20-F: Huadi International Reports Net Loss Amid China Downturn

Huadi International Group Co., Ltd. reported a net loss of $1.40 million for fiscal year 2025, a significant decline from the previous year's net income, driven by decreased revenues and a material weakness in internal controls.

Summary

• Huadi International Group Co., Ltd. reported a net loss of $1,395,927 for the fiscal year ended September 30, 2025, a substantial decrease from the net income of $137,422 in 2024.
• Total revenues decreased by 15.32% to $62,895,611 in 2025 from $74,270,429 in 2024, primarily due to an overall economic downturn in China affecting demand for construction materials.
• Gross profit decreased by 7.15% to $6,792,805 in 2025 from $7,315,835 in 2024, although the gross profit margin slightly increased to 10.80% from 9.85% due to rising raw material prices leading to increased weighted average selling prices.
• Operating loss widened to $2,884,006 in 2025 from an operating loss of $1,608,481 in 2024.
• Cash and cash equivalents significantly decreased to $6,483,489 in 2025 from $18,118,456 in 2024.
• Capital expenditures increased substantially to $14,726,371 in 2025, primarily for the purchase of machinery and construction in progress (CIP) for a new factory in Songyang.
• The company identified a material weakness in internal control over financial reporting due to insufficient accounting and finance personnel with U.S.-GAAP experience.
• Huadi Steel's High and New Technology Enterprise (HNTE) certificate was renewed on December 29, 2025, extending its preferential tax rate of 15% until fiscal year 2028.
• An impairment loss of $1,155,411 was recognized on a long-term investment in Wenzhou Longlian Development Co., Ltd. due to its termination of operations and liquidation in January 2025.
• Short-term borrowings increased to $4,122,341 in 2025 from $1,249,765 in 2024, and new long-term borrowings of $8,068,549 were outstanding in 2025.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative report due to the significant decline from net income to a substantial net loss, coupled with a notable decrease in revenue and cash reserves. While there are strategic investments and tax benefits, the overall financial performance and identified material weakness in internal controls indicate significant challenges.

Positives

• Gross profit margin slightly increased to 10.80% in 2025 from 9.85% in 2024, attributed to increased weighted average selling prices.
• Huadi Steel's High and New Technology Enterprise (HNTE) status was renewed on December 29, 2025, allowing it to maintain a preferential 15% tax rate until fiscal year 2028.
• The company continues to invest in research and development, with $2,166,881 invested in 2025, aimed at expanding new products and improving existing processes.
• Received government grants of $346,597 in 2025, contributing to other income.
• Received dividend income of $330,177 from Longwan Rural Commercial Bank in 2025.
• The new factory in Huadi Songyang is expected to be completed and in use in the year ended September 30, 2026, indicating future expansion.

Negatives

• Reported a net loss of $1,395,927 in 2025, a significant decline from the net income of $137,422 in 2024.
• Total revenues decreased by 15.32% to $62,895,611 in 2025, primarily due to an economic downturn in China.
• Operating loss widened to $2,884,006 in 2025 from $1,608,481 in 2024.
• Cash and cash equivalents decreased significantly by $11,634,967 from $18,118,456 in 2024 to $6,483,489 in 2025.
• Accounts receivable, net, increased by $6,060,499 to $24,773,841 in 2025, which could indicate potential for delayed collections.
• An impairment loss of $1,155,411 was recognized on a long-term investment in Wenzhou Longlian Development Co., Ltd. due to its liquidation.
• Identified a material weakness in internal control over financial reporting due to insufficient accounting and finance personnel with U.S.-GAAP experience.
• Short-term borrowings increased to $4,122,341 in 2025 from $1,249,765 in 2024, and new long-term borrowings of $8,068,549 were incurred in 2025.
• Several legal proceedings are pending, including sales contract disputes totaling RMB 1,503,919 and an employee injury insurance claim for RMB 397,600.

Risks

• Tariffs and trade policy initiatives announced by the United States against China may adversely affect business, demand for products, and share price.
• Global economic and political conditions, including oil prices and international conflicts, could adversely affect operations and financial conditions.
• Any decline in the availability or increase in the cost of raw materials and energy resources could materially affect earnings, as these costs represent over 80% of total product cost.
• The loss of any key customers could reduce revenues and profitability, especially since major customers often change each period.
• Transactions with related parties present possible conflicts of interest that could have an adverse effect on business and results of operations.
• Any disruption in the supply chain of raw materials and products could adversely impact the ability to produce and deliver products.
• Inability to raise capital could have a material adverse effect on financial condition and results of operations, as substantial additional funding is required for growth plans.
• Rapid expansion could significantly strain resources, management, and operational infrastructure, impairing the ability to meet increased demand.
• Business depends on the continued efforts of senior management; the loss of key executives could severely disrupt business.
• Intense competition for qualified research and development personnel could cause compensation costs to increase.
• Failure to protect intellectual property rights (patents, trademarks) could harm business and competitive position, especially as utility patents have a 10-year protection term.
• Financial and operating performance may be adversely affected by epidemics, natural disasters, wars, terrorist activity, and social unrest.
• Failure to innovate or adapt to changes in the steel pipes products industry could materially and adversely affect business.
• Inability to promote and maintain the brand in an effective and cost-efficient way could harm business and results of operations.
• New lines of business or new products may subject the company to additional risks, including compliance, market acceptance, and impact on internal controls.
• As a controlled company under Nasdaq rules, the company may rely on exemptions from corporate governance rules, potentially resulting in less protection for investors.
• Strategic investments or acquisitions could require significant management attention, disrupt business, and adversely affect financial results.
• A lack of insurance coverage (beyond deposit insurance) could expose the company to significant costs and business disruption.
• Exposure to liabilities under the Foreign Corrupt Practices Act (FCPA) could have a material adverse effect on business.
• Failure to implement and maintain effective internal control over financial reporting due to insufficient U.S.-GAAP experienced personnel could impair accurate financial reporting, adversely impacting investor confidence and share price.
• Failure to appropriately evaluate customer credit or delays in settlement of accounts receivable could materially and adversely impact operating cash flow.
• Environmental regulations impose substantial costs and limitations on operations, with potential for fines or operational suspension for non-compliance.
• Failure to maintain appropriate inventory levels could lead to lost sales or excessive inventory risks and holding costs.
• Potential disruptions in the capital and credit markets may adversely affect the availability and cost of short-term funds for liquidity requirements.
• Significant reliance on short-term borrowings for liquidity, with no assurance of continued favorable financing terms.
• The Chinese government exerts substantial influence over business activities, and changes in laws or policies could result in a material change in operations or share value.
• Substantial uncertainties exist with respect to China Foreign Investment Law and its potential impact on corporate structure, governance, and business operations.
• Reliance on dividends and other distributions from PRC subsidiaries is subject to PRC laws and capital controls, which could materially and adversely affect the ability to fund business.
• Fluctuations in exchange rates between the U.S. dollar and RMB could have a material adverse effect on results of operations and share price.
• Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject PRC operating entities to penalties.
• Complex procedures for acquisitions of Chinese companies by foreign investors under M&A Rules could make growth through acquisitions more difficult.
• PRC regulations relating to offshore investment activities by PRC residents may limit PRC subsidiaries' ability to increase registered capital or distribute profits.
• If entities outside China are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences.
• Uncertainty in obtaining certain benefits under relevant tax treaties on dividends paid by PRC subsidiaries to the Hong Kong subsidiary.
• The Holding Foreign Companies Accountable Act (HFCAA) and PCAOB rules could lead to delisting of securities if the auditor is not subject to PCAOB inspections for two consecutive years.
• Enhanced scrutiny over acquisition transactions by PRC tax authorities may negatively impact potential future acquisitions.
• Scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies could harm business operations, share price, and reputation.
• As an emerging growth company, reduced reporting requirements may make ordinary shares less attractive to investors.
• As a foreign private issuer, disclosure obligations differ from U.S. domestic reporting companies, potentially making it more difficult for investors to evaluate performance.
• Following certain home country corporate governance practices instead of Nasdaq requirements may result in less protection for investors.
• Difficulty enforcing judgments obtained against the company due to incorporation under Cayman Islands law and assets/personnel outside the United States.
• Limited shareholder rights under Cayman Islands law compared to U.S. jurisdictions.
• Nasdaq may apply additional and more stringent criteria for continued listing, potentially leading to delisting.
• The market price of ordinary shares may be volatile or decline regardless of operating performance.
• The company does not intend to pay dividends for the foreseeable future, meaning returns depend solely on share price appreciation.
• Future sales of a substantial amount of outstanding ordinary shares in the public marketplace could reduce the price of ordinary shares.
• Incurring additional costs as a public company could negatively impact net income and liquidity.
• The obligation to disclose information publicly may put the company at a disadvantage to competitors that are private companies.

Future Outlook

The company plans to expand its business by investing in research and development and building new facilities or acquiring existing facilities, particularly in the water supply market, to strengthen its market position. It anticipates requiring substantial additional funding through equity financing and bank borrowing to support these growth strategies and meet market demands. The new factory in Huadi Songyang is expected to be completed and in use by September 30, 2026.

Management Comments

• Management is committed to expanding our research and development activities continually for more orders.
• We believe that our current cash, cash to be generated from our operations and access to capital market will be sufficient to meet our working capital needs for at least the next twelve months.
• We plan to expand our business to implement our growth strategies in the water supply market and strengthen our position in the marketplace. To do so, we may need more capital through equity financing and bank borrowing to increase our production and meet market demands.
• Our management team and senior management intend to remain with us in the capacity of officers and/or directors, which will provide helpful continuity in advancing our strategic and growth goals.
• We believe our national and province-level awards, reflect widespread recognition of our innovative products, nationalrecognized reputation as well as success in our industry.

Industry Context

StockSavvy.ai notes that the steel piping products industry is currently facing an overall economic downturn in China, leading to decreased demand for construction materials, which directly impacted Huadi International's revenue. The industry is characterized by intense competition and a trend towards developing high-end and high-tech products. Global economic and political conditions, including oil prices and international conflicts, also influence demand for steel products. The Chinese government's macro-control policies continue to exert substantial influence over the steel industry, adding a layer of regulatory uncertainty and potential impact on market dynamics.

Comparison to Industry Standards

• StockSavvy.ai notes that the company claims to be one of the leading manufacturers in China for certain steel products, specifically automotive 304L and 347H stainless steel pipes, and a leading company in this niche market due to a lower defective rate compared to competitors. However, the filing does not provide specific comparable companies, projects, or detailed quantitative results to benchmark these claims against broader industry standards or global competitors like ThyssenKrupp, ArcelorMittal, or Nippon Steel, which are major players in the global stainless steel market.
• The company's gross profit margin of 10.80% in 2025, while an improvement from 2024, is still below the 14.65% reported in 2023, suggesting a struggle to maintain profitability levels seen in stronger market conditions, potentially indicating a competitive disadvantage or higher cost structure compared to more efficient global peers.

Corporate Governance

Legal Proceedings

• On April 6, 2023, Huadi Steel filed a complaint against Inner Mongolia Jiutai New Material Co., Ltd. for RMB 980,543 for purchases of goods. Jiutai agreed to settle, but failed to pay the first installment, leading to an enforcement application on August 7, 2023. The enforcement is still in implementation stage.
• On May 12, 2023, Huadi Steel filed another complaint against Inner Mongolia Jiutai New Material Co., Ltd. for RMB 832,249 for purchases of goods. Jiutai agreed to settle, and Huadi Steel received the first installment of RMB 200,000 on January 24, 2023. The enforcement is still in implementation stage.
• On July 17, 2025, Huadi Steel engaged legal counsel for a sales contract dispute with Xinjiang Hesheng Silicon Industry New Materials Co., Ltd., demanding RMB 670,676. The case has been officially filed but has not yet been heard in court.
• On November 20, 2025, an employee, Wang Chaosong, filed a complaint against Huadi Steel for employment injury insurance of RMB 397,600 for a level-7 disability. No judgment has been made, and PRC counsel advises the risk of losing this case is relatively small.

Related Party Transactions

• Purchased $2,456,896 in raw materials from Taizhou Huadi Industrial Ltd. (30% owned by Jueqin Wang) in 2025, which was fully paid.
• Received a refund of $674,228 from Huadi Material (100% owned by Yiyu Wang) in 2025 due to changes in production plan, with an outstanding accounts payable balance of $462 as of September 30, 2025.
• Leased an office to Huashang Micro Finance Co. (19% owned by the Company) for an annual rent of $27,407 in 2025, recording $25,865 rental income, with an advance balance of $7,131 from Huashang as of September 30, 2025.
• Repaid $48,527 (RMB 350,000) to Jueqin Wang in 2025 for previous unsecured, interest-free, due-on-demand borrowings, with an outstanding balance of $255,344 as of September 30, 2025.
• Purchased $1,832 in raw materials from Taizhou Huadi Industrial Ltd. in 2024, and paid $3,741,463 for raw materials purchased in recent years.
• Purchased $666,114 in raw materials from Huadi Material in 2024 and paid a total of $1,427,247, with an advance balance of $692,485 to this entity as of September 30, 2024.
• Sold $7,343 in steel materials and refunded $390,513 to Huadi Material in 2024.
• Sold $1,661 in steel materials to Shanghai Huadi Industrial Ltd. (51% owned by Jueqin Wang) in 2024, which was fully collected.
• Refunded $631,567 to Wenzhou Maituo International Trade Ltd. (controlled by Meiling Wang) in 2024.
• Repaid $20,821 (RMB 150,000) to Jueqin Wang in 2024.
• Repaid $274,123 (RMB 2,000,000) to Di Wang in 2023.

Stakeholder Impact

• Shareholders: Negative impact due to the reported net loss, significant revenue decline, and decrease in cash. The identified material weakness in internal controls and ongoing regulatory risks (HFCAA, PRC government influence) could further erode investor confidence and potentially affect share price. No dividends are expected in the foreseeable future.
• Employees: The company maintained 362 employees in 2025 and provides government-mandated social security benefits. However, a pending employee injury claim indicates potential liabilities and employee welfare concerns.
• Customers: The economic downturn in China has reduced demand for construction materials, impacting sales. The company's strategy to expand product offerings and improve quality aims to retain and attract customers.
• Suppliers: The company maintains relationships with various suppliers, but concentration risk exists with some, as one supplier accounted for 20.85% of total purchases in 2025. Increased accounts payable to certain suppliers also indicates reliance.
• Creditors: Increased short-term and long-term borrowings, with assets pledged as collateral, indicate higher leverage and potential reliance on debt financing.

Next Steps

• Implement and upgrade accounting, operational, and internal management systems.
• Enhance record-keeping and contract tracking system.
• Recruit and train additional personnel to manage the growing employee base.
• Expand internally through increasing new product development and improving existing products.
• Evaluate acquisition opportunities to expand market share.
• Optimize the product portfolio and mix to be responsive to changing market conditions.
• Assess and pursue opportunities to utilize, optimize, and grow production capacity.
• Continue to focus on efficient manufacturing and cost management.
• Focus on strengthening key supplier relationships.
• Execute pricing strategy to pass through underlying costs, particularly for electrical conduit products.
• Complete the new factory in Huadi Songyang, expected to be in use by September 30, 2026.
• Address the material weakness in internal control over financial reporting by hiring additional personnel with US GAAP experience and implementing/testing internal controls.
• Continue legal proceedings for sales contract disputes and employee injury claims, including monitoring the ongoing enforcement stage for the Jiutai case.

Key Dates

Recommendation

The company's shift from net income to a substantial net loss, coupled with a significant revenue decline and a material decrease in cash and cash equivalents, signals deteriorating financial health. The identified material weakness in internal controls raises concerns about financial reporting reliability. While strategic investments are planned, the overall negative financial trends, ongoing geopolitical and regulatory risks associated with operating in China, and potential delisting risks under the HFCAA create a highly uncertain and unfavorable investment outlook. A seasoned investor would likely recommend selling to mitigate further downside risk.

Keywords

Stainless Steel Pipes, Industrial Steel, China Manufacturing, SEC Filing, Form 20-F, Financial Results, Net Loss, Revenue Decline, Corporate Governance, Risk Factors, PRC Regulations, Nasdaq Listing, HFCAA, PCAOB, Supply Chain, Capital Expenditures, Related Party Transactions, Wenzhou, Zhejiang