Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2024

Commission File Number: 001-42376

HUHUTECH International Group Inc.

3-1208 Tiananzhihui Compound
228 Linghu Road
Xinwu District, Wuxi City, Jiangsu Province
People’s Republic of China 214135

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F ☐

EXHIBIT INDEX

Exhibit No.		Description
99.1		Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Six Months ended June 30, 2024 and 2023
99.2		Unaudited Interim Consolidated Financial Statements for the Six Months ended June 30, 2024 and 2023

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HUHUTECH International Group Inc.

Date: November 7, 2024	By:	/s/ Yujun Xiao
	Name:	Yujun Xiao
	Title:	Chief Executive Officer

Exhibit 99.1

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes. 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. All amounts included herein with respect to the six months ended June 30, 2024 and 2023 are derived from our unaudited condensed consolidated financial statements. Our financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP.

Unless otherwise indicated, all share amounts and per share amounts in this filing have been presented giving effect to a forward split of our Ordinary Shares at a ratio of 1-for-4, approved by our shareholders on July 15, 2024.

Overview

We are a holding company incorporated as an exempted company on July 9, 2021 under the laws of the Cayman Islands. As a holding company with no material operations of our own, we conduct substantially all of our operations through HUHU China and HUHU Japan. HUHU China and HUHU Japan are professional system integration providers to design and implement integrated facility management systems and industrial automation monitoring systems mainly for the optoelectronic, semiconductor, telecom and logistic industries in the PRC and Japan.

The Company currently generates most of its revenues from system integration projects, which represented 97.9%and 97.6% of total revenue for the six months ended June 30, 2024 and 2023, respectively. We also generate revenue from product sales, which represented 0.4% and 1.2% of our revenue for the six months ended June 30, 2024 and 2023, respectively. Engineering consulting services represented 1.7% and 1.1% of total revenue for the six months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, our total revenues were approximately $8.9 million and $8.1 million, respectively.

On October 23, 2024, the Company closed the initial public offering (the “IPO” or the “Offering”) of its 1,050,000 ordinary shares priced at $4.00 per share. The net proceeds to the Company from the IPO, after deducting the underwriting discount, the underwriters’ fees and expenses, and the estimated offering expenses, were approximately $2.4 million.

Coronavirus (“COVID-19”) updates

The outbreak of COVID-19 has spread throughout the world. On March 11, 2020, the World Health Organization declared the outbreak a global pandemic. Many businesses and social activities in China and other countries and regions have been severely disrupted in the first quarter of 2020, including those of our suppliers, customers and employees. This global outbreak has also caused market panics, which materially and negatively affected the global financial markets, such as the plunge of global stocks on major stock exchanges in March 2020. Such disruption and the potential slowdown of the world’s economy in 2020 and beyond could have a material adverse effect on our results of operations and financial condition. On December 7, 2022, China announced 10 new rules that constitute a relaxation of almost all of its stringent COVID-19 pandemic control measures. Shortly after their announcement, additional mobility restrictions issued by local governments were also scrapped.

On May 5, 2023, the World Health Organization declared that COVID-19 is now an established and ongoing health issue which no longer constitutes a public health emergency of international concern. However, the extent of the impact of COVID-19 on the Company’s future financial results will be dependent on future developments such as the length and severity of COVID-19, the potential resurgence of COVID-19, future government actions in response to the COVID-19 and the overall impact of COVID-19 on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. Given this uncertainty, the Company is currently unable to quantify the expected impact of COVID-19 on its future operations, financial condition, liquidity and results of operations.

Trends and Key Factors that Affect Operating Results

HUHU China currently derives a majority of its revenues from the system integration projects. Approximately 8% of the integration projects are long-term projects, which mainly include gas monitoring system, heat insulation system and facility monitoring and management system, and 92% are short-term contracts that are mainly supplemental contracts of long-term contracts. HUHU China intends to continually enhance the services and cross-sell new services to existing customers and acquire new customers by increasing market penetration with a deeper market coverage and broader geographical reach. HUHU China’s construction enterprise qualification is first-class and well recognized by clients. Maintaining and enhancing the recognition, image and acceptance of our brand are important to HUHU China’s ability to differentiate our products from and to compete effectively with our peers. Our brand image, however, could be jeopardized if we fail to maintain high product quality, pioneer and keep pace with evolving technology trends, or timely fulfill the orders for our products. If we fail to promote our brand or to maintain or enhance our brand recognition and awareness among our customers, or if we are subject to events or negative allegations affecting our brand image or the publicly perceived position of our brand, our business, results of operations and financial condition could be adversely affected.

HUHU China intends to expand the scope of services to the existing customers and acquire new customers by continually making significant investments in research and development (“R&D”). We plan to use 50% of our proceeds from this offering to construct a 5,000 square meter R&D plant in Xinwu District Wuxi City of Jiangsu Province, PRC and purchase of the related equipment for the production of equipment for gas supply systems. For the six months ended June 30, 2024 and 2023, we incurred R&D expense of $511,674 and $461,857, respectively. We will continue to improve upon and expand our production and products offerings through our research and development and technology innovations in order to deliver innovative products. We expect our research and development spending to stay above the amounts from the past years. Our business is closely related to the software and semiconductor industry, which is now experiencing rapid technological changes. Failure to anticipate technology innovations or adapt to such innovations in a timely manner, or at all, may result in our products becoming obsolete at sudden and unpredictable intervals. We monitor a number of financial and non-financial key business metric to evaluate on a regular basis business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. We believe that some of the most important measures include gross margin, operating margin, net income (loss) as well as the non-financial key metrics discussed below which may differ from other similarly titled metrics used by other companies, securities analysts or investors.

Number of contracts for our system integration projects

We monitor the number of contracts with customers for our system integration projects. The number of contracts will directly impact our results of operations, including revenues and gross margins for the foreseeable future. For the six months ended June 30, 2024, we completed 98 system integration projects, which increased from 78 projects for the six months ended June 30, 2023.

Average contract price for our system integration projects

We monitor the average contract price for our system integration projects, which impacts our future revenues and gross margins. Our average contract price decreased from $101,290 for the six months ended June 30, 2023 to $88,408 for the six months ended June 30, 2024. The average contract price is affected by number of new clients obtained, large contracts completed, and different clients customized needs. It varies across the presented financial periods.

Expansion of our geographic coverage

We believe there is a substantial opportunity to further grow our customer base by continuing to make significant investments in sales, marketing and brand awareness. Our ability to attract new customers will depend on a number of factors, including competitive dynamics in our targeted new geographical markets in Japan. We intend to expand our marketing and sales team with a focus on increasing sales in targeted geographies and customer segments. HUHU Japan started operation in July 2022. For the six months ended June 30, 2024 and 2023, HUHU Japan provided services to 10 and 1 clients, and completed 54 and 1 projects, respectively. For the six months ended June 30, 2024 and 2023, HUHU Japan contributed 47.6% and 24.1% of total revenue, respectively.

Results of Operations

For the six months ended June 30, 2024 and 2023

The following table summarizes the results of our operations for the six months ended June 30, 2024 and 2023, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

	For the Six Months Ended June 30,
	2024 (Unaudited)			2023 (Unaudited)			Change			% Change
REVENUES:
System integration projects	$	8,663,958		$	7,900,585		$	763,373			9.7	%
Engineering consulting services		152,573			91,912			60,661			66.0	%
Product sales		36,948			100,935			(63,987	)		(63.4	)%
Total revenues		8,853,479			8,093,432			760,047			9.4	%
COST OF REVENUES:
System integration projects		5,645,837			5,191,909			453,928			8.7	%
Engineering consulting services		30,190			4,280			25,910			605.4	%
Product sales		26,899			62,698			(35,799	)		(57.1	)%
Total cost of revenues		5,702,926			5,258,887			444,039			8.4	%
GROSS PROFIT		3,150,553			2,834,545			316,008			11.1	%
OPERATING EXPENSES:
Selling expenses		500,032			379,708			120,324			31.7	%
General and administrative expenses		909,952			650,053			259,899			40.0	%
Research and development expenses		511,674			461,857			49,817			10.8	%
Total operating expenses		1,921,658			1,491,618			430,040			28.8	%
Income from operations		1,228,895			1,342,927			(114,032	)		(8.5	)%
OTHER INCOME (EXPENSES):
Interest income		1,523			4,707			(3,184	)		(67.6	)%
Interest expense		(49,185	)		(39,925	)		(9,260	)		23.2	%
Other (expense) income, net		(100,698	)		447,981			(548,679	)		(122.5	)%
Total other (expense) income, net		(148,360	)		412,763			(561,123	)		(135.9	)%
INCOME BEFORE INCOME TAXES		1,080,535			1,755,690			(675,155	)		(38.5	)%
Provision for income taxes		231,208			218,674			12,534			5.7	%
NET INCOME	$	849,327		$	1,537,016		$	(687,689	)		(44.7	)%

Revenues

We derive revenues from three sources: (1) system integration projects, (2) engineering consulting services, and (3) product sales.

The Company is a professional system integration provider to design and implement integrated facility management systems and industrial automation monitoring systems mainly for optoelectronic, semiconductor, telecom and logistic industries. For the six months ended June 30, 2024, our total revenue was approximately $8.9 million as compared to $8.1 million for the six months ended June 30, 2023. The Company’s total revenue increased by approximately $0.8 million, or 9.4%. The overall increase in total revenue was primarily attributable to a $0.8 million increase in revenue from system integration projects.

Revenue from system integration projects

The Company’s revenues from system integration projects are normally under fixed-price contracts that may last from six months to three years. For the six months ended June 30, 2024 and 2023, most of our system integration project contracts are short term contracts. Our system integration project contracts require the Company to perform customized services of project planning, system coding, installation of hardware and equipment, and configuration based on customers’ specific needs which requires significant customization. Revenue is recognized over the contract time using an input method under which the percentage of revenue to be recognized for a given project is measured by the estimates of the extent of progress towards project completion.

For the six months ended June 30, 2024, revenue from system integration projects was approximately $8.7 million as compared to $7.9 million for the six months ended June 30, 2023, representing an increase of $0.8 million or 9.7%, which was due to the expansion of our business in the Japanese market for the six months ended June 30, 2024. The number of contracts we completed were 98 and 78 for the six months ended June 30, 2024 and 2023, respectively. The average contract price decreased from $101,290 for the six months ended June 30, 2023 to $88,408 for the six months ended June 30, 2024.

Revenue from engineering consulting services

Revenues generated from engineering consulting services are recognized upon the delivery of the engineering report as the Company’s performance obligations are satisfied. For the six months ended June 30, 2024, revenues from engineering consulting services were approximately $153,000 as compared to $92,000 for the six months ended June 30, 2023, representing an increase of $61,000 or 66.0%. The increase was a result of the system integration projects as the Company provided consulting services as auxiliary service to some system integration clients in need.

Revenue from product sales

Revenues from product sales is recognized when delivery has occurred and the customer accepts the equipment and the Company has no performance obligations after the acceptance.

For the six months ended June 30, 2024, our product sales were approximately $37,000 as compared to $101,000 for the six months ended June 30, 2023. The decrease of product sales revenue was $64,000 or 63.4% was due to a strategic shift by the Company to focus on system integration projects in the six months ended June 30, 2024.

Cost of Revenues

Our cost of revenues mainly consists of outsourcing costs, material costs and compensation expenses for our professionals. Our total cost of revenues increased by approximately $0.4 million or 8.4% from approximately $5.3 million for the six months ended June 30, 2023 to approximately $5.7 million for the six months ended June 30, 2024.

Cost of system integration projects increased by approximately $0.4 million or 8.7% from approximately $5.2 million for the six months ended June 30, 2023 to approximately $5.6 million for the six months ended June 30, 2024, which was in line with the revenue increase.

Cost of engineering consulting services increased by $25,910 from $4,280 for the six months ended June 30, 2023 to $30,190 for the six months ended June 30, 2024, which was in line with the revenue increase.

Cost of product sales decreased by approximately $35,799 from $62,698 for the six months ended June 30, 2023 to approximately $26,899 for the six months ended June 30, 2024. The decrease was consistent with the decrease of the revenue from product sales.

Gross profit

	For the Six Months Ended June 30,
	2024					2023
GROSS PROFIT	Gross Profit (Unaudited)		Gross Margin			Gross Profit (Unaudited)		Gross Margin			Change			% of Change
System integration projects	$	3,018,121		34.8	%	$	2,708,676		34.3	%	$	309,445			11.4	%
Engineering consulting services		122,383		80.2	%		87,632		95.3	%		34,751			39.7	%
Product sales		10,049		27.2	%		38,237		37.9	%		(28,188	)		(73.7	)%
Total gross profit	$	3,150,553		35.6	%	$	2,834,545		35.0	%	$	316,008			11.1	%

Our gross profit increased by approximately $0.3 million or 11.1% from approximately $2.8 million for the six months ended June 30, 2023 to approximately $3.2 million for the six months ended June 30,2024. The increase of gross profit for the six months ended June 30, 2024 was mainly due to the increase of our revenue from system integration projects. Gross margin as a percent of overall revenue for the six months ended June 30, 2024 and 2023 was 35.6% and 35.0%, respectively. The Company’s gross profit margin is relatively stable.

Gross profit for system integration projects increased by approximately $0.3 million from approximately $2.7 million for the six months ended June 30, 2023 to approximately $3.0 million for the six months ended June 30, 2024. Gross profit margin for the six months ended June 30, 2024 and 2023 was 34.8% and 34.3%, respectively.

Gross profit for engineering consulting services increased by $34,751 from $87,632 for the six months ended June 30, 2023 to $122,383 for the six months ended June 30, 2024. Gross profit margin for the six months ended June 30, 2024 and 2023 was 80.2% and 95.3%, respectively. The decrease of the gross margin for the six months ended June 30, 2024 was mainly due to higher salary of staff.

Gross profit for product sales decreased from $38,237 for the six months ended June 30, 2023 to $10,049 for the six months ended June 30, 2024. Gross profit margin for the six months ended June 30, 2024 and 2023 was 27.2% and 37.9%, respectively. The decrease in gross profit margin was mainly due to more competitive pricing we offered to customers for the six months ended June 30, 2024.

Operating Expenses

	For the Six Months Ended June 30,
	2024 (Unaudited)		2023 (Unaudited)		Change		% Change
OPERATING EXPENSES:
Selling expenses	$	500,032	$	379,708	$	120,324		31.7	%
General and administrative expenses		909,952		650,053		259,899		40.0	%
Research and development expenses		511,674		461,857		49,817		10.8	%
Total operating expenses	$	1,921,658	$	1,491,618	$	430,040		28.8	%

Our operating expenses consist of selling, general and administrative and R&D expenses. Operating expenses increased by approximately $0.4 million, or 28.8%, from approximately $1.5 million for the six months ended June 30, 2023 to approximately $1.9 million for the six months ended June 30, 2024. The increase in our operating expenses was primarily due to an approximately $0.3 million increases in general and administrative expenses and an approximately $0.1 million increase in selling expenses.

Selling expenses primarily consisted of promotional fees, advertising expenses, travel, salary and compensation expenses relating to our sales personnel and other expenses relating to our sales activities. Selling expenses increased by approximately $120,000 or 31.7% from approximately $380,000 for the six months ended June 30, 2023 to approximately $500,000 for the six months ended June 30, 2024 mainly due to the operation of HUHU Japan. Office expense increased by approximately $26,000. Salary and social welfare expenses increased by approximately $86,000 as a result of an increased headcount of marketing personnel. Other expenses increased by approximately $8,000.

General and administrative expenses primarily consisted of salary and compensation expenses relating to our accounting, human resources and executive office personnel, and included rental expenses, depreciation and amortization expenses, office overhead, professional service fees and travel and transportation costs. General and administrative expenses increased by approximately $260,000 or 40.0% from approximately $650,000 for the six months ended June 30, 2023 to approximately $910,000 for the six months ended June 30, 2024. Salary and social welfare expenses increased by approximately $13,000. Consulting and audit fees increased by approximately $176,000. Office expense increased by approximately $32,000 and other expense increased by approximately $39,000.

R&D expenses primarily consisted of materials, compensation and benefit expenses relating to our R&D personnel as well as office overhead and other expenses relating to our R&D activities. Our R&D expenses increased from approximately $460,000 for the months ended June 30, 2023 to approximately $510,000 for the months ended June 30, 2024, representing 5.8% and 5.7% of our total revenues for the six months ended June 30, 2024 and 2023, respectively. The increase was due to an increase of approximately $50,000 in salary and social welfare costs.

Other Income (Expense)

Other income (expense) primarily consists of interest income, interest expense and other income. Our net other expense amounted to approximately $0.1 million for the six months ended June 30, 2024, as compared to a net other income of approximately $0.4 million for the six months ended June 30, 2023. The change was mainly due to a decrease of approximately $0.4 million in government grants and an increase of approximately $0.1 million in exchange loss.

Income tax provision was $231,208 and $218,674 for the six months ended June 30,2024 and 2023, respectively. Under the EIT Law of PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemptions may be granted on a case-by-case basis. According to PRC tax regulations, 200% of current year R&D expense approved by the local tax authority may be deducted from taxable income since January 1, 2021 and HUHU China obtained the “high-tech enterprise” tax status in June 2023, which reduced its statutory income tax rate to 15%. The new certificate is valid for three years and expires in December 2025. In addition, we realized income before taxes in Japan of $1,175,736 which is taxed at a 20% rate. The impact of the tax treatment noted above lowered our effective income tax rate to 21.4% and 12.5% for the six months ended June 30, 2024 and 2023, respectively.

Net Income

As a result of reasons and circumstances discussed above, our net income decreased by approximately $0.7 million, or 44.7%, from approximately $1.5 million for the six months ended June 30, 2023 to approximately $0.8 million for the six months ended June 30, 2024.

Other comprehensive income

Foreign currency translation adjustments amounted to $(336,141) and $(285,040) for the six months ended June 30, 2024 and 2023, respectively. The balance sheet amounts with the exception of equity as of June 30, 2024 were translated at RMB7.2672 to USD1.00 as compared to RMB7.0999 to USD1.00 as of December 31, 2023. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the six months ended June 30, 2024 and 2023 were RMB7.2150 to USD1.00 and RMB6.9283 to USD1.00, respectively. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S, dollar terms without giving effect to any underlying change in our business or results of operations. The balance sheet amounts with the exception of equity as of June 30, 2024 were translated at JPY160.88 to USD1.00 as compared to JPY140.80 to USD1.00 as of December 31, 2023. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the six months ended June 30, 2024 and 2023 were JPY152.20 to USD1.00 and JPY134.91 to USD1.00, respectively. The change in the value of the JPY relative to the U.S. dollar may affect our financial results reported in the U.S, dollar terms without giving effect to any underlying change in our business or results of operations.

Liquidity and Capital Resources

Substantially all of our operations are conducted in China and Japan. Majority of our revenue, expenses, and cash are denominated in RMB and JPY. RMB is subject to the exchange managements regulation in China, and, as a result, we may have difficulty distributing any dividends outside of China due to PRC exchange management regulations on converting RMB into U.S. dollars. As of June 30, 2024, the aggregate amount of cash in banks of $1,075,574 was held at major financial institutions in the PRC. As of June 30, 2024, the aggregate amount of cash in banks of $3,030,840 was held at major financial institutions in Japan.

We have historically funded our working capital needs primarily from operations, bank loans, advance payments from customers and capital contributions from shareholders. As of June 30, 2024, we had working capital of approximately $3.0 million. For the six months ended June 30, 2024, we generated net income of approximately $0.8 million. We generated cash flows from operations of approximately $0.7 million for the six months ended June 30, 2024. The working capital requirements are affected by the efficiency of operations, the numerical volume and dollar value of revenue contracts, the progress or execution on customer contracts, and the timing of accounts receivable collections.

In assessing our liquidity, we monitor and analyze our cash on hand, our ability to generate sufficient revenue sources in the future and our operating and capital expenditure commitments. As of June 30, 2024, we had unrestricted cash of approximately $4.1 million. As of June 30, 2024, our bank loan balance was approximately $5.1 million, of which $4.5 million was short-term. We expect to renew most of our bank loans based on good credit history.

We also had restricted cash of $193,916 as of June 30, 2024. Restricted cash consists of cash and cash equivalents which is used as collateral to secure notes payable and used as guarantee deposit to secure the performance guarantee bank acceptance. A note payable is a draft issued by a bank for payments in future, which defers the payment until the due date for redeeming the note. According to the notes payable agreement with the bank, 50%-100% of the amount is required to be deposited at the bank as security for the notes payable. Guarantee deposit is the deposit in bank to secure the performance guarantee bank acceptance issued by the bank. The performance guarantee bank acceptance is required by the Company’s customer for certain project as a guarantee to fulfill the contract. The security deposit for notes payable and performance guarantee bank acceptances amounted to $183,166 and $10,750, respectively, as of June 30, 2024. The Company earns interest at a variable rate per month on this restricted cash balance.

The Cayman holding company is a holding company with no material operations of its own. We conduct our operations primarily through HUHU China and HUHU Japan. As a result, the Company’s ability to pay dividends depends upon dividends paid by our subsidiaries. HUHU China is permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, our subsidiaries are required to set aside at least 10% of their after-tax profits each year based on PRC accounting standards, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. The statutory reserve funds are not distributable as cash dividends. Remittance of dividends by our subsidiaries out of China is subject to examination by the banks designated by SAFE. Our subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds. In addition, we would need to accrue and pay withholding taxes if we were to distribute funds from HUHU China to us. We do not intend to repatriate such funds in the foreseeable future, as we plan to use existing cash balance in PRC for general corporate purposes. When HUHU Japan pays dividends to its parent company in Cayman, it is subject to restrictions under the Japanese Corporate Law.

(1)

A company may pay dividends of surplus to its shareholders (Article 453 of the Companies Act).

(2)

In order for a company to pay dividends from surplus, it must meet the following requirements:

(1)

The company’s net assets must be at least 3 million yen (Article 458 of the Companies Act).

(2)

To distribute surplus within the limit of the amount available for distribution (Article 461 of the Companies Act).

The distributable amount is calculated in accordance with Article 461, Paragraph 2 of the Companies Act and Articles 156 and 158 of the Corporate Calculation Regulations. The amount is the “amount of other capital surplus plus other retained earnings” as of the end of the fiscal year.

(3)

To record reserves as required by the Law and the Ministry of Justice Ordinance (Article 445, Paragraph 4 of the Companies Act and Article 22 of the Corporate Calculation Regulations).

When a company pays dividends from its surplus, it must record an amount equal to “the amount of surplus to be reduced × 1/10” as additional paid-in capital or legal reserve. Such reserves may be recorded until the amount of reserves reaches “amount of capital × 1/4” (Article 445, Paragraph 4 of the Companies Act, Article 22 of the Corporate Accounting Regulations).

(3)

Whenever a company intends to distribute surplus, it shall, by an ordinary resolution of the general meeting of shareholders, determine the type of dividend property and the total book value, matters concerning the allocation of dividend property to shareholders, and the effective date of the distribution of surplus (Article 454(1) of the Companies Act).

The articles of incorporation may stipulate that the board of directors determine the distribution of surplus if:

A, the company is a company with accounting auditors.

B, the term of office of directors does not exceed one year.

C, the company has a board of corporate auditors, audit committee, or nominating committee (Article 459, Paragraph 1, Item 4 of the Companies Act).

(4)

If a distribution of surplus is made in violation of the regulations on the amount available for distribution, the person who received the money, etc. must pay to the company money equivalent to the book value of the money that he or she received. (Article 462, Paragraph 1 of the Companies Act).

A business executive who has made a distribution of surplus in violation of the regulations on the distributable amount or a director proposing a proposal for a general meeting shall be required to pay money equivalent to the book value of the surplus, etc. distributed in violation of the regulations on the distributable amount. must pay jointly and severally to the company.

Criminal penalties may be imposed on directors, accounting counselors, auditors, executive officers, etc. (Article 963, Paragraph 5, Item 2 of the Companies Act).

The Company believes that its cash on hand and operating cash flows will be sufficient to fund its operations over at least the next 12 months from the date of this filing. However, the Company may need additional cash resources in the future if the Company experiences changed business conditions or other developments, and/or access to short term bank loans, and may also need additional cash resources in the future if the Company wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Company’s amounts of cash on hand, the Company may seek to issue debt or equity securities or obtain a credit facility.

For the six months ended June 30, 2024 and 2023

The following summarizes the key components of our cash flows for the six months ended June 30, 2024 and 2023:

	For the Six Months Ended June 30,
	2024 (Unaudited)			2023 (Unaudited)
Net cash provided by operating activities	$	303,082		$	1,584,511
Net cash used in investing activities		(1,556,739	)		(472,532	)
Net cash provided by financing activities		2,986,320			385,980
Effect of exchange rate change on cash		(265,228	)		(219,293	)
Net increase in cash	$	1,467,435		$	1,278,666

Operating Activities

Net cash provided by operating activities was approximately $0.3 million for the six months ended June 30, 2024, which mainly consisted of approximately $0.8 million of net income, adjustment of $0.3 million non-cash items, and changes in working capital, which primarily comprised of: an increase in accounts receivable of approximately $1.4 million due to increase in revenue, an increase in advance from customers of approximately $1.7 million due to more projects, an increase in taxes payable of approximately $0.3 million, an increase in advance to vendors of approximately $0.8 million, an increase in accrued expenses and other liabilities of approximately $0.2 million, an increase in due from related parties of approximately $0.6 million, and an increase in inventories of approximately $0.3 million.

Net cash provided by operating activities was approximately $1.6 million for the six months ended June 30, 2023, which mainly consisted of approximately $1.5 million of net income, adjustment of $0.2 million non-cash items, and changes in working capital, which primarily comprised of (i) an increase in accounts receivable of approximately $1.0 million due to the increase in revenue, (ii) an increase in advance from customers of approximately $0.3 million due to more projects, and (iii) an increase in taxes payable of approximately $0.2 million, partially offset by a decrease in inventory of approximately $0.5 million, and decreases in accounts payables and accrued expenses and other liabilities of approximately $0.1 million.

Investing Activities

Net cash used in investing activities was approximately $1.6 million for the six months ended June 30, 2024, mainly consisting of purchases of land, property and equipment.

Net cash used in investing activities was $0.5 million for the six months ended June 30,2023, mainly consisting of approximately $0.5 million in purchases of property, construction in progress, land and equipment.

Financing Activities

Net cash provided by financing activities was approximately $3.0 million for the six months ended June 30, 2024, which consisted of proceeds from bank loans of approximately $5.2 million and repayment from related parties of approximately $0.9 million, offset by repayment of short-term bank loans of approximately $1.7 million, repayment of notes payable of approximately $0.4 million and payment of offering costs of approximately $0.1 million.

Net cash provided by financing activities was approximately $0.4 million for the six months ended June 30, 2023, which consisted of approximately $0.3 million repayment from related parties, proceeds from short-term bank loans of approximately $0.6 million and proceeds from notes payable of approximately $0.03 million, offset by repayment of short-term bank loans of approximately $0.4 million and payment of deferred offering costs of approximately $0.2 million.

Capital Expenditures

The Company made capital expenditures of approximately $1.6 million and $0.5 million for the six months ended June 30, 2024 and 2023, respectively. In these periods, our capital expenditures were mainly used for purchases of property, intangible assets and equipment in connection with our expansion in Japan. The Company will continue to make capital expenditures to meet the expected growth of its business.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements for the six months ended June 30, 2024 and 2023 that have or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.

Research and development, patents and licenses, etc.

See “Business — Research and Development” and “Our Business — Intellectual Property” in F-1A filed on September 17, 2024.

Trend Information

We are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operating results or financial condition.

Critical Accounting Estimates

We prepare our financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions. The following descriptions of critical accounting estimates should be read in conjunction with our consolidated financial statements and accompanying notes.

When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. Our critical accounting policies and practices include allowance for doubtful accounts, allowance for inventories obsolescence, revenue recognition and the realization of deferred tax assets. We believe the following accounting estimates involve the most significant judgments used in the preparation of our consolidated financial statements.

Revenue recognition

The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2019 using the modified retrospective approach. Revenues were presented under ASC 606 and all subsequent ASUs that modified ASC 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the Company applies the following steps:

Step 1: Identify the contract (s) with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

The Company derives its revenues primarily from three sources: (1) system integration projects; (2) product sales; (3) engineering consulting services. All of the Company’s contracts with customer do not contain cancellable and refund-type provisions.

Revenue from system integration projects

The Company’s revenues from system integration projects are normally under fixed-price contracts that may last from six months to three years. These contracts require the Company to perform customized services of project planning, system coding, installation of hardware and equipment, and configuration based on the customers’ specific needs which requires significant customization. Upon delivery of the services and equipment, customer acceptance is generally required. In the same contract, the Company is required to provide a warranty period for one to two years (“warranty period”) after the customized project is delivered with a 3% – 10% holdback of the total contract price (“contract holdback”) which is to be paid after the end of warranty period. The Company determined the warranty clause included in the contractual term is directly related to the quality of the Company’s integration projects and there are no specific tasks to be performed during the warranty period, and therefore, consider it an assurance-type warranty. The warranty is not considered a separate performance obligation and no revenue is associated with these services under ASC 606. Because of the nature of the projects, and the contract owners perform inspection during the project and prior to acceptance, the Company has not experienced material warranty costs and, therefore, does not believe an accrual for these costs is necessary.

The cost estimation process is based upon the professional knowledge and experience of the Company’s engineers, project managers and financial professionals. Management conducts monthly reviews to assess the contract’s schedule, performance, technical matters and estimated cost at completion. When changes in estimated contract costs are identified, such revisions may result in current period adjustments to operations applicable to performance in prior periods.

Revenue from product sales

The Company generally provides a one-year warranty against defects in materials related to the sale of products. The Company considerers the warranty as an assurance type warranty since the warranty provides the customer the assurance that the product complies with agreed-upon specifications. Estimated future warranty obligations are included in cost of product sales in the period in which the related revenue is recognized. The determination of the Company’s warranty accrual is based on actual historical experience with the product, estimates of repair and replacement costs and any product warranty problems that are identified after shipment. The Company estimates and adjusts these accruals at each balance sheet date in accordance with changes in these factors.

Revenue from engineering consulting services

Revenues generated from engineering consulting services are recognized upon the delivery of the engineering report as the Company’s performance obligations are satisfied. Expenses related to these types of services are recognized as incurred.

Recently issued accounting pronouncements

A list of recent relevant accounting pronouncements is included in Note 2 “Summary of Principal Accounting Policies” of our Consolidated Financial Statements.

Exhibit 99.2

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Interim Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023		F-2
Condensed Consolidated Statements of Income and Comprehensive Income for the Six Months Ended June 30, 2024 and 2023 (Unaudited)		F-3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2024 and 2023 (Unaudited)		F-4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (Unaudited)		F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)		F-6 – F-26

F-1

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

	As of June 30,			As of December 31,
	2024			2023
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	4,120,178		$	2,739,530
Restricted cash		193,916			107,129
Note receivable		3,853			—
Accounts receivable, net		9,837,424			8,708,075
Inventories		793,175			530,048
Advance to vendors		750,585			64,750
Advance to vendors – related party		68,802			—
Due from related parties		578,318			—
Prepayments and other assets, net		196,920			181,371
TOTAL CURRENT ASSETS		16,543,171			12,330,903

Property, plant and equipment, net		2,837,482			1,528,982
Intangible assets, net		101,128			124,679
Deferred tax assets		59,531			56,931
Deferred offering costs		876,698			805,889
Right-of-use assets, net		200,783			255,573
TOTAL ASSETS	$	20,618,793		$	15,102,957

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short term bank loans	$	4,455,348		$	1,690,165
Notes payable		525,527			103,943
Accounts payable		4,476,499			4,532,958
Due to related parties		—			868,438
Advance from customers		2,624,222			943,348
Accrued expenses and other liabilities		706,505			561,439
Taxes payable		680,694			400,071
Operating lease liabilities – current		97,315			107,424
TOTAL CURRENT LIABILITIES		13,566,110			9,207,786
Long term bank loans		688,023			—
Operating lease liabilities – non-current		70,677			114,374
TOTAL LIABILITIES		14,324,810			9,322,160

COMMITMENTS AND CONTINGENCIES (Note 13)

SHAREHOLDERS’ EQUITY:
Ordinary shares, $0.0000025 par value, 20,000,000,000 shares authorized, 20,000,000 shares issued and outstanding as June 30, 2024 and December 31, 2023*		50			50
Additional paid-in capital		1,738,179			1,738,179
Statutory reserves		352,865			343,077
Retained earnings		4,797,568			3,958,029
Accumulated other comprehensive loss		(594,679	)		(258,538	)
TOTAL SHAREHOLDERS’ EQUITY		6,293,983			5,780,797
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	20,618,793		$	15,102,957

*	Share and per share data are presented on a retroactive basis to reflect the reorganization and the forward split at a ratio of 1-for-4, with effective date of July 15, 2024.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-2

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	For the Six Months Ended June 30,
	2024			2023

Revenues	$	8,853,479		$	8,093,432
Cost of revenues – third parties		5,137,460			5,109,725
Cost of revenues – related party		565,466			149,162
Total cost of revenues		5,702,926			5,258,887
Gross profit		3,150,553			2,834,545

Operating expenses:
Selling expenses		500,032			379,708
General and administrative expenses		909,952			650,053
Research and development expenses		511,674			461,857
Total operating expenses		1,921,658			1,491,618
Income from operations		1,228,895			1,342,927

Other income (expense):
Interest income		1,523			4,707
Interest expense		(49,185	)		(39,925	)
Other (expense) income, net		(100,698	)		447,981
Total other (expense) income, net		(148,360	)		412,763

Income before income taxes		1,080,535			1,755,690

Provision for income taxes		231,208			218,674

Net income		849,327			1,537,016

Other comprehensive income
Foreign currency translation adjustments		(336,141	)		(285,040	)
Comprehensive income	$	513,186		$	1,251,976

Earnings per share*
Basic and diluted	$	0.04		$	0.08

Weighted average number of shares outstanding*
Basic and diluted		20,000,000			20,000,000

*	Share and per share data are presented on a retroactive basis to reflect the reorganization and the forward split at a ratio of 1-for-4, with effective date of July 15, 2024.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-3

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	Ordinary shares				Additional paid-in		Statutory		Retained			Accumulated other comprehensive			Total shareholders’
	Shares*		Amount		capital		reserves		earnings			loss			equity
Balance at January 1 2023		20,000,000	$	50	$	1,738,179	$	204,604	$	1,762,915		$	(153,509	)	$	3,552,239
Net income		—		—		—		—		1,537,016			—			1,537,016
Statutory reserves appropriation		—		—		—		118,654		(118,654	)		—			—
Foreign currency translation adjustments		—		—		—		—		—			(285,040	)		(285,040	)
Balance at June 30, 2023 (Unaudited)		20,000,000	$	50	$	1,738,179	$	323,258	$	3,181,277		$	(438,549	)	$	4,804,215

Balance at January 1, 2024		20,000,000	$	50	$	1,738,179	$	343,077	$	3,958,029		$	(258,538	)	$	5,780,797
Net income		—		—		—		—		849,327			—			849,327
Statutory reserves appropriation		—		—		—		9,788		(9,788	)		—			—
Foreign currency translation adjustments		—		—		—		—		—			(336,141	)		(336,141	)
Balance at June 30, 2024 (Unaudited)		20,000,000	$	50	$	1,738,179	$	352,865	$	4,797,568		$	(594,679	)	$	6,293,983

*	Share and per share data are presented on a retroactive basis to reflect the reorganization and the forward split at a ratio of 1-for-4, with effective date of July 15, 2024.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-4

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Six Months Ended June 30,
	2024			2023

Cash flows from operating activities:
Net income	$	849,327		$	1,537,016
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		223,891			83,687
Provision for credit losses		26,263			64,256
Deferred tax (benefit) provision		(3,939	)		6,459
Amortization of operating lease right-of-use assets		55,659			8,077
Changes in operating assets and liabilities:
Accounts receivable		(1,365,703	)		(976,102	)
Notes receivable		(3,881	)		(14,434	)
Inventories		(277,321	)		490,960
Prepayments and other assets		(19,867	)		58,465
Advance to vendors		(687,971	)		(50,690	)
Advance to vendors – related party		(69,300	)		—
Accounts payable		48,242			(41,393	)
Accrued expenses and other liabilities		159,134			(65,351	)
Advance from customers		1,710,559			313,207
Taxes payable		291,930			177,757
Due from related parties		(578,513	)		—
Operating leases liabilities		(55,428	)		(7,403	)
Net cash provided by operating activities		303,082			1,584,511

Cash flows from investing activities:
Additions to property, plant, and equipment		(1,556,739	)		(469,643	)
Acquisition of intangible asset		—			(2,889	)
Net cash (used in) investing activities		(1,556,739	)		(472,532	)

Cash flows from financing activities:
Repayments to related parties		(868,438	)		—
Loans from related parties		—			348,783
Proceeds from bank acceptance notes payable, net		427,044			32,957
Proceeds from short-term bank loans		4,487,582			606,471
Repayment of short-term bank loans		(1,663,202	)		(389,706	)
Proceeds from long-term bank loans		693,001			—
Payment of offering costs		(89,667	)		(212,525	)
Net cash provided by financing activities		2,986,320			385,980

Effect of exchange rate changes on cash and restricted cash		(265,228	)		(219,293	)
Net increase in cash and restricted cash		1,467,435			1,278,666
Cash and restricted cash at the beginning of period		2,846,659			1,688,616
Cash and restricted cash at the end of period	$	4,314,094		$	2,967,282

Reconciliation of cash and restricted cash, end of period
Cash	$	4,120,178		$	2,199,647
Restricted cash		193,916			767,635
Cash and restricted cash at the end of period	$	4,314,094		$	2,967,282

Supplemental cash flow disclosures:
Cash paid for income tax	$	97,101		$	35,186
Cash paid for interest	$	36,403		$	35,817

Non-cash investing activities:
Right-of-use assets obtained in exchange for operating lease obligations	$	15,287		$	7,372

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-5

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION

HUHUTECH International Group Inc. (“HUHUTECH” or the “Company”) is a holding company incorporated under the laws of the Cayman Islands on July 8, 2021. HUHUTECH, through its wholly-owned subsidiaries is a professional system integration provider to design and implement integrated facility management systems and industrial automation monitoring systems mainly for the optoelectronic, semiconductor, telecom and logistic industries in the People’s Republic of China (“China” or “PRC”) and Japan.

On October 23, 2024, the Company closed the initial public offering (the “IPO” or the “Offering”) of its 1,050,000 ordinary shares priced at $4.00 per share. The net proceeds to the Company from the IPO, after deducting the underwriting discount, the underwriters’ fees and expenses, and the Company’s estimated offering expenses, were approximately $2.4 million.

Reorganization

A Reorganization of the legal structure was completed on January 14, 2022. The Reorganization involved the incorporations of HUHUTECH International Group Inc., a Cayman Islands holding company; HUHUTECH (HK) Limited (“HUHU HK”), a holding company established in Hong Kong, PRC; Wuxi Xinwu District Jianmeng Electromechanical Technology Co., Ltd (“WFOE”), a company established in the PRC; and the transfer of Jiangsu Huhu Electromechanical Technology Co., Ltd (“HUHU China”), a company established in the PRC, to WFOE.

Before and after the Reorganization, the Company, together with its subsidiaries, are effectively controlled by the same shareholder, who is the Chief Executive Officer (“CEO”) and the Chairman of the Board of Directors of the Company, therefore the reorganization is considered as a recapitalization of entities under common control in accordance with Accounting Standards Codification (“ASC”) 805-50-25. The consolidation of the Company and its subsidiaries have been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.

Details of the subsidiaries of the Company as of June 30, 2024 are set out below:

Name of Entity	Date of Incorporation	Jurisdiction of Formation	Percentage of Ownership	Principal Activities
HUHUTECH (HK) Limited (“HUHU HK”)	July 28, 2021	Hong Kong, PRC	100% by HUHU	Investment holding
Wuxi Xinwu District Jianmeng Electromechanical Technology Co., Ltd (“WFOE”)	December 10, 2021	PRC	100% by HUHU HK	Investment holding
Jiangsu Huhu Electromechanical Technology Co., Ltd. (“HUHU China”)	August 20, 2015	PRC	100% by WFOE	System integration and engineering services
Huhu Technology Co., Ltd. (“HUHU Japan”)	April 25, 2022	JAPAN	100% by HUHU	System integration and engineering services

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The interim results of operations are not necessarily indicative of results to be expected for any other interim period or for a full year. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of its financial position and operating results have been included. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the related notes thereto for the fiscal years ended December 31, 2023 and 2022.

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the financial statements of HUHUTECH International Group Inc. and its subsidiaries. All inter-company balances and transactions have been eliminated upon consolidation.

F-6

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Uses of estimates

In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements and are adjusted to reflect actual experience when necessary. Significant estimates required to be made by management include, but are not limited to allowance for credit losses, allowance for inventories obsolescence and revenue recognition. Actual results could differ from those estimates.

Cash

Cash comprises cash at banks and on hand. Cash balances in bank accounts in PRC are insured by the People’s Bank of China Financial Stability Department (“FSD”) where there is a RMB 500,000 (approximately $70,000) deposit insurance limit for a legal entity’s aggregated balance at each bank The Company had $3,030,840 in bank accounts in Japan as of June 30, 2024. Cash balances in bank accounts in Japan are insured pursuant to the Deposit Insurance Act in Japan. Under the Deposit Insurance Act in Japan, the maximum amount of protection is JPY 10 million (approximately $76,000) per customer within one bank.

Restricted cash

Restricted cash consists of cash and cash equivalents which are used as collateral to secure note payable and used as guarantee deposit to secure the performance guarantee bank acceptance. A note payable is a draft issued by a bank for payments in future, which defers the payment until the due date for redeeming the note. According to the notes payable agreement with the bank, 50% to 100% of the amount is required to be deposited at the bank as security for the notes payable. Guarantee deposit is the deposit in bank to secure the performance guarantee bank acceptance issued by the bank. The performance guarantee bank acceptance is required by the Company’s customer for certain project as a guarantee to fulfill the contract. The security deposit for notes payable and performance guarantee bank acceptance amounted to $183,166 and $10,750, respectively, as of June 30, 2024. The security deposit for notes payable and performance guarantee bank acceptance amounted to $96,125 and $11,004, respectively, as of December 31, 2023. The Company earns interest at a variable rate per month on this restricted cash balance.

Accounts receivable, net

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. The Company adopted this guidance effective January 1, 2023. ASC 326 introduces an approach based on expected losses to estimate the allowance for credit losses, which replaces the previous incurred loss impairment model. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated economic conditions, customer-specific circumstances, recent payment history and other relevant factors. Allowance for credit losses amounted to $393,393 and $375,975 as of June 30, 2024 and December 31, 2023, respectively.

F-7

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Inventories

Inventories are materials stated at the lower of cost or net realizable value. Costs include purchase price and related shipping costs. The cost of inventories is calculated using the weighted average method. Any excess of the cost over the net realizable value of each item of inventories is recognized as an inventory valuation allowance. Net realizable value is estimated using selling price in the normal course of business less any costs to complete and sell products. As of June 30, 2024 and December 31, 2023, the inventory valuation allowance was nil.

Advances to vendors

Advance to vendors consists of balances paid to suppliers for technical services and materials that have not been provided or received. Advances to suppliers are short-term in nature and are reviewed periodically to determine whether their carrying value has become impaired. The Company considers the assets to be impaired if the collectability of the advance becomes doubtful. The Company uses the aging method to estimate the allowance for uncollectible balances. In addition, at each reporting date, the Company determines the adequacy of the allowance by evaluating all available information, and then records specific allowances for those advances based on the available facts and circumstances. As of June 30, 2024 and December 31, 2023, the allowance for uncollectible advances to vendors was nil.

Prepayments and other assets, net

Prepayments and other assets primarily consist of prepaid rents, expenses and deposit, which are presented net of allowance for credit losses. Prepayment and other assets are classified as either current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. The Company considers the assets to be impaired if the collectability of the advance becomes doubtful. The Company uses the aging method to estimate the allowance for uncollectible balances. The allowance is also based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections and utilizations. Actual amounts received or utilized may differ from management’s estimate of credit worthiness and the economic environment. Prepayment and other assets are written off against the allowances only after exhaustive collection efforts. The allowance for uncollectible balances amounted to $3,483 and $3,565 as of June 30, 2024 and December 31, 2023, respectively.

Property, plant and equipment, net

Land is recorded at cost. Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is provided in the amounts sufficient to depreciate the cost of the related assets over their useful lives using the straight-line method, as follows:

		Useful life
Office equipment		3 – 5 years
Transportation equipment		4 years
Building		20 years
Leasehold improvement		5 years

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses.

F-8

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Intangible assets

Intangible assets consist primarily of the Type Class A license in construction and computer software. Type Class A license in construction is valid for five years and subject to renewal. Intangible assets are stated at cost less accumulated amortization. Intangible assets are amortized using the straight-line method.

License		5 years
Computer software		3 – 5 years

Impairment of long-lived assets

Long-lived assets, including property, plant and equipment and intangible assets with finite lives, are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Company had originally estimated. When these events occur, the Company evaluates the impairment by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. No impairment charge was recognized for the six months ended June 30, 2024 and 2023, respectively.

Deferred offering costs

Deferred offering costs are expenses directly related to the Company’s planned initial public offering (“IPO”). These costs consisted of legal, accounting, printing, and filing fees that the Company capitalized, including fees incurred by the independent registered public accounting firm directly related to the offering. The deferred offering costs will offset against the IPO proceeds and will be reclassified to additional paid-in capital upon completion of the IPO.

Notes payable

Notes payable are bank acceptance notes issued by financial institutions on the Company’s behalf to vendors with a specific due date usually for a period of within 12 months. These notes can either be endorsed by the vendor to other third parties as payment or can be factored to other financial institutions before maturity date. As collateral security for financial institutions’ undertakings, the Company is required to maintain deposits with such financial institutions as restricted cash amounts of 30% to 100% of the balances of the bank acceptance notes. As of June 30, 2024, the Company deposited a total of $183,166 (RMB 1,331,101) as collateral to secure and issue twenty-one bank acceptance notes of $525,527 (RMB3,819,109 to its vendors with maturity period of six months. As of September 25, 2024, bank acceptance notes of $119,659 (RMB 869,589) were paid upon maturity and the restricted deposit was also released upon the payment. As of December 31, 2023, the Company deposited a total of $96,125 (RMB 682,476) as collateral to secure and issue eight bank acceptance notes of $103,943 (RMB 737,988) to its vendors with maturity period of six months. As of April 16, 2024, bank acceptance notes of $103,943 (RMB 737,988) were fully paid upon maturity and the restricted deposit was also released upon the payment

F-9

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Fair value of financial instruments

U.S. GAAP 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 are unobservable.

Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash, accounts receivable, advances to vendors, prepayments and other assets, accounts payable, accrued expenses and other liabilities, advances from customers, notes payable, due to or from related parties and bank loans, approximates their recorded values due to their short-term maturities. The Company determined that the carrying value of the short-term bank loans approximated their fair value by comparing the stated loan interest rate to the rate charged by similar financial institutions.

Revenue recognition

The Company accounts for revenue recognition under FASB ASC 606, Revenue from Contracts with Customers (“ASC 606”). In accordance with FASB ASC 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the Company applies the following steps:

Step 1: Identify the contract (s) with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

The Company derives its revenues primarily from three sources: (1) system integration projects; (2) product sales; (3) engineering consulting services. All of the Company’s contracts with customers do not contain cancellable and refund-type provisions.

F-10

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Revenue from system integration projects

The Company’s revenues from system integration projects are normally under fixed-price contracts that may last from six months to three years. These contracts require the Company to perform customized services of project planning, system coding, installation of hardware and equipment, and configuration based on the customers’ specific needs which requires significant customization. Upon delivery of the services and equipment, customer acceptance is generally required. In the same contract, the Company is required to provide a warranty period for one to two years (“warranty period”) after the customized project is delivered with a 3% – 10% holdback of the total contract price (“contract holdback”) which is to be paid after the end of warranty period. The Company determined the warranty clause included in the contractual term is directly related to the quality of the Company’s integration projects and there are no specific tasks to be performed during the warranty period, and therefore, consider it an assurance-type warranty. The warranty is not considered a separate performance obligation and no revenue is associated with these services under ASC 606. Thus, the Company identifies a single performance obligation for the system integration projects, which includes a series of integrated services of project planning, system coding, installation of hardware and equipment, and configuration. Because of the nature of the projects, and the contract owners perform inspection during the project and prior to acceptance, the Company has not experienced material warranty costs and, therefore, does not believe an accrual for these costs is necessary.

Revenue is recognized over the contract term using an input method under which the percentage of revenue to be recognized for a given project is measured by the estimates of the extent of progress towards project completion. Such contracts provide that the customer accept completion of progress to date and compensate the Company for services rendered, which may be measured in terms of costs incurred, units installed, or some other measure of progress. Application of the input method requires the use of estimates of costs to be incurred for the performance of the contract. Contract costs include all direct material costs, direct labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, and all costs associated with operation of equipment. The contract holdback is recognized as revenue after the warranty period has expired. The warranty holdback amounted to $536,141 and $345,874 as of June 30, 2024 and June 30, 2023, respectively. The cost estimation process is based upon the professional knowledge and experience of the Company’s engineers, project managers and financial professionals. Management conducts monthly reviews to assess the contract’s schedule, performance, technical matters and estimated cost at completion. When changes in estimated contract costs are identified, such revisions may result in current period adjustments to operations applicable to performance in prior periods.

Revenue from product sales

The Company generates revenue primarily through the sale and delivery of promised goods to customers and recognizes revenue when control is transferred to customers, which typically occurs upon customer acceptance, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services and is recorded net of value-added tax (“VAT”). The Company’s contracts with customers are primarily on a fixed-price basis and do not contain cancellable and refund-type provisions. The Company generally provides a one-year warranty against defects in materials related to the sale of products. The Company considerers the warranty as an assurance type warranty since the warranty provides the customer the assurance that the product complies with agreed-upon specifications. Estimated future warranty obligations are included in cost of product sales in the period in which the related revenue is recognized. The determination of the Company’s warranty accrual is based on actual historical experience with the product, estimates of repair and replacement costs and any product warranty problems that are identified after shipment. The Company estimates and adjusts these accruals at each balance sheet date in accordance with changes in these factors.

Revenue from engineering consulting services

Contract balances

Accounts receivable represent amounts invoiced and revenues recognized prior to invoicing when the Company has satisfied the Company’s performance obligation and has the unconditional rights to payment. The balances of accounts receivable, net of allowance for credit losses were $9,837,424 and $8,708,075 as of June 30, 2024 and December 31, 2023, respectively. Unearned revenues consist of payments received from customers related to unsatisfied performance obligations at the end of the period, and included in advance from customers in the Company’s consolidated balance sheets with the balance of $2,624,222 and $943,348 as of June 30, 2024 and December 31, 2023, respectively. All unsatisfied performance obligation will be performed within the next twelve months and no significant financing component is involved. There is no significant financing component in the Company’s revenue arrangement because the Company’s expected length of time between the payment and when the Company transfers the promised services is less than 12 months. For the portion of security deposit with more than 12 months is measured at present value at the reporting date by its primary borrowing rate. The impact of discounted interest expenses is not material for the six months ended June 30, 2024 and 2023.

F-11

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Disaggregation of revenues

For the Six months ended June 30, 2024 and 2023, the disaggregation of revenues by major revenue stream is as follows:

	For the Six Months Ended June 30,
	2024		2023
	(Unaudited)		(Unaudited)
System integration projects	$	8,663,958	$	7,900,585
Product sales		36,948		100,935
Engineering consulting services		152,573		91,912
Total	$	8,853,479	$	8,093,432

Revenue by geographic area

The following table presents revenue by geographic location for the six months ended June 30, 2024 and 2023:

	For the Six Months Ended June 30,
	2024		2023
	(Unaudited)		(Unaudited)
PRC	$	4,654,089	$	6,145,141
Japan		4,199,390		1,948,291
Total revenues	$	8,853,479	$	8,093,432

Research and development costs

Research and development activities are directed toward the development of cleaning control system, ultrapure water control system, gas detection system, and temperature automatic control system used in the semiconductor manufacturing process. These costs, which primarily include salaries, contract services and supplies, are expensed as incurred.

Operating leases

The Company has lease contracts for manufacturing facilities and office space under operating leases. The Company determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at lease commencement. The Company measures its lease liabilities based on the present value of the total lease payments not yet paid discounted based on the more readily determinable of the rate implicit in the lease or its incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The Company estimates its incremental borrowing rate based on an analysis of weighted average interest rate of its own bank loans. The Company measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Company begins recognizing lease expense when the lessor makes the underlying asset available to the Company.

For leases with lease term less than one year (short-term leases), the Company records operating lease expense in its consolidated statements of income on a straight-line basis over the lease term and record variable lease payments as incurred.

Value added tax (“VAT”)

Revenue represents the invoiced value of goods and services, net of VAT. The VAT is based on gross sales price and VAT rates range from 6% to 13%, depending on the type of products sold or service provided. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in taxes payable. All of the VAT returns filed by the Company’s subsidiaries in PRC remain subject to examination by the tax authorities for five years from the date of filing.

F-12

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Government grants

Government grants are recognized as income in other income, net or as a reduction of specific costs and expenses for which the grants are intended to compensate. Such amounts are recognized in the consolidated statements of income and comprehensive income upon receipt and all conditions attached to the grants are fulfilled. For the six months ended June 30, 2024 and 2023, the Company received nil and $443,043 of government grants for various research programs. The benefit of these government grants, net of taxes, on net income per share (basic and diluted) was nil and $0.02 for the six months ended June 30, 2024 and 2023, respectively.

Income taxes

Cayman Islands

The Company is incorporated in the Cayman Islands and is not subject to tax on income or capital gains under the laws of the Cayman Islands. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.

Hong Kong

Under Hong Kong tax laws, HUHU HK is subject to a statutory income tax rate at 16.5% if revenue is generated in Hong Kong and they are exempted from income tax on their foreign-derived income. There are no withholding taxes in Hong Kong on remittance of dividends.

PRC

Under the Enterprise Income Tax (“EIT”) Law of PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on case-by-case basis. EIT grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. HUHU China was approved as a HNTE and is entitled to a reduced income tax rate of 15% beginning December 2022. The certificate is valid until December 2025.

EIT is typically governed by the local tax authority in PRC. Each local tax authority at times may grant preferred tax treatment to local enterprises as a way to encourage entrepreneurship and stimulate local economy. The impact of the tax treatment noted above decreased PRC taxes by $9,394 and $131,733 for the six months ended June 30, 2024 and 2023, respectively. The benefit of the preferred tax treatment on net income per share (basic and diluted) was nil and $0.01 for the six months ended June 30, 2024 and 2023, respectively.

Japan

Under Japanese tax laws, HUHU Japan is subject to a statutory income tax rate at 20% on income that is generated in Japan and they are exempted from income tax on their foreign-derived income. There are no withholding taxes in Japan on remittance of dividends.

The Company accounts for income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

F-13

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred for the six months ended June 30, 2024 and 2023, respectively. All of the tax returns of the Company’s subsidiaries in the PRC remain subject to examination by the tax authorities for five years from the date of filing.

Earnings per Share

The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary shares outstanding for the period. Diluted EPS presents the dilutive effect on a per-share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the six months ended June 30, 2024 and 2023, there were no dilutive shares. For the six months ended June 30, 2024 and 2023, earnings per share amounted to $0.04 and $0.08, respectively.

Foreign currency translation

The functional currencies of the Company are the local currency of the county in which the subsidiaries operate. The Company’s consolidated financial statements are reported using U.S. Dollars. The results of operations and the consolidated statements of cash flows denominated in foreign currencies are translated at the average rates 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 on that date. The equity denominated in the functional currencies is translated at the historical rates of exchange at the time of capital contributions. Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component in accumulated other comprehensive income included in consolidated statements of changes in equity. Gains and losses from foreign currency transactions are included in the consolidated statement of income and comprehensive income.

Since the Company operates primarily in the PRC, the Company’s main functional currency is the Chinese Yuan (“RMB”). HUHU Japan’s functional currency is the Japanese Yen (“JPY”). The Company’s consolidated financial statements have been translated into the reporting currency of U.S. Dollars (“US$”). The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in the translation.

The following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:

	For the Six Months Ended June 30, 2024		For the Year Ended December 31, 2023		For the Six Months Ended June 30, 2023
Period End RMB: USD exchange rate		7.2672		7.0999		7.2513
Period Average RMB: USD exchange rate		7.2150		7.0809		6.9283
Period End JPY: USD exchange rate		160.88		140.80		144.47
Period Average JPY: USD exchange rate		152.20		140.82		134.91

F-14

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Comprehensive income (loss)

Comprehensive income (loss) consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustments resulting from the Company not using US$ as its functional currency.

Segment reporting

In accordance with ASC Topic 280, Segment Reporting, the Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer. The Company’s CODM reviews the consolidated financial results when making decisions about allocating resources and assessing the performance of the Company as a whole and hence, the Company has only one reportable segment. The Company operates and manages its business in PRC China and Japan as a single segment. The Company’s long-lived assets are substantially all located in the PRC and Japan and substantially all the Company’s revenues are derived from within the PRC and Japan.

Concentrations of risks

(a) Concentration of credit risk

Assets that potentially subject the Company to a significant concentration of credit risk primarily consist of cash, accounts receivable and other current assets. The maximum exposure of such assets to credit risk is their carrying amounts as at the balance sheet dates. As of June 30, 2024 and December 31, 2023, the aggregate amount of cash of $1,075,575 and $1,240,178 respectively, was held at major financial institutions in PRC. Cash balances in bank accounts in PRC are insured by the People’s Bank of China Financial Stability Department (“FSD”) where there is a RMB 500,000 (approximately $70,000) deposit insurance limit for a legal entity’s aggregated balance at each bank. As a result, the amounts that was not covered by FSD were $1,124,687 and $1,485,064 as of June 30, 2024 and December 31, 2023, respectively. The Company had $3,030,840 in bank accounts in Japan. Cash balances in bank accounts in Japan are insured pursuant to the Deposit Insurance Act in Japan. Under the Deposit Insurance Act in Japan, the maximum amount of protection is JPY 10 million (approximately $76,000) per customer within one bank. As a result, the amounts not covered by Deposit Insurance Act were $2,968,838 and $1,086,796 as of June 30, 2024 and December 31, 2023, respectively. To limit the exposure to credit risk relating to deposits, the Company primarily places cash deposits with large financial institutions. The Company conducts credit evaluations of its customers and suppliers, and generally does not require collateral or other security from them. The Company establishes an accounting policy to provide for allowance for credit losses based on the individual customer’s and supplier’s financial condition, credit history, and the current economic conditions.

F-15

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(b) Significant customers

For the six months ended June 30, 2024, four customers accounted for 19.7%, 17.1%, 16.8% and 10.2% of total revenues. For the six months ended June 30, 2023, two customers accounted for 24.1% and 14.7% of total revenues, respectively. As of June 30, 2024, three customers accounted for 17.0%, 16.2% and 11.0% of total accounts receivable, respectively. As of December 31, 2023, three customers accounted for 16.0%, 13.6% and 11.2% of total accounts receivable, respectively.

For the six months ended June 30, 2024, two suppliers accounted for approximately 12.7% and 10.7% of total purchases, respectively. For the six months ended June 30, 2023, two suppliers accounted for approximately 24.1% and 19.3% of total purchases. As of June 30, 2024, two suppliers accounted for approximately 33.8% and 17.1% of total accounts payable, respectively. As of December 31, 2023, two suppliers accounted for approximately 33.0% and 10.8% of total accounts payable, respectively.

(d) Foreign currency risk

A majority of the Company’s 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 China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.

The Company’s functional currency is the RMB, and the Company’s financial statements are presented in U.S. dollars. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect the Company’s financial results reported in the U.S. dollar terms without giving effect to any underlying changes in the Company’s business or results of operations. Currently, the Company’s assets, liabilities, revenues and costs are denominated in RMB. To the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollars would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollars for the purpose of making payments for dividends, strategic acquisition or investments or other business purposes, appreciation of U.S. dollars against RMB would have a negative effect on the U.S. dollar amount available to the Company.

F-16

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Recent accounting pronouncements

The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). This ASU requires that public business entities must annually “(1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate).” A public entity should apply the amendments in ASU 2023-09 prospectively to all annual periods beginning after December 15, 2024. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023-06”). This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“Codification”). The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. ASU 2023-06 will become effective for each amendment on the effective date of the SEC’s corresponding disclosure rule changes. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). The amendments in this ASU require disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (CODM), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. This ASU requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss. Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments in the update and existing segment disclosures in Topic 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. Early adoption is permitted. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.

In March 2024, the FASB issued ASU 2024-01, “Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards” (“ASU 2024-01”), which intends to improve clarity and operability without changing the existing guidance. ASU 2024-01 provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. Entities can apply the guidance either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption. ASU 2024-01 is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the potential impact of adopting this guidance.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.

F-17

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3 — ACCOUNTS RECEIVABLE, NET

	June 30, 2024			December 31, 2023
	(Unaudited)
Accounts receivable from third-party customers	$	10,230,817		$	9,084,050
Less: allowance for credit losses		(393,393	)		(375,975	)
Account receivable, net	$	9,837,424		$	8,708,075

	June 30, 2024			December 31, 2023
	(Unaudited)
Accounts receivable from non-state-owned customers	$	6,839,652		$	6,876,994
Accounts receivable from state-owned customers		3,391,165			2,207,056
Less: allowance for credit losses		(393,393	)		(375,975	)
Account receivable, net	$	9,837,424		$	8,708,075

Allowance for credit losses movement is as follows:

	June 30, 2024			December 31, 2023
	(Unaudited)
Beginning balance	$	375,975		$	361,014
Provision		26,263			25,335
Reduction		—			—
Foreign currency translation adjustments		(8,845	)		(10,374	)
Ending balance	$	393,393		$	375,975

Approximately $2.4 million or 24.0 % of the account receivable balance as of June 30, 2024 has been collected as of September 30, 2024.

NOTE 4 — PREPAYMENTS AND OTHER ASSETS, NET

Prepayments and other assets consisted of the following:

	June 30, 2024			December 31, 2023
	(Unaudited)
Prepaid rents	$	43,172		$	13,893
Deposits		68,611			99,104
Prepaid expense		88,620			71,939
Less: allowance for uncollectible balances		(3,483	)		(3,565	)
Prepayments and other current assets; net	$	196,920		$	181,371

F-18

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4 — PREPAYMENTS AND OTHER ASSETS, NET (cont.)

Allowance for credit losses movement is as follows:

	June 30, 2024			December 31, 2023
	(Unaudited)
Beginning balance	$	3,565		$	3,670
Provision		—			—
Reduction		—			—
Foreign currency translation adjustments		(82	)		(105	)
Ending balance	$	3,483		$	3,565

NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net, consist of the following:

	June 30, 2024			December 31, 2023
	(Unaudited)
Building	$	484,678		$	484,006
Office equipment		338,789			221,840
Transportation equipment		341,760			330,793
Land		961,155			823,540
Leasehold improvement		212,422			—
Construction in progress		1,099,997			77,677
Subtotal		3,438,801			1,937,856
Less: accumulated depreciation		(601,319	)		(408,874	)
Property and equipment, net	$	2,837,482		$	1,528,982

Construction in progress represents the new office building under construction for HUHU Japan, which is estimated to be completed by December 31, 2024. Depreciation expense for the six months ended June 30, 2024 and 2023 amounted to $203,318 and $62,296, respectively.

NOTE 6 — INTANGIBLE ASSETS, NET

The Company states intangible assets at cost less accumulated amortization.

	June 30, 2024			December 31, 2023
	(Unaudited)
License	$	215,369		$	220,444
Computer software		2,149			2,462
Less: accumulated amortization		(116,390	)		(98,227	)
Intangible assets, net	$	101,128		$	124,679

Amortization expenses were $20,573 and $21,391 for the six months ended June 30, 2024 and 2023, respectively.

The estimated future amortization expenses are as follows:

Years ending June 30,	Estimated Amortization Expense
	(Unaudited)
2024	$	20,671
2025		41,341
2026		38,479
2027		555
2028		82
Total	$	101,128

F-19

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7 — LEASES

The Company has several operating leases for manufacturing facilities and offices. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company adopts Topic 842 using a modified retrospective transition method. The Company combines the lease and non-lease components in determining the ROU assets and related lease obligation. Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities. ROU assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term.

Total lease expense amounted to $60,494 for the six months ended June 30, 2024, which included $4,835 interest and $55,659 amortization expenses of ROU assets. Total lease expense amounted to $9,778 for the six months ended June 30, 2023, which included $692 interest and $8,077 amortization expenses of ROU assets. Total cash paid for operating leases amounted to $77,674 and $32,205 for the six months ended June 30, 2024 and 2023, respectively.

Supplemental balance sheet information related to operating leases was as follows:

	June 30, 2024		December 31, 2023
	(Unaudited)
Right-of-use assets, net	$	200,783	$	255,573
Operating lease liabilities – current	$	97,315	$	107,424
Operating lease liabilities – non-current		70,677		114,374
Total operating lease liabilities	$	167,992	$	221,798

The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of June 30, 2024:

Remaining lease term and discount rate:
Weighted average remaining lease term (years)	2
Weighted average discount rate	4.4	%

The following is a schedule of maturities of lease liabilities as of June 30, 2024:

Years ending June 30,
	(Unaudited)
2025	$	103,436
2026		73,056
Total future minimum lease payments		176,492
Less: imputed interest		8,500
Total	$	167,992

NOTE 8 — ACCRUED EXPENSE AND OTHER LIABILITIES

Accrued expenses and other liabilities consisted of the following:

	June 30, 2024		December 31, 2023
	(Unaudited)
Payroll payable	$	481,900	$	469,384
Rent payable		71,685		37,424
Equipment payable		7,705		13,335
Other payables		145,215		41,296
Total	$	706,505	$	561,439

F-20

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9 — LOANS

Bank loans consisted of the following:

	June 30, 2024		December 31, 2023
	(Unaudited)
Bank of Jiangsu
Interest rate of 3.7%, from March 17, 2023 to March 16, 2024	$	—	$	140,847
Interest rate of 3.6%, from March 19, 2024 to March 18, 2026		275,209
Interest rate of 3.6%, from March 26, 2024 to March 25, 2026		412,814		—
Bank of Ningbo
Interest rate of 3.45%, from July 28, 2023 to July 27, 2024		275,209		281,694
Interest rate of 3.7%, from April 29, 2024 to April 28, 2025		137,605		—
Bank of Communications
Interest rate of 2.98%, from June 27, 2024 to June 27, 2025		963,232		—
Interest rate of 2.98%, from June 28, 2024 to June 28, 2025		412,814		—
Bank of China
Interest rate of 3.30%, from August 3, 2023 to June 2, 2024		—		352,118
Interest rate of 3.30%, from August 11, 2023 to June 10, 2024		—		422,541
Interest rate of 3.05%, from November 27, 2023 to June 20, 2024		—		492,965
Interest rate of 2.54167‰, from May 30, 2024 to May 20, 2025		756,825		—
Kumamoto Bank
Interest rate of 1,875%, from April 16, 2024 to August 30, 2024		1,078,835		—
Interest rate of 1.875%, from April 26, 2024 to August 30, 2024		353,412		—
Interest rate of 1.875%, from June 6, 2024 to August 30, 2024		477,416		—
Total	$	5,143,371	$	1,690,165

On March 17, 2023, the Company entered into a loan agreement with the Bank of Jiangsu to obtain a loan of $140,847 (RMB 2,000,000) with a maturity date on March 16, 2024 at a fixed annual interest rate of 3.70%. Ms. Yinglai Wang, the shareholder of the Company, is a co-borrower of the loan. The loan was fully repaid upon maturity.

On March 19, 2024, the Company entered into a loan agreement with the Bank of Jiangsu to obtain a loan of $275,029 (RMB 2,000,000) with a maturity date on March 18, 2026 at a fixed annual interest rate of 3.6%. Mr. Yujun Xiao, the CEO of the Company, and Ms. Yinglai Wang, the shareholder of the Company, guaranteed the repayment of the loan.

On March 26, 2024, the Company entered into a loan agreement with the Bank of Jiangsu to obtain a loan of $412,814 (RMB 3,000,000) with a maturity date on March 25, 2026 at a fixed annual interest rate of 3.6%. Mr. Yujun Xiao, the CEO of the Company, and Ms. Yinglai Wang, the shareholder of the Company, guaranteed the repayment of the loan.

On July 28, 2023, the Company entered into a loan agreement with the Bank of Ningbo to obtain a loan of $275,209 (RMB 2,000,000) with a maturity date on July 27, 2024 at a fixed annual interest rate of 3.45%. Mr. Yujun Xiao, the CEO of the Company, and Ms. Yinglai Wang, the shareholder of the Company, guaranteed the repayment of the loan. The loan was fully repaid upon maturity.

On April 29, 2024, the Company entered into a loan agreement with the Bank of Ningbo to obtain a loan of $137,605 (RMB 1,000,000) with a maturity date on April 28, 2025 at a fixed annual interest rate of 3.7%. Mr. Yujun Xiao, the CEO of the Company, and Ms. Yinglai Wang, the shareholder of the Company, guaranteed the repayment of the loan.

On June 27, 2024, the Company entered into a loan agreement with the Bank of Communications to obtain a loan of $963,232 (RMB 7,000,000) with a maturity date on June 27, 2025 at an effective annual interest rate of 2.98%. Ms. Yinglai Wang, the shareholder of the Company, is a guarantor of the loan.

On June 28, 2024, the Company entered into a loan agreement with the Bank of Communications to obtain a loan of $412,814 (RMB 3,000,000) with a maturity date on June 28, 2025 at a fixed annual interest rate of 2.98%. Mr. Yujun Xiao, the CEO of the Company, and Ms. Yinglai Wang, the shareholder of the Company, guaranteed the

F-21

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9 — LOANS (cont.)

On August 03, 2023, the Company entered into a loan agreement with the Bank of China to obtain a loan of $563,388 (RMB 4,000,000) with a maturity date on June 2, 2024 at a fixed annual interest rate of 3.3%. After the repayment of $211,270 during fiscal year 2023, the loan balance was $352,118 as of December 31, 2023. Mr. Yujun Xiao, the CEO of the Company, and Ms. Yinglai Wang, the shareholder of the Company, guaranteed the repayment of the loan.

On August 11, 2023, the Company entered into a loan agreement with the Bank of China to obtain a loan of $422,541 (RMB 3,000,000) with a maturity date on June 10, 2024 at a fixed annual interest rate of 3.3%. Mr. Yujun Xiao, the CEO of the Company, and Ms. Yinglai Wang, the shareholder of the Company, guaranteed the repayment of the loan. The loan was fully repaid upon maturity.

On November 27, 2023, the Company entered into a loan agreement with the Bank of China to obtain a loan of $492,965 (RMB 3,500,000) with a maturity date on June 20, 2024 at a fixed annual interest rate of 3.05%. Mr. Yujun Xiao, the CEO of the Company, and Ms. Yinglai Wang, the shareholder of the Company, guaranteed the repayment of the loan. The loan was fully repaid upon maturity.

On May 30, 2024, the Company entered into a loan agreement with the Bank of China to obtain a loan of $756,825 (RMB 5,500,000) with a maturity date on May 20, 2025 at an effective monthly rate of 2.54167‰. Mr. Yujun Xiao, the CEO of the Company, and Ms. Yinglai Wang, the shareholder of the Company, guaranteed the repayment of the loan.

On April 16, 2024, the Company entered into two loan agreements with the Bank of Kumamoto to obtain two loans of $1,235,795 (JPY 174,000,000) each with a maturity date on August 30, 2024 at a fixed annual interest rate of 1.875%. Mr. Yujun Xiao, the CEO of the Company, guaranteed the repayment of the loans. The loan was fully repaid upon maturity.

On April 26, 2024, the Company entered into two loan agreements with the Bank of Kumamoto to obtain two loans of $353,412 (JPY 5,700,000) each with a maturity date on August 30, 2024 at a fixed annual interest rate of 1.875%. Mr. Yujun Xiao, the CEO of the Company, guaranteed the repayment of the loans. The loan was fully repaid upon maturity.

On June 6, 2024, the Company entered into two loan agreements with the Bank of Kumamoto to obtain two loans of $477,416 (JPY 7,700,000) each with a maturity date on August 30, 2024 at a fixed annual interest rate of 1.875%. Mr. Yujun Xiao, the CEO of the Company, guaranteed the repayment of the loans. The loan was fully repaid upon maturity.

For the six months ended June 30, 2024 and 2023, the Company recorded bank loan interest expenses of $49,185 and $39,925, respectively.

NOTE 10 — RELATED PARTIES BALANCES AND TRANSACTIONS

Related party balances as of June 30, 2024 and December 31, 2023 and transactions for the six months ended June 30, 2024 and 2023 are as follows:

(1)

Related party relationships:

Name of Related Party		Relationship to the Company
Mr. Yujun Xiao		CEO of the Company and spouse of Ms. Yinglai Wang
Ms. Yinglai Wang		Chairperson of the Company and spouse of Mr. Yujun Xiao
Ms. Huiping Zhang		CFO of the Company
Wuxi Qiguangjia Electromechanical Technology Partnership (“Wuxi Qiguangjia”)		Ms. Huiping Zhang holds 18% equity interest
Anhui Zhongke Shengwei Intelligent Data Co., Ltd (“Anhui Zhongke”)		Mr. Yujun Xiao is the legal representative and holds 9.51% of the shares

F-22

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10 — RELATED PARTIES BALANCES AND TRANSACTIONS (cont.)

(2)

Due to related parties:

	As of June 30,		As of December 31,
	2024		2023
	(Unaudited)
Mr. Yujun Xiao	$	—	$	443,027
Ms. Yinglai Wang		—		425,411
	$	—	$	868,438

Mr. Yujun Xiao and Ms. Yinglai Wang made advances to the Company as working capital to support the Company’s operations. The balances were unsecured, interest-free and were fully repaid on March 27, 2024.

(3)

Due from related parties:

	As of June 30,		As of December 31,
	2024		2023
	(Unaudited)
Mr. Yujun Xiao	$	165,504	$	—
Wuxi Qiguangjia		412,814		—
	$	578,318	$	—

Mr. Xiao Yujun obtained $137,605 (RMB 1,000,000) in total loans and a $27,899 employee advance for travel and business expenses from the Company. The loan of $93,237 (RMB 677,573) had an effective annual interest rate of 1.875% and the loan of $44,368 (RMB 322,427) was interest-free and due on demand. Subsequently, the employee advance was expensed and the loan balance was fully received on September 10, 2024.

Wuxi Qiguangjia obtained a working capital loan from the Company. The loan was interest-free and due on demand. Subsequently, the balance was fully received on July 1, 2024.

(4)

Advance to vendors-related party:

	As of June 30,		As of December 31,
	2024		2023
	(Unaudited)
Anhui Zhongke	$	68,802	$	—
	$	68,802	$	—

As of June 30, 2024, the Company advanced $68,802 to Anhui Zhongke for the purchase of software.

(5)

Purchases from related party:

	For the Six Months Ended June 30,
	2024		2023
	(Unaudited)		(Unaudited)
Anhui Zhongke	$	565,466	$	149,162

Our affiliated entity Anhui Zhongke and HUHU China entered into a software purchase agreement, whereby Anhui Zhongke sells factory management and monitoring software to HUHU China. The purchase price of the software is $565,466 and $149,162 for the six months ended June 30, 2024 and 2023, respectively. The software was then sold to customers and the purchase price of the software was included in cost of revenue.

F-23

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11 — TAXES

Corporate Income Taxes (“CIT”)

The income before taxes by geographic area is as follows:

Income (loss) before taxes:	For the Six Months Ended June 30, 2024			For the Six Months Ended June 30, 2023
	(Unaudited)			(Unaudited)
China	$	93,078		$	1,317,314
Japan		1,175,736			438,476
Cayman		(188,279	)		(100	)
Total income before taxes	$	1,080,535		$	1,755,690

The components of the income tax provision are as follows:

	For the Six Months Ended June 30, 2024			For the Six Months Ended June 30, 2023
	(Unaudited)			(Unaudited)
Current income tax expense	$	235,147		$	212,536
Deferred income tax expense		(3,939	)		6,138
Total provision for income taxes	$	231,208		$	218,674

The following table reconciles the PRC statutory rate to the Company’s effective tax rate:

	For the Six Months Ended June 30, 2024			For the Six Months Ended June 30, 2023
	(Unaudited)			(Unaudited)
PRC statutory tax rate		25.0	%		25.0	%
Effect of different tax jurisdiction		(5.4	)%		1.2	%
Effect of PRC preferential tax rate		(0.9	)%		(7.5	)%
Research and development tax credit		(1.9	)%		(6.6	)%
Non-deductible items*		4.6	%		0.4	%
Effective tax rate		21.4	%		12.5	%

*	Non-deductible items represent excess expenses and losses not deductible for PRC tax purposes.

F-24

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11 — TAXES (cont.)

The following table summarizes deferred tax assets and liabilities resulting from differences between financial accounting basis and tax basis of assets and liabilities:

	June 30, 2024		December 31, 2023
	(Unaudited)		(Unaudited)
Deferred tax assets:
Allowance for credit losses	$	59,531	$	56,931
Total deferred tax assets	$	59,531	$	56,931

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the cumulative earnings and projected future taxable income in making this assessment. Recovery of substantially all of the Company’s deferred tax assets is dependent upon the generation of future income, exclusive of reversing taxable temporary differences. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are recoverable, management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets as at June 30, 2024.

Taxes payable

Taxes payable consist of the following:

	June 30, 2024		December 31, 2023
	(Unaudited)
Income tax payable	$	263,333	$	151,948
VAT payable		414,488		245,175
Other taxes payable		2,873		2,948
Total taxes payable	$	680,694	$	400,071

NOTE 12 — SHAREHOLDERS’ EQUITY

Ordinary shares

The Company was authorized to issue 5,000,000,000 Ordinary Shares with a par value of $0.00001 each. On July 15, 2024, the Company effected a 1-for-4 forward split of its Ordinary Shares. The Company believes that the share information should be accounted for on a retroactive basis pursuant to ASC 260. All ordinary shares and per share data for all periods have been retroactively restated accordingly. As a result, the authorized share capital of the Company is US$50,000 divided into 20,000,000,000 Ordinary Shares, par value $0.0000025 per ordinary share. As of June 30, 2024 and December 31, 2023, 20,000,000 Ordinary Shares are issued and outstanding.

Capital contributions

HUHU China was incorporated under the laws of the People’s Republic of China with a total registered capital of approximately $3.27 million (RMB 21,575,000). As of December 31, 2019, the Company received total capital contributions of approximately $1.16 million (RMB 8,000,000). During the years ended December 31, 2020 and 2021, the Company received capital contributions of $113,636 (RMB 790,000) and $461,041 (RMB 3,000,000), respectively. As of the date of this report, pursuant to the articles of incorporation of HUHU China, the remaining capital investment of approximately $1.54 million (RMB 9,785,000) shall be contributed in full before December 31, 2049.

Statutory reserve and restricted net assets

As stipulated by relevant PRC laws and regulations, the Company’s subsidiaries and affiliated entities in the PRC must take appropriations from after-tax profits to non-distributive funds. These reserves include the general reserve and the development reserve.

F-25

HUHUTECH INTERNATIONAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 12 — SHAREHOLDERS’ EQUITY (cont.)

The general reserve requires an annual appropriation of 10% of after-tax profits each year-end until the balance reaches 50% of a PRC company’s registered capital. The development reserve is set aside at the Company’s discretion. These reserves can only be used for general enterprise expansion and are not distributable as cash dividends. The general reserve amounted to $352,865 and $343,077 as of June 30, 2024 and December 31, 2023, respectively.

Because the Company’s operating subsidiaries in the PRC can only pay distributions out of distributable profits reported in accordance with PRC accounting standards, the Company’s operating subsidiaries in the PRC are restricted from transferring a portion of their net assets to the Company. The restricted amounts include the paid-in capital and statutory reserves of the Company’s entities in the PRC. The aggregate amount of paid-in capital and statutory reserves, which represented the amount of net assets of the Company’s operating subsidiaries in the PRC not available for distribution, was $2,091,044 and $2,081,256 as of June 30, 2024 and December 31, 2023, respectively.

NOTE 13 — COMMITMENTS AND CONTINGENCIES

Contingencies

From time to time, the Company is subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity. As of June 30, 2024, the Company has no outstanding litigation.

NOTE 14 — SUBSEQUENT EVENTS

Bank loans

On September 13, 2024, the Company entered into a loan agreement with the Bank of Communications to obtain a loan of $137,605 (RMB 1,000,000) with a maturity date on September 13, 2025 at an effective annual interest rate of 2.98%. Ms. Yinglai Wang, the shareholder of the Company, is a guarantor of the loan.

On October 11, 2024, the Company entered into a loan agreement with the Bank of Communications to obtain a loan of $137,605 (RMB 1,000,000) with a maturity date on October 11, 2025 at an effective annual interest rate of 2.98%. Ms. Yinglai Wang, the shareholder of the Company, is a guarantor of the loan.

Ordinary shares split

On July 15, 2024, the Company effected a 1-for-4 forward split of its Ordinary Shares. As a result, the authorized share capital of the Company is US$50,000 divided into 20,000,000,000 Ordinary Shares, par value $0.0000025 per ordinary share.

The Company evaluated all events and transactions that occurred after June 30, 2024 up through the date the Company issued these unaudited condensed consolidated financial statements, for disclosure or recognition in the unaudited condensed consolidated financial statements of the Company as appropriate.

F-26

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