuance. The balance
of notes receivable was and $
Advance to vendors, net
Advance
to vendors consists of advance to suppliers and an investment consultant. Advance to suppliers pertain mainly to amounts paid to suppliers
for inventories and services that have not been received. Advance to investment consultant refers to amounts paid to a company that are
involved in the Company’s investment strategy development and implementation. The Company reviews each advance to its vendors on
a periodic basis and makes specific allowance for expected credit losses when there is doubt as to the ability of vendors in delivering
their respective contractual obligations or refund the advance. As of June 30, 2026 and 2025, allowance for expected credit losses were
related to advance to vendors of $
Inventories
Inventories consist of raw materials, work in progress and finished goods, and are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Company periodically evaluates its inventories and will record an allowance for inventories that are either slow-moving, may not be saleable or whose cost exceeds its net realizable value. There was no allowance for inventory as of June 30, 2026 and 2025.
Loans receivable
Loans
receivable consists of loans to various third parties at annual interest ranged between
Property and equipment, net
Property and equipment (“PP&E”) are carried at cost and are depreciated on the straight-line basis over the estimated useful lives of the underlying assets. Cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation and amortization are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of its property and equipment, when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Direct costs that are related to the construction of property and incurred in connection with bringing the assets to their intended use are capitalized as construction in progress. Construction in progress (“CIP”) as of June 30, 2025 consisted primarily of cost related to office building renovation. Upon completion, CIP is transferred to respective PP&E line item and depreciation of these PP&E line items will commence when the assets are ready for their intended use. As of June 30, 2026, construction in progress consisted primarily of cost related to the construction of the intelligent kitchen manufacturing facility.
Estimated useful lives are as follows:
| Category | Estimated useful lives | |
| Buildings and improvement | ||
| Computer and office equipment | ||
| Machinery and equipment | ||
| Vehicles |
| F-12 |
Intangible assets, net
Intangible
assets consist of land use rights purchased from third parties and they are initially recorded at cost and amortized on a straight-line
basis over their estimated economic useful lives of
Impairment of long-lived assets
The Company reviews long-lived assets, including definite-lived intangible assets and property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events occur, the Company assesses the recoverability of the asset group based on the undiscounted future cash flows the asset group is expected to generate and recognizes an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset group plus net proceeds expected from disposition of the asset group, if any, is less than the carrying value of the asset group. If the Company identifies an impairment, the Company reduces the carrying amount of the asset group to its estimated fair value (“FV”) based on a discounted cash flow approach or, when available and appropriate, to comparable market values and the impairment loss, if any, is recognized in “Others, net” in the consolidated statements of (loss) income and comprehensive income (loss). The Company uses estimates and judgments in its impairment tests and if different estimates or judgments had been utilized, the timing or the amount of any impairment charges could be different. Asset groups to be disposed of would be reported at the lower of the carrying amount or FV less costs to sell, and no longer depreciated. No impairment of long-lived assets was recognized for the years ended June 30, 2026, 2025 and 2024.
Fair value of financial instruments
FASB ASC 820, “Fair Value Measurement,” requires certain disclosures regarding the fair value of financial instruments. fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data. | |
| ● | Level 3 - inputs to the valuation methodology that are unobservable. |
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, restricted cash, accounts receivable, notes receivable, loans receivable, advance to vendors, inventories, prepaid expenses and other current assets, short-term bank loans, accounts payable, advances from customers, due to related parties, taxes payable, and other payables and other current liabilities approximate their recorded values due to their short-term maturities.
The Company’s non-financial assets, such as property and equipment would be measured at fair value only if they were determined impaired.
Notes payable
Notes
payable represents the amount as per bank acceptance bill issued by the Company to settle its payment obligation to its supplier. Notes
payable is non-interest bearing and generally range from three to six months from the date of issuance. The balance of notes payable
was $
| F-13 |
Advance from customers
Advance from customers is a contract liability and it represents amounts or progress payments received from customers under contracts prior to commencement of the manufacturing process and/or during the assembly of the custom-built kitchen. This contract liability is not tied to the Company’s remaining performance obligations. Upon delivery of the related products/services to the customer, the Company will recognize revenue at the contract price less amount representing its remaining performance obligations, reduce the associated contract liability and invoice the remaining portion of the contract price on performance obligations already satisfied.
Lease
ASC 842 requires lessees to recognize a right-of-use (“ROU”) asset and corresponding lease liability on the Consolidated Balance Sheets for all leases. The Company determines if an arrangement is a lease at inception of the arrangement and if such lease will be classified as an operating lease or a finance lease. As of June 30, 2026, all of the Company’s leases are accounted for as operating leases.
ROU assets are the Company’s right to use an underlying asset for the lease term and lease liabilities are the Company’s obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Most leases do not provide an implicit interest rate; therefore, the Company used its incremental borrowing rate based on the information available at the inception date to determine the present value of the lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. Lease cost for lease payments is recognized on a straight-line basis over the lease term. All ROU assets are reviewed for impairment annually. There was no impairment of the Company’s ROU assets as of June 30, 2026.
Revenue recognition
In accordance with FASB ASC 606, “Revenue from Contracts with Customers”, the Company recognizes revenue for the transfer of products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of the product or the benefit of the service transfers to the customer. Under ASC 606, the Company is required to (a) identify the contract with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract and (e) recognize revenue when (or as) the Company satisfies its performance obligations.
The Company generates its revenue from: project sales, that is, contracts signed through bidding or other customer acquisition channels to sell and install kitchen equipment according to the customer’s needs; and retail sales, which refer mainly to purchase individual kitchen equipment from other suppliers and sell it to former or new customers who learned about the Company’s products through other communication channels. Revenues are the consideration the Company is entitled to in exchange for the promised goods or services in the ordinary course of the Company’s activities and is recorded net of value-added tax (“VAT”). In accordance with the criteria of ASC 606, revenue is recognized only up to the portion of the performance obligations that the Company has satisfied when control of the promised goods or services is being transferred to the customer, which generally occurs upon acceptance by the customer. The customer will be invoiced the remaining balance of the contract price once the Company has satisfied its remaining performance obligations. The Company also evaluates whether it is appropriate to record the gross amount of goods and services sold and the related costs. If the Company receives an advance from a customer, such advance is recorded as advances from customers.
Project sales:
The Company signs contracts with customers and provides products according to the sales contract or sales list. The customer issues a product check and acceptance document or a delivery receipt after checking the quantity and quality of the products received and, in most cases, installed. Revenue is recognized when the Company receives confirmation of product acceptance. Revenues are recorded net of value-added tax and discounts.
For certain larger-scale projects, such as those for hotels and hospitals, the Company provides design services including equipment configuration plans, detailed mechanical and electrical graphic designs, kitchen drawings and assisting customers with passing inspections. The design services are normally completed in five days and are inseparable from project sales. The detailed mechanical plans, electrical design and kitchen drawings are specifically detailed for the Company’s customized equipment and installation. These services are interdependent and never transferred to the customer on their own. Customers do not have the option to purchase these services separately due to the customization of each project. Accordingly, these services are not considered separate performance obligations and no revenue is recognized for these services under ASC 606 until the project is complete.
The Company provides on-site installation and maintenance services and according to the contracts, the customers do not have the option to purchase these services separately. The warranty does not provide the customers with a service in addition to the assurance the product complies with agreed-upon contract specifications and is considered an assurance warranty. The after-sales services and the warranty are not considered separate performance obligations and no revenue is associated with these services under ASC 606.
| F-14 |
Retail sales:
Retail revenue is generated by the Company when retail sales of products occur without a signed contract on a retail basis. Retail sales usually occur when prior customers need to replace or add individual products. Retail customers usually purchase the products by WeChat or telephone with the salesperson. In addition, there are customers who come directly to the factory to purchase products. The Company identifies the fulfilment of its obligation when transferring the product and issuing the VAT invoice to the customer at which time revenue is recognized. Revenues are recorded net of value-added tax, business taxes and discounts.
Cost of revenues
Cost of revenues consists primarily of the cost of merchandise sold, delivery cost and installation fees, that are directly attributable to the sale of certain designated products.
General and administrative expenses
General and administrative expenses are mainly payroll and related costs for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources, professional fees and other general corporate expenses as well as costs associated with the use by these functions of facilities and equipment, such as depreciation and rent.
Selling expenses
Selling expenses are mainly payroll and commissions for employees involved in the sales and distribution functions, and freight out.
Interest income (expenses), net
Interest expense is interest on short- and long-term borrowings. Interest income is interest from loans receivable.
Other income, net
Other income, net includes primarily income from various incidental business activities that is not accounted for as revenue from contracts with customers under ASC 606. It mainly consists of government subsidies, gains or losses on disposal of non-current assets and other miscellaneous non-operating items. Other income is recognized in the consolidated statements of gain/loss on an accrual basis when earned and presented separately from operating revenue to distinguish core business performance from non-core activities.
Mainland China employee contribution plans
As
stipulated by the regulations of the PRC, full-time employees of the Company are entitled to various statutory employee benefits, including
medical, maternity, workplace injury, and unemployment insurance and pension benefits through a PRC government-mandated multi-employer
defined contribution plan. The Company is required to contribute to the plan based on percentages of employees’ salaries. Total
expenses the Company incurred for the plan were $
Income taxes
The Company’s subsidiaries in the PRC and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC for the years ended June 30, 2026, 2025 and 2024. The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are also recognized for carry-forward loses that can be used to offset taxable income in the future. A valuation allowance is provided for net deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or future deductibility is uncertain.
| F-15 |
ASC 740-10-25 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of June 30, 2026 and 2025.
Value Added Tax (“VAT”)
The
VAT rate for revenue from providing products is
The Company computes loss per share (“EPS”) in accordance with FASB ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is computed by dividing net loss available to ordinary shareholders of the Company by the weighted average ordinary shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. When the Company has a net loss, diluted securities are not included as they would be anti-dilutive. For the years ended June 30, 2026, 2025 and 2024, there were no dilutive securities.
Comprehensive loss
Comprehensive loss consists of two components, net loss and other comprehensive income (loss). Other comprehensive loss refers to revenue, expenses, gains, and losses that under U.S. GAAP are recorded as an element of equity but are excluded from net loss. Other comprehensive income (loss) consists of foreign currency translation adjustments from the Company not using the U.S. dollar as its functional currency.
Foreign currency translation and transactions
The Company’s principal country of operations is the PRC. The financial position and results of its operations are determined using RMB, the local currency, as the functional currency. The Company’s consolidated financial statements are reported using the U.S. dollar (“US$” or “$”). The consolidated statements of loss and cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contributions. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in the consolidated statements of changes in shareholders’ equity. Gains and losses from foreign currency transactions are included in the Company’s Consolidated Statements of Loss and Comprehensive Loss.
| F-16 |
The value of the RMB against the US$ fluctuates and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines the currency exchange rates that were used in preparing the consolidated financial statements:
| June 30, | For the Years Ended June 30, | |||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | 2024 | ||||||||||||||||
| Foreign currency | Balance Sheet | Balance Sheet | Profit/Loss | Profit/Loss | Profit/Loss | |||||||||||||||
| RMB:1USD | ||||||||||||||||||||
Segment reporting
ASC Topic 280, “Segment Reporting,” requires use of the management approach model for segment reporting. The Company identifies operating segments as components of the consolidated operations for which discrete financial information is available and is regularly reviewed by the chief operating decision maker (“CODM”), in making decisions regarding resource allocation and evaluating financial performance. The Company defines the term CODM to be its Chief Executive Officer. The Company determined it operates in one operating and reportable segment. The CODM reviews operating income (loss) presented only on a consolidated basis and uses this information for purposes of allocating resources and evaluating financial performance. There are no reconciling items between segment information and consolidated financial information.
The significant segment expenses and other segment items that are provided to the CODM align with expense information that is included in the Company’s consolidated statements of operations and notes thereto.
The measure of segment assets is reported in the balance sheet as total consolidated assets. The Company’s assets are substantially all located in the PRC and substantially all the Company’s revenues and expenses are derived in the PRC.
Statements of cash flows
In accordance with FASB ASC 230, “Statement of Cash Flows”, cash flows from the Company’s operations are reported based upon the local currencies and then translated at average translation rates for the periods presented. As a result, assets and liabilities changes reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Significant risks
Currency risk
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other Company foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
As of June 30, 2026 and 2025, all cash balances held in PRC banks are covered by insurance.
Concentration and credit risk
Currently, all of the Company’s operations are in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
| F-17 |
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable,
notes receivable, advances to suppliers and amount due from related parties. A portion of the Company’s sales are credit sales
which are to customers whose ability to pay is dependent upon industry economics prevailing in these areas; however, concentrations of
credit risk with respect to trade accounts receivable is limited since a majority the Company’s customers are state-owned enterprises.
The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. As of June 30, 2026, $
Interest rate risk
Fluctuations in market interest rates may negatively affect the Company’s financial condition and results of operations. The Company is exposed to floating interest rate risk principally on floating rate borrowings, and the risks due to changes in interest rates is not considered material. The Company has not used any derivative financial instruments to manage the Company’s interest risk exposure.
Inflation risk
Inflationary factors, such as increases in the cost of raw materials, personnel and overhead costs, could impair our operating results. Although we do not believe inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenue if the revenues from our products do not increase with such increased costs. Considering that there is no sign of inflation in China’s current economic environment, this risk should not affect the Company’s operations.
Other uncertainty risks
The Company’s major operations are in the PRC. Accordingly, the political, economic, and legal environment in the PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition, and results of operations.
The Company’s operations in the PRC are subject to considerations and risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws, this may not be indicative of future results.
Related parties
A party is considered related to the Company if it directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of their immediate families and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
Recent accounting pronouncements
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about an entity’s effective tax rate reconciliation and additional discloses on income taxes paid. The new requirements are effective for annual periods beginning after December 15, 2024. The guidance is to be applied prospectively, with an option for retrospective application. The Company adopted this ASU on January 1, 2026. The adoption did not have a material impact on the consolidated financial statements.
| F-18 |
In November 2024, the FASB issued ASU 2024-03 on Disaggregation of Income Statement Expenses that enhances disclosure of certain costs and expenses to provide enhanced transparency into the expenses presented in the income statement. The updates are effective for annual periods beginning after December 15, 2026. The Company is evaluating the impact of the related disclosure requirements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on its consolidated financial statements.
NOTE 4 – ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| Total trade accounts receivable | $ | $ | ||||||
| Less: allowance for expected credit losses | ( | ) | ( | ) | ||||
| Total accounts receivable, net | $ | $ | ||||||
| Accounts receivable - current | $ | $ | ||||||
| Accounts receivable - non-current | $ | $ | ||||||
Non-current accounts receivable is the non-current portion of warranty retainage as of June 30, 2026 and 2025.
As of June 30, | ||||||||
| Non-current portion of warranty retainage by due date | 2026 | 2025 | ||||||
| 1-2 years | $ | $ | ||||||
| 2-3 years | ||||||||
| 3-4 years | ||||||||
| >4 years | ||||||||
| Total | $ | $ | ||||||
As
of June 30, 2026 and 2025, warranty retainage included in total accounts receivable was approximately $
As of June 30, | ||||||||
| Warranty retainage by due date | 2026 | 2025 | ||||||
| Within 1 year | $ | $ | ||||||
| 1-2 years | ||||||||
| 2-3 years | ||||||||
| 3-4 years | ||||||||
| >4 years | ||||||||
| Total | $ | $ | ||||||
The movement of the allowance for expected credit losses is as follows:
| For the Years Ended June 30, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Balance at beginning of the year | $ | $ | $ | |||||||||
| Current year addition | ||||||||||||
| Foreign exchange difference | ( | ) | ||||||||||
| Balance at end of the year | $ | $ | $ | |||||||||
| F-19 |
NOTE 5 – ADVANCE TO VENDORS, NET
Advance to vendors, net consisted of the following:
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| Advance to suppliers | $ | $ | ||||||
| Advance to investment consultant | ||||||||
| Less: allowance for expected credit losses | ( | ) | ( | ) | ||||
| Advance to vendors, net | $ | $ | ||||||
During
the year ended June 30, 2026, the Company executed an investment service agreement with a third-party investment service provider and
remitted a refundable advance of $
The advance payment does not constitute an equity investment, loan, or capital contribution to the investment service provider. The service provider has no ownership interest in, or economic rights to, the advance. The Company retains control over the use of the advance, and any unused portion is refundable in accordance with the terms of the service agreement.
Periodically, the Company evaluates associated credit and performance risks and recoverability of its advance to each vendor on an individual basis, taking into account the vendor’s financial condition and ability to fulfil its contractual obligations. As of June 30, 2026 and 2025, the allowance for expected credit losses was attributable to the Company’s advance to suppliers. The movement of the allowance for expected credit losses is as follows:
| For the Years Ended June 30, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Balance at beginning of the year | $ | $ | $ | |||||||||
| (Recovery), net of addition | ( | ) | ||||||||||
| Foreign exchange difference | ( | ) | ||||||||||
| Balance at end of the year | $ | $ | $ | |||||||||
NOTE 6 – INVENTORIES
Inventories consisted of the following:
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Work in progress | ||||||||
| Total inventories | $ | $ | ||||||
The Company reviews its inventories periodically to determine if a reserve is necessary for slow-moving inventory or if a write-down is necessary when the carrying value exceeds net realizable value. For the years ended June 30, 2026, 2025 and 2024, there was no provision for slow-moving or obsolete inventory.
| F-20 |
NOTE 7 — LOANS RECEIVABLE, NET
Loans receivable consisted of the following:
| As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| WELL FANCY DEVELOPMENT LTD.(1) | $ | $ | ||||||
| HAMASEN INTERNATIONAL CONSULTANCY LIMITED(2) | ||||||||
| LIBRA APPRAISAL LIMITED(3) | ||||||||
| GIANT IMAGE LIMITED(4) | ||||||||
| OIC CORPORATE SERVICES LIMITED(5) | ||||||||
| Jiangyin Gushan Town Yuhua Aluminum Industry Co., Ltd. (6) | ||||||||
| Leiluo Intelligent Technology (Jiangsu) Co., Ltd.(7) | ||||||||
| RAPID PROCEED LIMITED(8) | ||||||||
| Subtotal | $ | |||||||
| Less: allowance for expected credit losses | ||||||||
| Loans receivable, net | $ | $ | ||||||
| Less: current portion | $ | $ | ||||||
| Non-current portion | $ | $ | ||||||
| (1) |
On
July 16, 2026, the Well Fancy Agreement was terminated and Li Bang International entered into a new multi-party repayment agreement,
pursuant to which the outstanding loan would be repaid by HK RED SUN CO., LIMITED (“RED SUN”), a third party. In October
2026, RED SUN repaid $ |
| (2) |
On
July 16, 2026, the Hamasen Agreement was terminated and Li Bang International entered into a new multi-party repayment agreement,
pursuant to which the outstanding loan would be repaid by RED SUN. In October 2026, RED SUN repaid $ |
| (3) |
On
July 16, 2026, the Libra Agreement was terminated and Li Bang International entered into a new multi-party repayment agreement, pursuant
to which the remaining loan was to be repaid by RED SUN. In October 2026, RED SUN repaid $ |
| F-21 |
| (4) |
On
July 16, 2026, the Giant Image Agreement was terminated and Li Bang International entered into a new multi-party repayment agreement,
pursuant to which the remaining loan would be repaid by RED SUN. In October 2026, RED SUN repaid $ |
| (5) |
On
July 16, 2026, the OIC Agreement was terminated and Li Bang International entered into a new multi-party repayment agreement, pursuant
to which the remaining loan was to be repaid by RED SUN. In October 2026, RED SUN repaid $ |
| (6) |
Pursuant
to a multi-party loan agreement executed on May 25, 2026, Li Bang Intelligent Technology agreed to transfer all rights and obligations
of Jiangyin Huiheng to Jiangyin Gushan Town Yuhua Aluminum Industry Co. Ltd. (“Yuhua Aluminum”), with Yuhua Aluminum
acting as the new debtor. The loan term is effective retroactively from January 1, 2026 to December 31, 2027, with an annual interest
rate of |
| (7) | |
| (8) |
As
of the date of this report, loans receivable was $
| F-22 |
NOTE 8 – PROPERTY AND EQUIPMENT, NET
Property and equipment, at cost less accumulated depreciation, consisted of the following:
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| Buildings and improvement | $ | $ | ||||||
| Computer and office equipment | ||||||||
| Machinery and equipment | ||||||||
| Vehicles | ||||||||
| Construction in progress (“CIP”) | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
For
the years ended June 30, 2026, 2025 and 2024, depreciation was $
CIP consisted of the following:
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| Intelligent kitchen manufacturing facility (1) | $ | $ | ||||||
| Office building renovation (2) | ||||||||
| Total | $ | $ | ||||||
| (1) |
Total
construction cost of the intelligent kitchen facility is approximately $
|
| (2) |
| F-23 |
NOTE 9 – INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following:
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| Land use rights | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
For
the years ended June 30, 2026, 2025 and 2024, amortization was $
Estimated future amortization is as follows as of June 30, 2026, by year:
| 12 months ending June 30, | Amortization expense | |||
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 10 – BANK LOANS
The Company’s bank loans are as follows:
| As of June 30, | |||||||||||||
| No. | 2026 | 2025 | Term | ||||||||||
| RMB | RMB | ||||||||||||
| (1) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | ||||||||||||
| (2) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | ||||||||||||
| (3) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | ||||||||||||
| (4) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | ||||||||||||
| (5) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | ||||||||||||
| (6) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | ||||||||||||
| (7) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | ||||||||||||
| (8) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | ||||||||||||
| (9) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | |
|||||||||||
| (10) | Jiangsu Suzhou Rural Commercial Bank Co., Ltd | |
|||||||||||
| (11) | Jiangyin Rural Commercial Bank | ||||||||||||
| (12) | China Merchants Bank Co., Ltd. | ||||||||||||
| (13) | Jiangsu Bank Co., Ltd. | ||||||||||||
| (14) | Jiangsu Bank Co., Ltd. | ||||||||||||
| (15) | Jiangsu Bank Co., Ltd. | ||||||||||||
| (16) | China Merchants Bank Co., Ltd. | |
|||||||||||
| (17) | Jiangsu Bank Co., Ltd. | ||||||||||||
| (18) | Jiangsu Bank Co., Ltd. | ||||||||||||
| (19) | Jiangyin Rural Commercial Bank | ||||||||||||
| (20) | Jiangyin Rural Commercial Bank | ||||||||||||
| (21) | Jiangyin Rural Commercial Bank | ||||||||||||
| Total bank loans (RMB) | |||||||||||||
| Less: current portion (RMB) | |||||||||||||
| Non-current portion (RMB) | |||||||||||||
| Total bank loans (USD) | |||||||||||||
| Less: current portion (USD) | |||||||||||||
| Non-current portion (USD) | $ | $ | |||||||||||
| F-24 |
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) | |
| (7) |
| F-25 |
| (8) | |
| (9) | |
| (10) | |
| (11) | |
| (12) | |
| (13) | |
| (14) | |
| (15) | |
| (16) |
| F-26 |
| (17) | |
| (18) | |
| (19) | |
| (20) | |
| (21) |
NOTE 11 – OTHER PAYABLES AND OTHER CURRENT LIABILITIES
Other payables and other current liabilities consisted of the following:
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| Payroll payable | $ | $ | ||||||
| Interest-free borrowing from third parties | ||||||||
| Accrued expenses | ||||||||
| Other | ||||||||
| Other payables and other current liabilities | $ | $ | ||||||
NOTE 12 —LEASE
On
June 12, 2025, the Company entered into a lease agreement with Jiangyin Gushan Investment Co., Ltd. for a land use right to construct
an intelligent kitchen manufacturing facility. The leased land is located on Fuqian East Road, Gushan Town, covering an area of
| F-27 |
The Company’s lease agreement does not contain any material residual value guarantees or material restrictive covenants.
As of June 30, | ||||
| Operating lease ROU asset | $ | |||
| Operating lease liability - current | $ | |||
| Operating lease liability - non-current | ||||
| Total operating lease liability | $ | |||
As of June 30, |
||||
| Weighted-average remaining lease term (months) | ||||
| Weighted-average discount rate | % | |||
A summary of lease cost recognized in Company’s consolidated financial statements and supplemental cash flow information for operating leases is as follows for the years ended June 30, 2026:
| 2026 | ||||
| Operating lease cost | $ | |||
| Cash paid for operating lease | $ | |||
A summary of maturity of operating lease liabilities under the Company’s non-cancellable operating leases as of June 30, 2026 is as follows:
| Year ending June 30, | ||||
| 2027 | $ | |||
| 2028 | ||||
| Total lease payments | ||||
| Less: Imputed Interest | ( | ) | ||
| Present value of operating lease liability | $ | |||
NOTE 13– RELATED PARTY BALANCES AND TRANSACTIONS
The table below sets forth the major related parties and their relationships with the Company as of June 30, 2026:
| Name of related parties | Relationship with the Group | |
| Feng Huang |
The following are related party balances which are non-interest bearing as of June 30, 2026 and 2025:
| 2026 | 2025 | |||||||
| Amounts due to related parties: | ||||||||
| Feng Huang (1) | $ | $ | ||||||
| (1) |
NOTE 14 – EQUITY
Share Consolidations and Share Capital Reorganization
On
December 30, 2025, the shareholders of the Company approved one or more share consolidations of authorized and issued ordinary shares
at ratios ranging from 1-for-5 to 1-for-5,000, an increase in authorized share capital from $
| F-28 |
On April 30, 2026, the shareholders of the Company approved resolutions to increase its share capital:
Subsequent to the share capital increase and 1-for-200 share consolidation, the authorized number of Class A ordinary shares was with a par value of $ per share, the authorized number of Class B ordinary shares was with a par value of $ per share.
On September 22, 2026, the shareholders of the Company approved resolutions to increase its share capital.
Equity Transactions
On
December 22, 2025, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain
investors for a private placement offering (the “Private Placement”) of an aggregate of ( shares post share
consolidation) class A ordinary shares of the Company, par value $ ($ post share consolidation) per share, at the subscription
price of $
On
February 13, 2026, the Company entered into a Sales Agreement (the “ATM program”) with a sales agent. Pursuant to the terms
of the Sales Agreement, the Company may from time to time issue and sell, through the sales agent, up to $
Non-controlling interests consisted of the following:
| June 30, 2026 | ||||||||||||
Yangzhou Bangshijie | Nanjing Bangshijie | Total | ||||||||||
| Accumulated deficit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||||||
| Total non-controlling interests | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| June 30, 2025 | ||||||||||||
Yangzhou Bangshijie | Nanjing Bangshijie | Total | ||||||||||
| Accumulated deficit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Accumulated other comprehensive income | ||||||||||||
| Total non-controlling interests | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| F-29 |
Yangzhou
Bangshijie is a limited liability company incorporated on December 2, 2019, under the laws of China; Li Bang Kitchen Appliance holds
a
No capital contributions were received from non-controlling shareholders during the years ended June 30, 2026, 2025 and 2024.
NOTE 15 – OTHER INCOME, NET
Other income, net consisted of the following:
| For the Years Ended June 30, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Non-project installation and maintenance revenue | $ | $ | $ | |||||||||
| Rental income, net (1) | ||||||||||||
| Consulting service revenue | ||||||||||||
| Waste sales | ||||||||||||
| Government subsidies (2) | ||||||||||||
| Other income | ||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ||||||
| Other income, net | $ | $ | $ | |||||||||
| (1) |
On
January 1, 2022, Wuxi Li Bang leased part of the property at No. 190 Xizhang Road, Gushan Town, Jiangyin City to Leiluo Intelligent
Technology (Jiangsu) Co., Ltd. The term was three years and the rent was RMB |
| (2) |
For
the year ended June 30, 2024, government subsidies primarily consisted of value-added tax deduction ($
For
the year ended June 30, 2025, government subsidies primarily consisted of listing incentive ($
For the year ended June 30, 2026, government subsidies primarily consisted of value-added tax deduction and employment stabilization subsidies. |
| F-30 |
NOTE 16 – TAXES
Corporation income taxes (“CIT”)
The Company is subject to income taxes on an entity basis on income from the location in which each entity is domiciled.
Li Bang International is incorporated in Cayman Islands as an offshore holding company and is not subject to tax on income or capital gains under the laws of the Cayman Islands.
Li Bang HK is incorporated in Hong Kong as a holding company with no activities. Under Hong Kong tax laws, an entity is not subject to income tax if no revenue is generated in Hong Kong.
The Company’s subsidiaries incorporated in the PRC are subject to Corporate Income Tax (“CIT”) on their taxable income as reported in their respective statutory financial statements adjusted in accordance with the PRC Enterprise Income Tax Laws (“PRC Income Tax Laws”). Each subsidiary in the PRC must file its own tax returns as consolidated returns are not permitted in the PRC.
Under
the Enterprise Income Tax (“EIT”) Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”)
are subject to a unified
Wuxi
Li Bang was approved as an HNTE in November 2016 and was re-approved in December 2019. Wuxi Li Bang is entitled to a reduced income tax
rate of
Loss before provision for income taxes consisted of:
| For the Years Ended June 30, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Outside China | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| China | ( | ) | ( | ) | ( | ) | ||||||
| Loss before provision for income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Income tax expense (benefit) consisted of the following:
| For the Years Ended June 30, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Current | ||||||||||||
| China | $ | $ | $ | |||||||||
| Deferred | ||||||||||||
| China | ( | ) | ( | ) | ||||||||
| Income tax expense (benefit) | $ | $ | ( | ) | $ | ( | ) | |||||
| F-31 |
The following table reconciles the statutory rate to the Company’s effective tax rate:
| 2026 | 2025 | 2024 | ||||||||||||||||||||||
| Income tax at expected tax rates | $ | ( | ) | % | $ | ( | ) | % | $ | ( | ) | % | ||||||||||||
| Utilization of prior year tax losses (1) | ( | ) | % | - | - | |||||||||||||||||||
| Non-deductible expenses | ( | ) | % | ( | )% | ( | )% | |||||||||||||||||
| Effect of PRC preferential tax rate (2) | ( | )% | ( | ) | % | ( | )% | |||||||||||||||||
| Non-PRC entities not subject to PRC tax | ( | )% | ( | )% | ( | )% | ||||||||||||||||||
| Allowance for DTA (3) | ( | )% | ( | )% | ( | )% | ||||||||||||||||||
| Other | ( | )% | ( | )% | ( | )% | ||||||||||||||||||
| Income tax expense and effective income tax rate | $ | ( | )% | $ | ( | ) | % | $ | ( | ) | % | |||||||||||||
| (1) | |
| (2) |
For the years ended June 30, 2026 and 2024, Li Bang Kitchen Appliance incurred losses, the preferential tax rate reduced the overall effective tax rate of the Company.
For the years ended June 30, 2025, net income generated by Li Bang Kitchen Appliance was offset by the losses of other subsidiaries of the Company, therefore the preferential tax rate of Li Bang Kitchen Appliance increased the overall effective tax rate of the Company. |
| (3) |
Deferred tax assets
Components of deferred tax assets and liabilities were as follows:
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| Allowance for expected credit losses | $ | $ | ||||||
Taxes Payable
Taxes payable consisted of the following:
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| VAT | $ | $ | ||||||
| Income taxes | ||||||||
| Dividend withholding | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Other taxes payable consists mainly of tax obligations related to city construction taxes, education funds and withholding taxes related to dividends distributed to the Company’s shareholders.
| F-32 |
NOTE 17 – CONCENTRATION OF MAJOR CUSTOMERS AND SUPPLIERS
Major customers
Details of the customers accounting for 10% or more of the Company’s total revenues are as follows:
| For the Years Ended June 30, | ||||||||||||||||||||||||
| 2026 | 2025 | 2024 | ||||||||||||||||||||||
| Customer A | $ | % | $ | $ | ||||||||||||||||||||
| Customer B | % | |||||||||||||||||||||||
| Customer C | % | |||||||||||||||||||||||
| Customer D | % | |||||||||||||||||||||||
| Customer E | % | |||||||||||||||||||||||
| Total | $ | % | $ | % | $ | % | ||||||||||||||||||
Details of the customers which accounted for 10% or more of the Company’s accounts receivable are as follows:
| As of June 30, | ||||||||||||||||
| 2026 | 2025 | |||||||||||||||
| Customer F | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
Major suppliers
For
the years ended June 30, 2026, 2025 and 2024, no supplier accounted for more than 10% of the Company’s total purchases. As of June
30, 2026 and 2025, no supplier accounted for more than
NOTE 18 – COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Amounts accrued, as well as the total amount of possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the consolidated financial statements. As of June 30, 2026 and 2025, the Company was not aware of any litigation or proceedings against it.
Warranties
In
connection with the Company’s sales and installations, it provides warranties from
NOTE 19 – SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date of this report.
Loans Payable and Loans Receivable
On
July 6, 2026, Wuxi Libang entered into a credit facility of RMB
| F-33 |
From September 22 to October 20, 2026, Leiluo Intelligent repaid RMB
From
October 27 to October 29, 2026, pursuant to multi-party loan agreements (see Note 7), RED SUN repaid an aggregate of $
On
October 26, 2026, Suzhou Deji entered into a non-principal repayment loan renewal agreement with Jiangsu Suzhou Rural Commercial Bank
Co., Ltd., to extend the maturity of its two existing loans, totaling RMB
Equity Transactions
During
July 2026, the Company sold Class A ordinary shares ( shares post share consolidation) under the ATM program. Gross
proceeds raised amounted to approximately $
On
August 13, 2026, the Company entered into a Securities Purchase Agreement whereby the Company sold Class B ordinary shares to
Maple Huang Holdings Limited (an entity wholly owned and controlled by Feng Huang, ultimate majority shareholder of the Company) and
Class B ordinary shares to Funa Lee Holdings Limited (an entity wholly owned and controlled by Funa Li, a director of the Company
and the spouse of Mr. Huang), at a price of $ per share for an aggregate purchase price of $
Share Consolidation
Key Matters of the Extraordinary General Meeting
On September 22, 2026, the shareholders of the Company approved the proposals for the de-registration of the Company from the Cayman Islands pursuant to Part XII of the Companies Act and the continuation of the Company as a BVI business company under the laws of the BVI. As of the date of this annual report, the Company is in the process of completing such matter.
On
September 22, 2026, the shareholders of the Company approved resolutions to increase its share capital. The authorized share capital
of the Company was increased from $
.
Equity Investments
On July 7, 2026, Li Bang Intelligent Technology and
three natural persons jointly established Shengwosi Cleaning Technology (Wuxi) Co., Ltd. (“Shengwosi”), in which Li Bang Intelligent
Technology holds a
On October 19, 2026, Li Bang Intelligent Technology
acquired a
On
November 3, 2026, Li Bang Intelligent Technology entered into a share purchase agreement with Jiangsu Xinsheng Synthetic Materials Co.,
Ltd. (“Jiangsu Xinsheng”) and its two individual shareholders of Jiangsu Xinsheng (the “Sellers”). Pursuant to
the agreement, Li Bang Intelligent Technology agreed to acquire a
The equity investments in Shengwosi, Aike Robot and Jiangsu Xinsheng are part of the Company’s strategic development plan to enhance its ability to grow its core business.
NOTE 20 – PARENT COMPANY INFORMATION
Pursuant
to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, the financial information of the parent company
shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end
of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in
accordance with such requirement and concluded that it was applicable to the Company as the restricted net assets of the Company’s
PRC Subsidiary exceeded
For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party.
The financial information of the parent company was prepared using the same accounting policies as set out in the Company’s audited consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries. Such investment is presented on the balance sheets as “Investment in subsidiaries” and the respective loss as “Equity in loss of subsidiaries” on the statements of loss.
These statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been or omitted.
As of June 30, 2026 and 2025, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statements, if any.
| F-34 |
LI BANG INTERNATIONAL CORPORATION INC.
PARENT COMPANY BALANCE SHEETS
As of June 30, | ||||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Loans receivable | ||||||||
| Due from WFOE | ||||||||
| Advance to a vendor | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Non-current loans receivable, net | ||||||||
| Investment in subsidiaries | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities | ||||||||
| Amounts due to related parties, current | $ | |||||||
| Other payables and other current liabilities | $ | |||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDER’S EQUITY | ||||||||
| Ordinary shares (par value $ per share, shares authorized, shares issued and outstanding as of June 30, 2025) * | ||||||||
| Class A Ordinary Shares (par value $ per share, shares authorized, shares issued and outstanding as of June 30, 2026) * | ||||||||
| Class B Ordinary Shares (par value $ per share, shares authorized, shares issued and outstanding as of June 30, 2026) * | ||||||||
| Subscription receivables | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| (Accumulated deficit) retained earnings | ( | ) | ||||||
| Accumulated other comprehensive loss (gain) | ( | ) | ||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
| * |
| F-35 |
LI BANG INTERNATIONAL CORPORATION INC.
PARENT COMPANY STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
| For the Years Ended June 30, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Equity in loss of subsidiaries | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Operating expenses: | ||||||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Provision for expected credit losses | ( | ) | ||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Other income: | ||||||||||||
| Interest income, net | ||||||||||||
| Other expense, net | ( | ) | ( | ) | ||||||||
| Total other income, net | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| F-36 |
LI BANG INTERNATIONAL CORPORATION INC.
PARENT COMPANY STATEMENTS OF CASH FLOWS
| For the Years Ended June 30, | ||||||||||||
| 2026 | 2025 | 2024 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Equity in loss of subsidiaries | ||||||||||||
| Provision for expected credit losses | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||||||
| Amount due to intercompany | ||||||||||||
| Other payables and other current liabilities | ||||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Loans to third parties | ( | ) | ( | ) | ||||||||
| Proceeds from repayment of loans receivable from third parties | ||||||||||||
| Investment in subsidiaries | ( | ) | ( | ) | ||||||||
| Advance to investment consultant | ( | ) | ||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Payment of offering costs | ( | ) | ||||||||||
| Net proceeds from initial public offering | ||||||||||||
| Net proceeds from issuance of ordinary shares via ATM program | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Net increase in cash | ||||||||||||
| Cash at the beginning of the year | ||||||||||||
| Cash at the end of the year | $ | $ | $ | |||||||||
| Non-cash transactions: | ||||||||||||
| Reclassification of deferred offering cost | $ | $ | $ | |||||||||
| F-37 |