XTKGF 20-F
X3 Holdings Co., Ltd. (XTKGF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OR
For the fiscal year ended
OR
OR
Date of event requiring this shell company report for the transition period from ____________to ____________
Commission file number:
(Exact Name of Registrant as Specified in its Charter)
N/A
(Translation of Registrant’s Name into English)
(Jurisdiction of Incorporation or Organization)
(Address of principal executive offices)
Tel:
Email:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common shares as of the close of the period covered by the annual report:
As of December 31, 2025, the issuer had
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. Yes ☐
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
| * | If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐ |
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
TABLE OF CONTENTS
| INTRODUCTION | iii | |
| FORWARD-LOOKING INFORMATION | iv | |
| PART I | 1 | |
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 1 |
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 1 |
| ITEM 3. | KEY INFORMATION | 1 |
| ITEM 4. | INFORMATION ON THE COMPANY | 43 |
| ITEM 4A. | UNRESOLVED STAFF COMMENTS | 63 |
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 63 |
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 84 |
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 91 |
| ITEM 8. | FINANCIAL INFORMATION | 95 |
| ITEM 9. | THE OFFER AND LISTING | 95 |
| ITEM 10. | ADDITIONAL INFORMATION | 96 |
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 108 |
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 109 |
| PART II | 110 | |
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 110 |
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 110 |
i
| ITEM 15. | CONTROLS AND PROCEDURES | 110 |
| ITEM 16 | RESERVED | 112 |
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | 112 |
| ITEM 16B. | CODE OF ETHICS | 112 |
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 112 |
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 113 |
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 113 |
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | 113 |
| ITEM 16G. | CORPORATE GOVERNANCE | 113 |
| ITEM 16H. | MINE SAFETY DISCLOSURE | 113 |
| ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 113 |
| ITEM 16J. | INSIDER TRADING POLICIES | 113 |
| ITEM 16K. | CYBERSECURITY | 114 |
| PART III | 115 | |
| ITEM 17. | FINANCIAL STATEMENTS | 115 |
| ITEM 18. | FINANCIAL STATEMENTS | 115 |
| ITEM 19. | EXHIBITS | 115 |
ii
INTRODUCTION
Unless otherwise indicated or the context otherwise requires, references in this annual report on Form 20-F to:
| ● | All references to “RMB,” “yuan” and “Renminbi” are to the legal currency of China, all references to “HKD” is to the legal currency of Hong Kong, and all references to “USD” and “U.S. dollars” are to the legal currency of the United States. | |
| ● | “AIC” refers to Administration for Industry and Commerce in China. | |
| ● | Depending on the context, the terms “we”, “us”, “our Company”, and “our” refer to X3 Holdings Co., Ltd. (formerly known as Powerbridge Technologies Co., Ltd.), a Cayman Islands holding company, and its subsidiaries and affiliated companies, as a group; “X3 Holdings” and “Powerbridge Cayman” refer to X3 Holdings Co., Ltd., the Cayman Islands holding company. | |
| ● | “Exchange Act” refers to the U.S. Securities Exchange Act of 1934, as amended. | |
| ● | “Fiscal Year” refers to the period from January 31 of each calendar year to December 31 of the following calendar year. | |
| ● | “Hongding Hong Kong” refers to Hongding Technology Co., Ltd., a Hong Kong company, which is a direct wholly-owned subsidiary of X3 Holdings Co., Ltd.. | |
| ● | “IPO” means the initial public offering by the Company of 2,012,500 Ordinary Shares consummated on April 4, 2019 (including the full exercise of the over-allotment option by the underwriters to purchase an additional 262,500 Ordinary Shares on May 10, 2019). | |
| ● | “IP” refers to intellectual property. | |
| ● | “Powerbridge HK” refers to Powerbridge Holdings Limited, a Hong Kong company, which is a direct wholly-owned subsidiary of X3 Holdings. | |
| ● | “Powerbridge Zhuhai” refers to Powerbridge Technology Group Co., Ltd., a PRC company, a wholly foreign-owned enterprise of Powerbridge HK. | |
| ● | “PRC” and “China” refer to the People’s Republic of China, and “mainland China” refers to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau; | |
| ● | “Registration Statement” refers to the Company’s Registration Statement on Form F-1 (File No. 333-229128) for the sale of up to 1,750,000 Ordinary Shares initially filed on January 4, 2019, and subsequently amended thereafter, which became effective on March 28, 2019. |
| ● | “R&D” refers to research and development. | |
| ● | “Securities Exchange Commission”, “SEC”, “Commission” or similar terms refer to the Securities Exchange Commission. | |
| ● | “Sarbanes-Oxley Act” refers to the Sarbanes-Oxley Act of 2002. | |
| ● | “Securities Act” refers to the Securities Act of 1933. | |
| ● | “Shares” or “Ordinary Share” refers to our Class A ordinary shares and Class B ordinary shares, with par values of $0.0009 and $0.00003 per share, respectively. | |
| ● | “United States”, “U.S.” and “US” refer to the United States of America. |
Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
This Annual Report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2025, 2024 and 2023.
Unless otherwise noted, all currency figures in this filing are in U.S. dollars. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding. Our reporting currency is U.S. dollar and our functional currency is Renminbi. This Annual Report contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Other than in accordance with relevant accounting rules and as otherwise stated, all translations of Renminbi into U.S. dollars in this Annual Report were made at the rate of RMB6.9931 to USD1.00, the noon buying rate on December 31, 2025, as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. Where we make period-on-period comparisons of operational metrics, such calculations are based on the Renminbi amount and not the translated U.S. dollar equivalent. We make no representation that the Renminbi or U.S. dollar amounts referred to in this Annual Report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.
iii
FORWARD-LOOKING INFORMATION
This annual report on Form 20-F contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that reflect our current expectations and views of future events. These statements involve known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information — D. Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to, among other things:
This Annual Report on Form 20-F contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995, including but not limited to.
| ● | Our mission, goals and strategies; |
| ● | our future business development, financial conditions and results of operations; |
| ● | the expected growth of the PRC information technology services industries; |
| ● | our expectations regarding demand for and market acceptance of our products and services; |
| ● | our expectations regarding our relationships with suppliers and customers; |
| ● | the expected benefits of our acquisitions or investments; |
| ● | competition in our industry; and |
| ● | relevant government policies and regulations relating to our industry. |
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Other sections of this Annual Report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
This Annual Report contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. The PRC information technology services industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material adverse effect on our business and the market price of our ordinary shares. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.
The forward-looking statements made in this Annual Report relate only to events or information as of the date on which the statements are made in this Annual Report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this Annual Report and the documents that we refer to in this Annual Report and exhibits to this Annual Report thoroughly and with the understanding that our actual future results may be materially different from what we expect.
iv
Part I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
Item 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Summary of the Risk Factors
An investment in our securities involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this Annual Report, before making an investment decision. If any of the following risks actually occurs, our business, prospects, financial condition or results of operations could suffer. In that case, the trading price of our securities could decline, and you may lose all or part of your investment. Below please find a summary of the principal risks that we face, organized under the relevant headings.
All the operational risks associated with being based in and having operations in China as discussed in relevant risk factors under “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business and Industry” also apply to operations in Hong Kong and Macau. With respect to the legal risks associated with being based in and having operations in China as discussed in the relevant risk factors under “Item 3. Key Information — D. Risk Factors — Risks Related to Our Corporate Structure” and “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China,” the laws, regulations and the discretion of China governmental authorities discussed in this Annual Report are expected to apply to China entities and businesses, rather than entities or businesses in Hong Kong and Macau which currently operate under different sets of laws from mainland China. However, there can be no assurance as to whether the government of Hong Kong or Macau will enact laws and regulations similar to mainland China, or whether any laws or regulations of mainland China will become applicable to our operations in Hong Kong or Macau in the future. These risks are discussed more fully in “Item 3. Key Information — D. Risk Factors.”
1
Risks Related to Our Business and Industry
Risks and uncertainties related to our business and industry include, but are not limited to, the following:
| ● | Economic uncertainties or downturns could materially adversely affect our business. |
| ● | The growth and success of our business depends on our ability to develop new services and enhance existing services in order to keep pace with rapid changes in technology. |
| ● | If we do not succeed in attracting new customers for our services and growing revenues from existing customers, we may not achieve our revenue growth goals. |
| ● | We may be unable to effectively manage our expansion for the anticipated growth, which could place significant strain on our management personnel, systems and resources. We may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects. |
| ● | We face risks associated with having an extended selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services. |
| ● | Adverse changes in the economic environment, either in China or globally, could reduce our customers’ purchases from us and increase pricing pressure, which could materially and adversely affect our revenues and results of operations. |
| ● | We generate a significant portion of our revenues from a relatively small number of major customers and loss of business from these customers could reduce our revenues and significantly harm our business. |
| ● | We may be forced to reduce the prices of our services due to increased competition and reduced bargaining power with our customers, which could lead to reduced revenues and profitability. |
| ● | A portion of our income is generated, and will in the future continue to be generated, on a project basis with a fixed price; we may not be able to accurately estimate costs and determine resource requirements in relation to our projects, which would reduce our margins and profitability. |
Risks Related to Our Corporate Structure
Risks and uncertainties related to our corporate structure include, but are not limited to, the following:
| ● | We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, shareholders may have less protection for their shareholder rights than they would under U.S. law. |
| ● | Judgments obtained against us by our shareholders may not be enforceable. |
| ● | We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses. |
| ● | Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. |
| ● | If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired. |
2
Risks Related to Our Ordinary Shares
Risks and uncertainties related to our Shares include, but are not limited to, the following:
| ● | Our Shares may be delisted from the Nasdaq Capital Market as a result of our failure of meeting the Nasdaq Capital Market continued listing requirements. |
| ● | Our issuance of new shares and convertible note had a dilutive effect on our existing shareholders and may adversely impact the market price of our Ordinary Shares. |
Risks Related to Doing Business in China
Risks and uncertainties related to conducting business in China include, but are not limited to, the following:
| ● | The PRC government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our securities. Actions by the PRC government to exert more control over offerings conducted overseas by, and foreign investment in, China-based issuers could result in a material change in our operations, and significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. In such events, our securities could decline in value or become worthless. See “Risk Factors — Risks Relating to Doing Business in China —The Chinese government may exert substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to issue securities to foreign investors, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.” |
| ● | We may be influenced by changes in the political and economic policies of the PRC government. |
| ● | Our operations in mainland China are governed by PRC laws and regulations. The uncertainties with respect to the interpretation and enforcement of PRC laws, rules and regulations and the fact that rules and regulations in mainland China can change quickly with little advance notice could materially and adversely affect us. See “Risk Factors — Risks relating to Doing Business in China — Uncertainties with respect to the PRC legal system, including uncertainties regarding the interpretation and enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us and limit the legal protections available to you and us.” |
| ● | Recent regulatory initiatives implemented by the PRC competent government authorities on cyberspace data security may have introduced uncertainty in our business operations and compliance status, which could result in materially adverse impact on our business, results of operations and our listing on Nasdaq. |
| ● | We may be adversely affected by the complexity and uncertainties of and changes in PRC regulation of Internet business and related companies. |
| ● | U.S. regulators’ ability to conduct investigations or enforce rules in China is limited. |
| ● | We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of the stock of our operating company. |
3
Risks Related to Our Business and Industry
Economic uncertainties or downturns could materially adversely affect our business.
Current or future economic uncertainties or downturns could adversely affect our business and operating results. Negative conditions in the general economy both in China and abroad, including conditions resulting from changes in gross domestic product growth, the continued sovereign debt crisis, financial and credit market fluctuations, political deadlock, natural catastrophes, pandemics, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments, including corporate spending on business intelligence software in general and negatively affect the rate of growth of our business.
General worldwide economic conditions may experience significant downturns and may be unstable. These conditions make it extremely difficult for our customers and us to forecast and plan future business activities accurately, and they could cause customers to re-evaluate their decisions to subscribe to our platform, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times, customers may tighten their budgets and face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. In turn, we may be required to increase our allowance for doubtful accounts, which would adversely affect our financial results.
To the extent subscriptions to our system solutions are perceived by customers and potential customers to be discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Moreover, competitors may respond to market conditions by lowering prices and attempting to lure away our customers. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our system solutions.
We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or industries in which we operate do not improve, or worsen from present levels, our business, operating results, financial condition and cash flows could be adversely affected.
The growth and success of our business depends on our ability to develop new services and enhance existing services in order to keep pace with rapid changes in technology.
The market for our services is characterized by rapid technological changes, evolving industry standards, changing customer preferences and new product and service introductions. Our future growth and success depend significantly on our ability to anticipate developments in technologies, and develop and offer new services to meet our customers’ evolving needs. We may not be successful in anticipating or responding to these developments in a timely manner, or if we do respond, the services or technologies we develop may not be successful in the marketplace. The development of some of the services and technologies may involve significant upfront investments and the failure of these services and technologies may result in us being unable to recover these investments, in part or in full. Further, services or technologies that are developed by our competitors may render our services uncompetitive or obsolete. In addition, new technologies may be developed that allow our customers to more cost-effectively perform the services that we provide, thereby reducing demand for our services. Should we fail to adapt to the rapidly changing technologies or if we fail to develop suitable services to meet the evolving and increasingly sophisticated requirements of our customers in a timely manner, our business and results of operations could be materially and adversely affected.
Furthermore, our future growth and success could be adversely affected by conditions of potential business partners, which may cause delay or failure in development of the services or technologies.
If we do not succeed in attracting new customers for our services and growing revenues from existing customers, we may not achieve our revenue growth goals.
We plan to significantly expand the number of customers we serve to diversify our customer base and grow our revenues. Obtaining new customers is important for us to achieve rapid revenue growth. We also plan to grow revenues from our existing customers by identifying and selling additional services to them. Our ability to attract new customers, as well as our ability to grow revenues from existing customers, depends on various factors, including our ability to offer high quality services at competitive prices, the strength of our competitors and the capabilities of our sales and marketing teams. If we are not able to continue to attract new customers or to grow revenues from our existing customers, we may not be able to grow our revenues as quickly as we anticipate or at all.
4
We may be unable to effectively manage our expansion for the anticipated growth, which could place significant strain on our management personnel, systems and resources. We may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.
As of the date of this Annual Report, we have 117 full-time employees. As of the date of this Annual Report, we have five branches, of which are located in China (Guangzhou, Changsha, Wuhan, Nanning, Hangzhou) and maintain offices in Guangzhou, Changsha, Wuhan, Nanning and Hangzhou to serve different customers in various geographic locations. In order to pursue existing and potential market opportunities, we plan to expand our business including (i) establishing new offices and expanding our current offices in China; (ii) exploring and expanding into international markets; and (iii) upgrading our existing services and introducing new services. We are facing the following challenges with respect to our planned expansion:
| ● | recruiting, training, developing and retaining sufficient industry and technology talents and management personnel; |
| ● | creating and capitalizing upon economies of scale; |
| ● | managing a larger number of customers in a greater number of locations; |
| ● | maintaining effective oversight of personnel and offices; |
| ● | coordinating work among offices and project teams and maintaining high resource utilization rates; |
| ● | integrating new personnel and expanded operations while preserving our culture and core values; |
| ● | developing and improving our internal administrative infrastructure, particularly our financial, operational, human resources, communications and other internal systems, procedures and controls; and |
| ● | adhering to and further improving our service quality and process execution standards and maintaining high levels of customer satisfaction. |
Moreover, as we introduce new services or enter into new markets, we may face new market, technological and operational risks and challenges with which we are unfamiliar, and it may require substantial management efforts and skills to mitigate these risks and challenges. As a result of any of these problems associated with expansion, our business, results of operations and financial condition could be materially and adversely affected. Furthermore, we may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.
We face risks associated with having an extended selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services.
We have an extended selling cycle for certain of our software applications and technology services, which requires significant investment of capital, human resources and time by both our customers and us. Before committing to use our services, potential customers require us to expend substantial time and resources to educate them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to various risks and delays over which we have little or no control, including our customers’ decisions to choose alternatives to our services (such as other providers or in-house resources) and the timing of our customers’ budget cycles and approval processes. Implementing our services, particularly for our application development services also involves a significant commitment of resources over an extended period of time ranging from three months to three years from both our customers and us. As a result, we may have a longer selling cycle and delay in business meetings, which could materially and adversely affect our business and our financials. Our customers may experience delays in obtaining internal approvals or delays associated with our services, thereby further delaying the implementation process. Our current and future customers may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential customers to which we have devoted significant time and resources, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
5
Adverse changes in the economic environment, either in China or globally, could reduce our customers’ purchases from us and increase pricing pressure, which could materially and adversely affect our revenues and results of operations.
The software application and technology service industry are particularly sensitive to the economic environment, both in China and globally, and tend to decline during general economic downturns. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to the economic environment, especially for regions in which we and our customers operate. During an economic downturn, our customers may cancel, reduce or defer their technology spending or change their technology strategy, and reduce their purchases from us. The recent global economic slowdown, any future economic slowdown, and the resulting diminution in technology spending, could also lead to increased pricing pressure from our customers. The trade war between the U.S. and China which may lead to higher percentage of tariff to be placed on Chinese and American goods and services could also lead to a reduction of import and export volume for some of our customers resulting in reduced purchases of our services from these customers. The occurrence of any of these events could materially and adversely affect our revenues and results of operations.
We generate a significant portion of our revenues from a relatively small number of major customers and loss of business from these customers could reduce our revenues and significantly harm our business.
We believe that in the foreseeable future we will continue to derive a significant portion of our revenues from a small number of major customers. For the year ended December 31, 2025, two customers accounted for 39.8% and 11.0% of the Company’s total revenues, respectively. For the year ended December 31, 2024, one customer accounted for 36.8% of the Company’s total revenues. For the year ended December 31, 2023, three customers accounted for 27.1%, 15.5% and 15.1% of the Company’s total revenues, respectively.
Our ability to maintain close relationships with major customers is essential to the growth and profitability of our business. However, the volume of work performed for a specific customer is likely to vary from year to year, especially since we are generally not our customers’ exclusive technology services provider and we do not have long-term commitments with any of our customer to purchase our services. A major customer in one year may not provide the same level of revenues for us in any subsequent year. The services that we provide to our customers, and the revenues and income from those services, may decline or vary as the type and quantity of services we provide changes over time. In addition, our reliance on any individual customer for a significant portion of our revenues may give that customer a certain degree of pricing leverage against us when negotiating contracts and terms of service. In addition, a number of factors other than our performance could cause the loss of or reduction in business or revenues from a customer, and these factors are not predictable. These factors may include organization restructuring, pricing pressure, changes to its technology strategy, switching to another services provider or returning work in-house. The loss of any of our major customers could adversely affect our financial condition and results of operations.
We may be forced to reduce the prices of our services due to increased competition and reduced bargaining power with our customers, which could lead to reduced revenues and profitability.
The software application and technology service industry in China is developing rapidly and related technology trends are constantly evolving. This results in the frequent introduction of new services and significant price competition from our competitors. We may be unable to offset the effect of declining average sales prices through increased sales volumes and/or reductions in our costs. Furthermore, we may be forced to reduce the prices of our services in response to offerings made by our competitors. Finally, we may not have the same level of bargaining power we have enjoyed in the past when it comes to negotiating for the prices of our services, all of which could lead to reduced revenues and profitability.
6
A portion of our income is generated, and will in the future continue to be generated, on a project basis with a fixed price; we may not be able to accurately estimate costs and determine resource requirements in relation to our projects, which would reduce our margins and profitability.
A portion of our income is generated, and will continue to be generated, from fees we receive for our projects at a fixed price. Our projects often involve complex technologies, utilizing workforces with different skill sets and competencies, and must be completed within compressed timeframes and meet customer requirements that are subject to changes and increasingly stringent. In addition, some of our fixed-price projects are multi-year projects that require us to undertake significant projections and planning related to resource utilization and costs. If we fail to accurately assess the time and resources required for completing projects and to price our projects profitably, our business, results of operations and financial condition could be adversely affected.
Our revenues and results of operations are affected by seasonal trends.
Our business is affected by seasonal trends. In particular, our revenues are typically progressively higher in the second, third and fourth quarters of each year compared to the first quarter of each year due to seasonal trends, such as: (i) a general slowdown in business activities and a reduced number of working days during the first quarter of each year as a result of the Chinese New Year holiday; and (ii) our customers in general tend to spend their technology and software budgets in the second half of the year and in particular the fourth quarter. Other factors that may cause our quarterly operating results to fluctuate include, among others, changes in general economic conditions in China and the impact of unforeseen events. We believe that our revenues will continue to be affected in the future by seasonal trends. As a result, you may not be able to rely on period-to-period comparisons of our operating results as an indication of our future performance, and we believe it is more meaningful to evaluate our business on an annual basis.
If we are unable to collect our receivables from our existing customers, our results of operations and cash flows could be adversely affected.
Our business depends on our ability to successfully obtain payment from our customers of the amounts they owe us for our services. As of December 31, 2025, 2024 and 2023, our accounts receivable balance, net of allowance, amounted to approximately 14.1 million, $17.3 million and $21.5 million, respectively. As of December 31, 2025, two customers accounted for 19.2% and 10.1% of the Company’s accounts receivable. As of December 31, 2024, two customers accounted for 15.6% and 10.3% of the Company’s accounts receivable, respectively. As of December 31, 2023, one customer accounted for 15.9% of the Company’s accounts receivable. The significant outstanding accounts receivable balance was mainly related to certain projects for our clients undertaking government-related projects and government customers such as government agencies, authorities and state-owned enterprises. Due to multiple levels of the government approval process for payments, it could take extra time for us to collect the full proceeds from our governmental customers. In addition, since we generally do not require collateral or other security from our customers, we establish an allowance for credit losses based upon estimates, historical experiences and other factors surrounding the credit risk of specific customers. However, actual losses on customer receivables balance could differ from those that we anticipate and as a result we might need to adjust our allowance. There is no guarantee that we will accurately assess the creditworthiness of our customers. Macroeconomic conditions, including related turmoil in the global financial system, could also result in financial difficulties for our customers, including limited access to the credit markets, insolvency or bankruptcy, and as a result could cause customers to delay payments to us, request modifications to their payment arrangements that could increase our receivables balance, or default on their payment obligations to us. As a result, an extended delay or default in payment relating to a significant account will have a material and adverse effect on the aging schedule and turnover days of our accounts receivable. If we are unable to collect our receivables from our customers in accordance with the contracts with our customers, our results of operations and cash flows could be adversely affected.
7
We face a number of risks in our strategy to target larger organizations for sales of our services, and if we do not manage these efforts effectively, our business and results of operations could be adversely affected.
A portion of our sales and marketing efforts are focusing on larger corporate and governmental organizations. As a result, we face a number of risks with respect to this strategy. For example, we expect to incur higher costs and longer sales cycles for larger organizations, and we may be less effective in predicting when will we complete these sales. In our industry, the decision to invest in our services may require a great number of product evaluations and multiple approvals within a potential customer’s organization, which may require us to invest more time educating these potential customers. In addition, larger organizations may demand more features and professional services. As a result, these sales opportunities would likely to lengthen our typical sales cycle and may require us to devote greater research and development, sales, support, and professional services resources to individual customers. This could strain our resources and result in increased costs. Moreover, larger customers may demand discounts in pricing, which could lower the amount of revenue we generate from any particular services that we offer. If an expected transaction is delayed until a subsequent period, or if we are unable to close one or more expected significant transactions with larger customers or potential new customers in a particular period, our results of operations for that period, and for any future periods in which revenue from such transaction would otherwise have been recognized, may be adversely affected. Our investments in marketing and selling to large organizations may not be successful, which could harm our results of operations and our overall ability to grow our customer base.
Our business depends, in part, on services to the public sector, and significant changes in the contracting or fiscal policies of the public sector could have an adverse effect on our business.
We derive a large portion of our revenue from our services to governmental organizations, and we believe that the success and growth of our business will continue to depend in part on our successful procurement of government contracts. Factors that could impede our ability to maintain or increase the amount of revenue derived from government contracts, include:
| ● | changes in fiscal or contracting policies; |
| ● | decreases in available government funding; |
| ● | changes in government programs or applicable requirements; |
| ● | the adoption of new laws or regulations or changes to existing laws or regulations; and |
| ● | potential delays or changes in the government appropriations or other funding authorization processes. |
The occurrence of any of the foregoing could cause governmental organizations to delay or refrain from purchasing our services in the future or otherwise have an adverse effect on our business, results of operations and financial condition.
Any failure to offer high-quality customer support may adversely affect our relationships with our customers.
Our ability to retain existing customers and attract new customers depends on our ability to maintain a consistently high level of customer service and technical support. Our customers depend on our service support team to assist them in utilizing our services effectively and to help them to resolve issues quickly and to provide ongoing support. If we are unable to hire and train sufficient support resources or are otherwise unsuccessful in assisting our customers effectively, it could adversely affect our ability to retain existing customers and could prevent prospective customers from adopting to our services. We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support. We also may be unable to modify the nature, scope and delivery of our customer support to compete with changes in the support services provided by our competitors. Increased demand for customer support, without corresponding revenue, could increase our costs and adversely affect our business, results of operations and financial condition. Our sales are highly dependent on our business reputation and on positive recommendations from customers. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality customer support, could adversely affect our reputation, business, results of operations and financial condition.
8
Incorrect or improper implementation or use of our services could result in customer dissatisfaction and negatively affect our business, results of operations, financial condition, and growth prospects.
Our services are deployed in a wide variety of increasingly complex technology environments, including on premises, in the cloud or in hybrid environments. We believe our future success will depend on our ability to elevate the sales of our services for use in such deployments. We must often assist our customers in achieving successful implementations of our services, which we do through our professional consulting and technical support services. If our customers are unable to implement our services successfully, or unable to do so in a timely manner, customer perceptions of our services may be harmed, our reputation and brand may suffer, and customers may choose to cease usage of our services or not to expand their use of our services. Our customers may need trainings in the proper use of and the variety of benefits that can be derived from our services to maximize their benefits. If our services are not effectively implemented or accurately used as intended, or if we fail to adequately train customers on how to efficiently and effectively use our services, our customers may not be able to achieve satisfactory outcomes. This could result in negative publicity and legal claims against us, which may cause us to generate fewer sales to new customers and reductions in renewals or expansions of the use of our services with existing customers, any of which would harm our business and results of operations.
Failure to adhere to regulations that govern our customers’ businesses could result in breaches of contracts with our customers. Failure to adhere to the regulations that govern our business could result in us being unable to effectively perform our services.
Our customers’ business operations are subject to certain rules and regulations in China or elsewhere. Our customers may contractually require that we perform our services in a manner that would enable them to comply with such rules and regulations. Failure to perform our services in such manner could result in breaches of contract with our customers and, in some limited circumstances, civil fines and criminal penalties for us. In addition, we are required under various PRC laws to obtain and maintain permits and licenses to conduct our business. If we do not maintain our licenses or other qualifications to provide our services, we may not be able to provide services to our existing customers or be able to attract new customers and could lose revenues, which could have a material adverse effect on our business and results of operations.
If our new enhancements to our services do not achieve sufficient market acceptance, our financial results and competitive position will suffer.
We expend substantial amount of time and money to research and develop new enhancements of our services to incorporate additional features, improve functionality or other enhancements in order to meet our customers’ rapidly evolving demands. When we develop an enhancement to our services, we typically incur expenses and expend resources upfront to develop, market and promote the new enhancements. Therefore, when we develop and introduce new enhancements to our services, they must achieve high levels of market acceptance in order to justify the amount of our investment in developing and bringing them to market. If our new enhancements to our services do not garner widespread market adoption and implementation, our growth prospects, future financial results and competitive position could suffer.
If we cause disruptions to our customers’ businesses or provide inadequate service, our customers may have claims for substantial damages against us, and as a result our profits may be substantially reduced.
If we make errors in the course of delivering services to our customers or fail to consistently meet service requirements of a customer, these errors or failures could disrupt the customer’s business, which could result in a reduction in our net revenues or a claim for substantial damages against us. In addition, a failure or inability to meet a contractual requirement could seriously damage our reputation and affect our ability to attract new business.
The services we provide are often critical to our customers’ businesses. We generally provide customer support after our customized application is delivered. Certain of our customer contracts require us to comply with security obligations including but not limited to, maintaining system security, ensuring our system is virus-free, maintaining business continuity procedures, and verifying the integrity of employees that work with our customers by conducting background checks. Any failure in a customer’s system or breach of security relating to the services we provide to the customer could damage our reputation or result in a claim for substantial damages against us. Any significant failure of our systems could impede our ability to provide services to our customers, have a negative impact on our reputation, cause us to lose customers, reduce our revenues and harm our business.
9
Unauthorized disclosure, destruction or modification of data, through cybersecurity breaches, computer viruses or otherwise or disruption of our services could expose us to liability, protracted and costly litigation and damage our reputation.
Our business involves the collection, storage, processing and transmission of customers’ business data. An increasing number of organizations, including large merchants and businesses, other large technology companies, financial institutions and governmental institutions, have disclosed breaches of their information technology systems, some of which have involved sophisticated and highly targeted attacks, including on portions of their websites or infrastructure. We could also be subject to breaches of security by hackers. Threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. Security concerns are increased when we transmit information. Electronic transmissions can be subject to attacks, interceptions or losses. Also, computer viruses and malware can be distributed and spread rapidly over the internet and could infiltrate our systems or those of our associated participants, which can impact the confidentiality, integrity and availability of information, and the integrity and availability of our products, services and systems, among other effects. Denial of services or other attacks could be launched against us for a variety of purposes, including interfering with our services or creating a diversion for other malicious activities. These types of actions and attacks could disrupt our delivery of products and services or make them unavailable, which could damage our reputation, force us to incur significant expenses in remediating the resulting impacts, expose us to uninsured liabilities, subject us to lawsuits, fines or sanctions, distract our management or increase our costs of business operations.
Our encryption of data and other protective measures may not prevent unauthorized access or use of sensitive data. A breach of our system or that of one of our associated participants may subject us to material losses or liabilities. A misuse of such data or a cybersecurity breach could harm our reputation and deter customers from using our products and services, thus reducing our revenue. In addition, any such misuse or breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits, result in the imposition of material penalties and fines under the applicable laws or regulations.
We cannot assure you that there are written agreements in place with every associated participant or that such written agreements will prevent the unauthorized use, modification, destruction or disclosure of data or enable us or our customers to obtain reimbursement in the event that should we suffer incidents resulting in the unauthorized use, modification, destruction or disclosure of data. Any unauthorized use, modification, destruction or disclosure of data could result in protracted and costly litigation, which could have a material adverse effect on our business, financial condition and results of operations.
Cybersecurity incidents are increasing in frequency and evolving in nature and include, but are not limited to, installation of malicious software, unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and the corruption of data. Given the unpredictability of the timing, nature and scope of information technology disruptions, there can be no assurance that the procedures and controls that we employ will be sufficient to prevent security breaches from occurring and we could be subject to manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our business, financial condition and results of operations.
Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business, results of operations, and financial condition.
Our continued growth depends in part on the ability of our existing customers and new customers to access our SaaS services, at any time and within an acceptable amount of time. We may in the future experience service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors or capacity constraints. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our performance as our SaaS services become more complex. If our services are unavailable or if our customers are unable to access features of our services within a reasonable amount of time or at all, our business would be negatively affected.
10
We currently provide our SaaS services via designated data centers and we intend to outsource our cloud infrastructure to commercially available cloud infrastructure as a service providers (“IaaS”), which can host our services. Our customers need to be able to access our services at any time, without interruption or degradation of performance. IaaS providers run their own platforms that we access, and we are, therefore, vulnerable to service interruptions. We expect that in the future we may experience interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Capacity constraints could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks. In addition, if our security, or that of IaaS providers, is compromised, our services are unavailable or our customers are unable to use our services within a reasonable amount of time or at all, then our business, results of operations and financial condition could be adversely affected. In some instances, we expect that we may not be able to identify the cause or causes of these performance problems within a period of time acceptable to our customers. It may become increasingly difficult to maintain and improve our service performance, especially during peak usage times, as the features of our services become more complex and the usage of our services increases. Any of the above circumstances or events may harm our reputation, cause customers to stop using our services, impair our ability to increase revenue from existing customers, impair our ability to grow our customer base and otherwise harm our business, results of operations, and financial condition.
The market for our BaaS (blockchain-as-a-service) services is new and unproven, which could result in limited customer adoption of our services, limited customer retention, or weaker customer expansion.
We currently provide our BaaS services as pilot projects on a limited basis to selected customers. While we believe that, over time, the concept of BaaS services will become fundamental to an organization’s core operations involving global trade, the market for BaaS services is largely unproven and is subject to a number of risks and uncertainties.
The market for BaaS services is new and less mature than traditional on-premises software applications, and the adoption rate for BaaS services may be slower among customers with business practices requiring highly customizable application software. Our success with BaaS services will depend to a substantial extent on the widespread adoption of BaaS services in general, but we cannot be certain that the trend of adoption of BaaS services will continue in the future. In particular, many organizations have invested substantial personnel and financial resources in integrating traditional software into their businesses over time, and some may be reluctant or unwilling to migrate to BaaS. It is difficult to predict customer adoption rates and demand for our BaaS services, the future growth rate and size of the BaaS services market or the entry of competitive applications. The expansion of the BaaS services market depends on a number of factors, including the cost, performance and perceived value associated with BaaS. If BaaS services do not continue to achieve market acceptance, or there is a reduction in demand for BaaS services caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data security or privacy concerns, governmental regulations, competing technologies and services or decreases in information technology spending, it would result in decreased revenues and our business would be adversely affected.
It is difficult to predict our future operating results.
Our ability to accurately forecast our future operating results is limited and subject to a number of uncertainties, including planning for and modeling future growth. We have encountered, and will continue to encounter, risks, and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change due to industry or market developments, or if we do not address these risks successfully, our operating results could differ materially from our expectations and our business could suffer.
If we have overestimated the size of our total addressable market, our future growth rate may be limited.
We have estimated the size of our total addressable market based on data published by third parties and internally generated data and assumptions. We have not independently verified any third-party information and cannot be assured of its accuracy or completeness. While we believe our market size estimates are reasonable, such information is inherently imprecise. In addition, our projections, assumptions and estimates of opportunities within our market are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including but not limited to those described in this Annual Report. If this third-party or internally generated data prove to be inaccurate or we make errors in our assumptions based on that data, our actual market may be more limited than our estimates. In addition, these inaccuracies or errors may cause us to misallocate capital and other critical business resources, which could harm our business.
11
Even if our total addressable market meets our size estimates and experiences growth, we may not continue to grow our share of the market. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to various risks and uncertainties. Accordingly, the estimates of our total addressable market included in this Annual Report should not be taken as indicative of our ability to grow our business. For more information regarding the estimates of market opportunity and the forecasts of market growth included in this Annual Report, see “Business — Our Opportunity.”
We face intense competition from onshore and offshore software application and technology service providers, and if we are unable to compete effectively, we may lose customers and our revenues may decline.
The market for software applications and technology services is highly competitive and we expect competition to persist and intensify. We believe that the principal competitive factors in our markets are domain knowledge and industry expertise, breadth and depth of service offerings, quality of the services offered, reputation and track record, marketing and selling skills, scalability of technology infrastructure and price. In the software application and technology services market, customers tend to engage multiple service providers instead of using an exclusive service provider, which could reduce our revenues to the extent that customers obtain services from other competing providers. Our ability to compete also depends in part on a number of factors beyond our control, including the ability of our competitors to recruit, train, develop and retain highly skilled professionals, the price at which our competitors offer comparable services and our competitors’ responsiveness to customer needs. Therefore, we cannot assure you that we will be able to retain our customers while competing against such competitors. Increased competition, our inability to compete successfully against competitors, pricing pressures or loss of market share could harm our business, financial condition and results of operations.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, which could harm our business.
We believe that our culture has been and will continue to be a key contributor to our success. We have optimized our operations in 2025 fiscal year and the number of our total employees decreased from 137 in December 2024 to 117 as of the date of this Annual Report,. We expect to continue to adjust our workforce according to operational needs. If we do not continue to maintain our corporate culture as we grow, we may be unable to foster the innovation, creativity, and teamwork we believe we need to support our growth. Our substantial anticipated headcount growth and our transition from a private company to a public company may result in a change to our corporate culture, which could harm our business.
Our success depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely disrupted if we lose their services.
Our future success heavily depends upon the continued services of our senior executives and other key employees. If one or more of our senior executives or key employees are unable or unwilling to continue in their present positions, it could disrupt our business operations, and we may not be able to replace them easily or at all. In addition, competition for senior executives and key personnel in our industry is intense, and we may be unable to retain our senior executives and key personnel or attract and retain new senior executive and key personnel in the future, in which case our business may be severely disrupted, and our financial condition and results of operations may be materially and adversely affected. If any of our senior executives or key personnel joins a competitor or forms a competing company, we may lose customers, suppliers, know-how and key professionals and staff members to them. Also, if any of our business development managers, who generally keep a close relationship with our customers, joins a competitor or forms a competing company, we may lose customers, and our revenues may be materially and adversely affected. Additionally, there could be unauthorized disclosure or use of our technical knowledge, practices or procedures by such personnel. All of our executives and key personnel have entered into employment agreements with us that contain non-competition provisions, non-solicitation and nondisclosure covenants. However, if any dispute arises among our executive officers, key personnel and us, such non-competition, non-solicitation and nondisclosure provisions might not provide effective protection to us, especially in China, where most of these executive officers and key employees reside, in light of the uncertainties with respect to the interpretation and enforcement of PRC laws, rules and regulations.
12
Due to intense competition for highly skilled personnel, we may fail to attract and retain enough sufficiently trained personnel to support our operations; as a result, our ability to generate new business may be negatively affected and our revenues could decline.
The software application and technology service industry rely on skilled personnel, and our success depends to a significant extent on our ability to recruit, train, develop and retain qualified personnel, especially experienced middle and senior level management. There is significant competition for skilled personnel, especially experienced middle and senior level management, with the skills necessary to perform the services we offer to our customers. Increased competition for these personnel, in the software application and technology service industry or otherwise, could have an adverse effect on us. We have established certain programs to enhance our human capital and employee loyalty, however, a significant increase in our attrition rate could decrease our operating efficiency and productivity and could lead to a decline in demand for our services. Additionally, failure to recruit, train, develop and retain personnel with the qualifications necessary to fulfill the needs of our existing and future customers or to assimilate new personnel successfully could have a material adverse effect on our business, financial condition and results of operations. Failure to retain our key personnel on customer projects or find suitable replacements for key personnel upon their departure may lead to termination of some of our customer contracts or cancellation of some of our projects, which could materially and adversely affect our business.
Our profitability will suffer if we are not able to maintain our resource utilization levels and continue to improve our productivity levels.
Our gross margin and profitability are significantly impacted by our utilization levels of human resources as well as our ability to increase our productivity levels. We have expanded our operations in recent years through organic growth, which has resulted in a significant increase in our headcount and fixed overhead costs. We may face difficulties maintaining high levels of utilization. Although we try to use all commercially reasonable efforts to accurately estimate service and resource requirements from our customers, we may overestimate or underestimate, which may result in unexpected cost and strain or redundancy of our human capital and adversely impact our utilization levels. In addition, some of our professionals are trained to work for specific customers or on specific projects and some of our sales are dedicated to specific customers or specific projects. Our ability to continually increase our productivity levels depends significantly on our ability to recruit, train, develop and retain high-performing professionals and project staffs appropriately and optimize our mix of services and delivery methods. If we experience a slowdown or stoppage of service for any customer or on any project for which we have dedicated professionals or project staffs, we may not be able to efficiently reallocate these professionals and project staffs to other customers and projects to keep their utilization and productivity levels high. If we are not able to maintain high resource utilization levels without corresponding cost reductions or price increases, our profitability will suffer.
If we are not able to maintain a strong brand for our services and increase market awareness of our Company and our services, then our business, results of operations and financial condition may be adversely affected.
We believe that we have a strong brand name in our industry and the continuing success of our services will depend in part on our ability to develop and sustain a strong brand identity for our services and to increase the market awareness of our services and their capabilities. The successful promotion of our brand will depend largely on our continuous marketing efforts and our ability to offer high quality services to our customers. Our brand promotion activities may not be successful or help to elevate the revenue. In addition, independent industry analysts may provide reviews of our services and of competing products and services, which may significantly influence the perception of our services in the marketplace. If these reviews are negative or not as positive as reviews of our competitors’ products and services, then our brand reputation may be harmed.
The promotion of our brand also requires us to make substantial expenditures, and we anticipate that these expenditures will increase as our industry becomes more competitive and as we seek to expand into new markets. These higher expenditures may not result in any increased revenue or incremental revenue that is sufficient to offset the higher expense levels. If we do not successfully maintain and enhance our brand, then our business may not grow, we may see our pricing power reduced when compared to our competitors and we may lose customers, all of which would adversely affect our business, results of operations and financial condition.
13
We may be unsuccessful in entering into strategic alliances or identifying and acquiring suitable acquisition candidates, which could impede our growth and negatively affect our revenues and net income.
We have pursued strategic alliances and intend to pursue strategic acquisition opportunities to increase our scale and geographical presence, expand our service offerings and capabilities and enhance our industry and technical expertise. While we believe the strategic plans that we implemented would enable us to better leverage synergies between our existing businesses and the newly expanded business, thus improved our overall business operations, those strategic plans may not be ultimately successful. See “Item 4. Information on the Company — C. History and Development of the Company” for further information on the acquisition transactions entered into by us.
In addition, it is possible that in the future we may not be successful in identifying suitable alliances or acquisition candidates. Even if we identify suitable candidates, we may not be able to consummate these arrangements on terms commercially acceptable to us or to obtain necessary regulatory approvals in the case of acquisitions. Challenges we face in the potential acquisition and integration process include:
| ● | integrating operations, services and personnel in a timely and efficient manner; |
| ● | unforeseen or undisclosed liabilities; |
| ● | generating sufficient revenue and net income to offset acquisition costs; |
| ● | potential loss of, or harm to, employee or customer relationships; |
| ● | properly structuring our acquisition consideration and any related post-acquisition earn-outs and successfully monitoring any earn-out calculations and payments; |
| ● | retaining key senior management and key sales and marketing and research and development personnel; |
| ● | potential incompatibility of solutions, services and technology or corporate cultures; |
| ● | consolidating and rationalizing corporate, information technology and administrative infrastructures; |
| ● | integrating and documenting processes and controls; |
| ● | entry into unfamiliar markets; and |
| ● | increased complexity from potentially operating in geographically dispersed sites, particularly if we acquire a company or business with facilities or operations outside of China. |
Furthermore, many of our competitors are likely to enter into similar arrangements or acquire the same targets that we are looking to enter into or acquire. Such competitors may have substantially greater financial resources than we do and may be more attractive to our strategic partners or be able to outbid us for the acquisition targets. In addition, we may also be unable to timely deploy our existing cash balances to effect a potential acquisition, as use of cash balances located onshore in China may require specific governmental approvals or result in withholding and other tax payments. To the extent cash is located in the PRC, Hong Kong or Macau or within a PRC, Hong Kong or Macau domiciled entity and may need to be used outside of the PRC, Hong Kong or Macau, the funds may not be available due to limitations placed on us by the PRC government. If we are unable to enter into suitable strategic alliances or complete suitable acquisitions, our growth strategy may be impeded and our revenues and net income could be negatively affected.
Some of our technology incorporates “open source” software, which could negatively affect our ability to sell our services and subject us to possible litigation.
Some aspects of our technology platforms from which we develop our services, are built using open-source software, and we intend to continue to use open-source software in the future. The terms of certain open-source licenses to which we are subject have not been interpreted by U.S., China or foreign courts, and there is a risk that open-source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to monetize our services. Additionally, we may from time to time face claims from third parties claiming ownership of, or demanding release of, the open-source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open-source license. These claims could result in litigations and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to the risks related to license requirements, use of certain open-source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage, and if not addressed, could have a negative effect on our business, results of operations and financial condition.
14
We may be liable to our customers for damages caused by unauthorized disclosure of sensitive and confidential information, whether through our employees or otherwise.
We are typically required to manage, utilize and store sensitive or confidential customer data in connection with the services that we provide. Under the terms of our customer contracts, we are required to keep such information strictly confidential. We use system and network security technologies and other methods to protect sensitive and confidential customer data. We also require our employees and subcontractors to enter into confidentiality agreements to limit access to and distribution of our customers’ sensitive and confidential information as well as our own trade secrets. We can give no assurance that the steps taken by us in this regard will be adequate to protect our customers’ confidential information. If our customers’ proprietary rights are misappropriated by our employees or our subcontractors or their employees, in violation of any applicable confidentiality agreements or otherwise, our customers may consider us liable for those acts and seek damages and compensation from us. Any such acts could cause us to lose existing and future business and damage our reputation in the market. In addition, we currently do not have any insurance coverage for mismanagement or misappropriation of such information by our subcontractors or employees. Any litigations with respect to unauthorized disclosure of sensitive and confidential information might result in substantial costs and diversion of resources and management attention.
We may not be able to prevent others from unauthorized use of our intellectual property, which could cause a loss of customers, reduce our revenues and harm our competitive position.
We rely on a combination of patent, copyright, trademark, software registration, anti-unfair competition and trade secret laws, as well as confidentiality agreements and other methods to protect our intellectual property rights. To protect our trade secrets and other proprietary information, employees, customers, subcontractors, consultants, advisors and collaborators are required to enter into confidential agreements. These agreements might not provide effective protection for the trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. Our patent applications may not issue as patents or may not issue as patents that provide meaningful protection against third parties. Policing unauthorized use of proprietary technology is difficult and expensive. The steps we have taken may be inadequate to prevent the misappropriation of our proprietary technology. Reverse engineering, unauthorized copying, other misappropriation, or negligent or accidental leakage of our proprietary technologies could enable third parties to benefit from our technologies without obtaining our consent or paying us for doing so, which could harm our business and competitive position. Though we are not currently involved in any litigation with respect to intellectual property, we may need to enforce our intellectual property rights through litigations. Litigations relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.
We may face intellectual property infringement claims that could be time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights and may be unable to continue providing our existing services.
Our success largely depends on our ability to use and develop our technology and services without infringing the intellectual property rights of third parties, including copyrights, trade secrets and trademarks. We may be subject to litigations involving claims of violation of other intellectual property rights of third parties. The holders of other intellectual property rights potentially relevant to our service offerings may make it difficult for us to acquire a license on commercially acceptable terms. Also, we may be unaware of intellectual property registrations or applications relating to our services that may give rise to potential infringement claims against us. There may also be technologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by third parties which may damage our ability to rely on such technologies. We are subject to additional risks as a result of our recent and proposed acquisitions and the hiring of new employees who may misappropriate intellectual property from their former employers. Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology involving the allegedly infringing intellectual property. Intellectual property litigation is expensive and time-consuming and could divert management’s attention from our business. A successful infringement claim against us, whether with or without merit, could, among other things, require us to pay substantial damages, develop non-infringing technology, or re-brand our name or enter into royalty or license agreements that may not be available on acceptable terms, if at all, and cease making, licensing or using products that have infringed a third party’s intellectual property rights. Protracted litigation could also result in existing or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation, or could require us to indemnify our customers against infringement claims in certain instances. Any intellectual property claims or litigation in this area, whether we ultimately win or lose, could damage our reputation and have a material adverse effect on our business, results of operations and financial condition.
15
We use third-party licensed software in or with our services, and the inability to maintain these licenses or errors in the software services we provide could result in increased costs or reduced service levels, which would adversely affect our business.
Our services incorporate certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools in the future. Such third-party companies may discontinue their products, go out of business or otherwise cease to make support available for such third-party software. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of the software used in our services with new third-party software may require significant work and substantial investment of our time and resources. Also, to the extent that our services depend upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in such third-party software could prevent the deployment or impair the functionality of our services, delay new feature introductions, result in a failure of our services and injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties. In the event that we are not able to maintain our licenses to third-party software, or cannot obtain licenses to new software as needed to enhance our services, our business and results of operations may be adversely affected.
We may need additional capital and any failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.
We believe that our current cash and cash flow from operations would be sufficient to meet our anticipated cash needs for at least the next 12 months from the date of this Annual Report. However, in order to capitalize on the growing needs of the Company, we intend to expand to capture additional market shares. Thus, we may however, require additional cash resources for our research and development, sales and marketing and potential strategic alliances and acquisitions. If these cash resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:
| ● | investors’ perception of, and demand for, securities of technology services outsourcing companies; |
| ● | conditions of the U.S. and other global markets in which we may seek to raise funds; |
| ● | our future results of operations and financial condition; |
| ● | PRC government regulation of foreign investment in China; |
| ● | economic, political and other conditions in China; and |
| ● | PRC government policies relating to the borrowing and remittance outside China of foreign currency. |
In the event that we are in need of additional financing, such financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our solution and service offerings to respond to market demand or competitive challenges.
Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.
We are subject to anti-corruption, anti-bribery and anti-money laundering laws in China and various other jurisdictions. From time to time, we leverage third party partners and intermediaries, including channel partners, to sell our services. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of governmental agencies or state-owned or affiliated organizations and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, severe criminal or civil sanctions, or suspension or debarment from government contracts, all of which may have an adverse effect on our reputation, business, operating results and prospects.
16
Fluctuation in the value of the Renminbi and other currencies may have a material adverse effect on the value of your investment.
Our financial statements are expressed in U.S. dollars. However, a majority of our revenues and expenses are denominated in Renminbi. Our exposure to foreign exchange risk primarily relates to the limited cash denominated in currencies other than the functional currencies of each entity. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. However, the value of your investment in our Ordinary Shares will be affected by the foreign exchange rate between U.S. dollars and RMB because the primary value of our business is effectively denominated in RMB, while the Ordinary Shares will be traded in U.S. dollars.
The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. The People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rate and achieve certain exchange rate targets, and through such intervention kept the U.S. dollar-RMB exchange rate relatively stable.
As we may rely on dividends paid to us by our PRC subsidiaries and branches, any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of any dividends payable on our Ordinary Shares in foreign currency terms. For example, to the extent that we need to convert U.S. dollars we received from offerings into for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we received from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our Ordinary Shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. Furthermore, appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign exchange losses in the future. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert into foreign currencies.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations.
Adverse developments that affect financial institutions, transactional counterparties or other third parties, or concerns or rumours about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. The U.S. Department of the Treasury, the Federal Reserve and the FDIC released a statement that indicated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts.
Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program. There is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.
17
Although we currently neither hold bank accounts in nor have a banking relationship with the SVB, Signature Bank and Silvergate Capital Corp, there are factors that could adversely affect us, including, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we have financial or business relationships but could also include factors involving financial markets or the financial services industry generally.
In addition, widespread investor concerns regarding the U.S. or international financial systems could result in less favourable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our financial and/or contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.
Moreover, a partner or supplier could be adversely affected by any of the liquidity or other risks that are described above as factors that could result in material adverse impacts on the Company, including but not limited to delayed access or loss of access to uninsured deposits or loss of the ability to draw on existing credit facilities involving a troubled or failed financial institution. Any partner or supplier bankruptcy or insolvency, or the failure of any partner to make payments when due, or any breach or default by a partner or supplier, or the loss of any significant supplier relationships, may have a material adverse impact on our business.
As we plan to expand internationally, our business will become more susceptible to risks associated with international operations.
Historically, we have generated all of our revenue from customers in PRC. We plan to expand our market coverage internationally, with a focus on B&R countries, including countries in Asia and Eastern Europe, Middle East, Africa and South America. Conducting international operations subjects us to risks that we have not generally faced in the PRC. These risks include:
| ● | challenges caused by distance, language, cultural and ethical differences and the competitive environment; |
| ● | heightened risks of unethical, unfair or corrupt business practices, actual or claimed, in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, and irregularities in, financial statements; |
| ● | application of multiple and conflicting laws and regulations, including complications due to unexpected changes in foreign laws and regulatory requirements; |
| ● | risks associated with trade restrictions and foreign import requirements, including the importation, certification and localization of our solutions required in foreign countries, as well as changes in trade, tariffs, restrictions or requirements; |
| ● | new and different sources of competitions; |
| ● | potentially different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues; |
| ● | management communication and integration problems resulting from cultural differences and geographic dispersion; |
| ● | greater difficulty in enforcing contracts, accounts receivable collection and longer collection periods; |
18
| ● | the uncertainty and limitation of protection for intellectual property rights in some countries; |
| ● | increased financial accounting and reporting burdens and complexities; |
| ● | lack of familiarity with local laws, customs and practices, and laws and business practices favoring local competitors or partners; |
| ● | uncertainties in global economy and foreign markets; and |
| ● | political, social and economic instability abroad, terrorist attacks and security concerns in general. |
Any of these risks could adversely affect our business. For example, compliance with laws and regulations applicable to our international operations increases our cost of doing business in foreign jurisdictions. We may be unable to keep pace with changes in government requirements as they change from time to time. Failure to comply with these regulations could have adverse effects on our business. In addition, in many foreign countries it is common for others to engage in business practices that are prohibited by our internal policies and procedures or applicable PRC laws and regulations. As we grow, we continue to implement compliance procedures designed to prevent violations of these laws and regulations. There can be no assurance that all of our employees, contractors, resellers, and agents will comply with the formal policies we will implement, or applicable laws and regulations. Violations of laws or key control policies by our employees, contractors, resellers, or agents could result in delays in revenue recognition, financial reporting misstatements, fines, penalties, or the prohibition of the import or export of our software and services, and could have a material adverse effect on our business and results of operations.
Further, our limited experiences in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to expand our international operations and are unable to do so successfully, or in a timely manner, our business and results of operations will suffer.
Our international operations may subject us to potential adverse tax consequences.
We plan to expand our international operations and team to better support our growth into international markets. Our corporate structure and associated transfer pricing policies contemplate future growth into the international markets, and consider the functions, risks and assets of the various entities involved in the intercompany transactions. The amount of taxes we pay in different countries and jurisdictions may depend on the application of the tax laws of the various countries and jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the countries and jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.
Our ability to generate revenue from our AI gaming segment depends on the successful development, launch, and ongoing performance of a limited number of game titles.
A significant portion of our expected revenue from AI gaming is derived from a limited pipeline of game titles scheduled for release in 2026 and beyond. The commercial success of these titles depends on multiple factors, including timely completion of development milestones, technical performance at launch, player acquisition and retention, monetization effectiveness, and competitive positioning. There can be no assurance that any of our planned titles will achieve market acceptance or generate revenue at anticipated levels. Delays in development, unfavorable player reception, defects or bugs, or ineffective marketing strategies could result in lower-than-expected engagement and monetization. Because our near-term revenue projections are concentrated in a small number of titles, underperformance of any individual title could have a disproportionate adverse effect on our financial condition and results of operations.
Our use of artificial intelligence technologies in game development and operations may not produce the expected benefits and may expose us to operational, legal, and reputational risks.
We incorporate artificial intelligence (“AI”) tools and data-driven systems across our game development and publishing processes, including content creation, iteration cycles, player acquisition strategies, retention optimization, and monetization modeling. While we believe these technologies enhance efficiency and scalability, they may not deliver the expected improvements in development timelines, user engagement, or revenue generation. AI-generated outputs may contain errors, biases, or content that is inconsistent with player expectations or regulatory requirements. In addition, the use of AI technologies may expose us to evolving legal and regulatory frameworks governing data usage, intellectual property, and algorithmic accountability. Any failure to appropriately manage these risks could result in increased costs, regulatory scrutiny, litigation, or reputational harm, which could materially and adversely affect our business.
19
We depend on third-party platforms, distribution channels, and publishing partners, and changes in their policies or relationships with us could adversely affect our business.
Our AI gaming business relies on third-party platforms, including mobile application stores, online distribution channels, payment processors, and publishing partners, to distribute and monetize our games. These third parties control key aspects of the user experience, including game visibility, platform access, payment processing, and compliance requirements. Changes in platform policies, fee structures, ranking algorithms, or terms of service could reduce the visibility of our games, increase our operating costs, or limit our ability to distribute or monetize our content. In addition, our publishing arrangements may involve revenue-sharing structures and performance-based thresholds, which may affect the timing and amount of revenue recognized. If we are unable to maintain favorable relationships with these third parties or adapt to changes in their requirements, our business, financial condition, and results of operations could be materially adversely affected.
Our reliance on third-party developers, co-development arrangements, and outsourced production may expose us to delays, quality issues, and reduced control over our game pipeline.
Certain of our game titles may be developed, customized, or supported in collaboration with third-party developers or external production teams. In such cases, we may have limited control over development timelines, resource allocation, quality assurance processes, and operational execution. Third-party developers may fail to meet agreed milestones, deliver substandard work, or experience financial or operational difficulties, any of which could delay game launches or impair post-launch performance. Additionally, coordination challenges across multiple development teams may increase complexity and execution risk. Any failure by our development partners to perform as expected could adversely affect our ability to execute our release pipeline and achieve our revenue targets.
The use of AI and data-driven technologies may subject us to evolving regulatory requirements, data privacy obligations, and intellectual property risks.
Our AI gaming operations involve the use of data-driven systems, including player behavior analytics, automated content generation, and machine learning models. These activities may be subject to existing and emerging laws and regulations relating to data privacy, cybersecurity, artificial intelligence, and intellectual property. Regulatory frameworks governing AI are rapidly evolving in multiple jurisdictions, and compliance requirements may be uncertain or subject to change. In addition, the use of AI-generated content may raise questions regarding ownership rights, licensing obligations, or potential infringement of third-party intellectual property. Compliance with these requirements may require significant investment in legal, technical, and operational resources. Any failure to comply with applicable laws or to adequately address intellectual property concerns could result in regulatory penalties, legal disputes, or reputational damage.
Cybersecurity threats, including those leveraging artificial intelligence, may disrupt our operations and compromise user data.
Our gaming platforms and related infrastructure may be targeted by cybersecurity threats, including hacking, phishing, distributed denial-of-service attacks, and other malicious activities. The increasing use of AI by threat actors may enhance the sophistication and effectiveness of such attacks, making them more difficult to detect and mitigate. A successful cyberattack could result in unauthorized access to user data, disruption of game services, financial losses, and damage to our reputation. In addition, we may incur significant costs to investigate and remediate security incidents, comply with regulatory requirements, and implement enhanced security measures. Any material breach of our systems could adversely affect user trust, reduce player engagement, and negatively impact our business and operating results.
20
Our operations may be subject to regulatory restrictions on game content, monetization features, and user engagement practices in various jurisdictions.
The development, distribution, and operation of online games are subject to regulatory oversight in many jurisdictions. These regulations may include requirements related to content approval, age restrictions, anti-addiction measures, data localization, advertising practices, and in-game monetization features. Compliance with such regulations may delay game launches, limit our ability to implement certain gameplay or monetization mechanics, or require modifications to existing titles. In addition, regulatory requirements may vary significantly across markets and may change over time, increasing compliance complexity and costs. Failure to comply with applicable regulations could result in fines, suspension of operations, or restrictions on our ability to offer our games in certain markets, which could materially adversely affect our business.
The price of bitcoin may be volatile.
A significant amount of the value of bitcoin is speculative, which could lead to increased volatility. Investors could experience significant gains, losses and/or volatility, depending on the valuation of bitcoin. The issuance of bitcoin is determined by a computer code, not by a central bank, and prices can be extremely volatile. For instance, during the period from December 17, 2017 to December 14, 2018, bitcoin experienced a decline of roughly 84%, and experienced a similar decline in value from November 2021 to June 2022. There is no assurance that bitcoin will maintain its long-term value in terms of purchasing power in the future, or that acceptance of bitcoin payments by mainstream retail merchants and commercial businesses will continue to grow. Any decline in the price of bitcoin could materially and adversely affect our revenues and results of operations.
Cryptomining may adversely affect the environment.
Digital asset mining operations can consume significant amounts of electricity, which may have a negative environmental impact and give rise to public opinion against allowing, or government regulations restricting, the use of electricity for mining operations. Additionally, miners may be forced to cease operations during an electricity shortage or power outage, or if electricity prices increase where the mining activities are performed. This could adversely affect the price of bitcoin, or the operation of the bitcoin network, and by extension our revenues and results of operations.
The actual or perceived use of bitcoin and other digital assets in illicit transactions may adversely affect the cryptocurrency industry.
Recent years have seen digital assets used at times as part of criminal activities and to launder criminal proceeds, as means of payment for illicit activities, or as an investment fraud currency. Although the number of cases involving cryptocurrencies for the financing of terrorism remains limited, criminals have nonetheless become more sophisticated in their use of digital assets.
Although bitcoin transaction details are logged on the blockchain, a buyer or seller of bitcoin may never know to whom the public key belongs or the true identity of the party with whom it is transacting, as public key addresses are randomized sequences of alphanumeric characters that, standing alone, do not provide sufficient information to identify users. Further, identifying users can be made even more difficult where a user utilizes a tumbling or mixing services (e.g., Tornado Cash) to further obfuscate transaction details.
The cryptocurrency industry and our revenues may be adversely affected to the extent that digital assets are increasingly used in connection with illicit transactions, or are perceived as being used in connection with illicit transactions.
21
Operational cost may exceed the award for solving blocks or transaction fees. Increased transaction fees may adversely affect the usage of the Bitcoin network.
Miners generate revenue from both newly created bitcoin (known as the “block reward”) and from fees taken upon verification of transactions. If the aggregate revenue from transaction fees and the block reward is below a miner’s cost, the miner may cease operations. Additionally, in the event of a fork of the Bitcoin network, some miners may choose to mine the alternative new bitcoin resulting from the fork, thus reducing processing power on the original blockchain.
Furthermore, the incentives for miners to contribute processing power to the Bitcoin network is set to decrease over time. If transaction confirmation fees become too high, the marketplace may be reluctant to use bitcoin. This may result in decreased usage and limit expansion of the bitcoin network in the retail, commercial and payments space. Conversely, if the reward for miners or the value of the transaction fees is insufficient to motivate miners, they may cease expending processing power for any blockchain to solve blocks and confirm transactions.
Ultimately, if the awards of new bitcoin for solving blocks declines and transaction fees for recording transactions are not sufficiently high to incentivize miners, or if the costs of validating transactions grow disproportionately, miners may operate at a loss, transition to other networks, or cease operations altogether. Each of these outcomes could, in turn, slow transaction validation and usage, which could have a negative impact on the Bitcoin network and could adversely affect our revenues and results of operations.
We do not maintain any business liability disruption or litigation insurance coverage for our operations, and any business liability, disruption or litigation we experience might result in our incurring substantial costs and the diversion of resources.
While business disruption insurance is available to a limited extent in China, we have determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any business liability, disruption or litigation insurance coverage for our operations of advertising and media business in China. Any business disruption or litigation may result in incurring substantial costs and the diversion of our resources.
Any negative publicity with respect to us in general or our partners may materially and adversely affect our reputation, business and results of operations.
Complaints, litigation, regulatory actions or other negative publicity that arise from the advertising industry in general or our Company in particular, including on the quality, effectiveness and reliability of privacy and security practices, and advertising content, even if inaccurate, could adversely affect our reputation and client confidence in, and the use of our solutions. Harm to our reputation and client confidence can also arise for many other reasons, including employee misconduct, misconduct of our data and content distribution channel partners, data center providers or other counterparties, failure by these persons or entities to meet minimum quality standards or otherwise fulfill their contractual obligations or to comply with applicable laws and regulations. Additionally, negative publicity with respect to our data or content distribution channel partners could also affect our business and results of operation to the extent that we rely on these partners or if marketers or marketing agencies associate our Company with such partners.
22
If we fail to promote or maintain our brand in a cost-efficient manner, our business and results of operations may be harmed.
We believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our platforms, and is an important element in attracting new clients and partners. Furthermore, we believe that the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will depend largely on our ability to deliver value propositions to marketers and on the effectiveness of our marketing efforts. If we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new clients or retain our existing clients, thus our business and results of operations can be materially and adversely affected.
We may need additional capitals for our business and future sales of our ordinary shares could cause the market price of our ordinary shares to decline.
Sales of a substantial number of shares of our ordinary shares in the public market, or the perception that these sales could occur, may depress the market price for our ordinary shares. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future. We may issue additional ordinary shares in the future and our shareholders may elect to sell large numbers of shares held by them from time to time. Our amended and restated memorandum and articles of association authorize us to issue up to 5,000,000,000 ordinary shares.
On July 11, 2025, the Company entered into a definitive securities purchase agreement (the “Purchase Agreement”) dated as of July 11, 2025, with certain individuals. Pursuant to the Purchase Agreement, the Company agreed to sell 60,000,000 Class A ordinary shares (333,333 shares after giving effect to the reverse stock split), with a par value of US$ 0.00003 per share (US$ 0.0009 per share after giving effect to the reverse stock split), which the purchase price per share is calculated by multiplying the lowest trading bid price over the past 60 trading days from April 15, 2025 to July 11, 2025 by 70%.
On January 30, 2026, the Company entered into an Equity Purchase Agreement (“Equity Purchase Agreement”) with Hudson Global Ventures, LLC, a Nevada limited liability company (the “Investor”). Pursuant to the Equity Purchase Agreement, the Company shall have the right, but not obligation, to issue and sell to the Investor up to an aggregate offering amount of US$50,000,000 (“Maximum Commitment Amount”) of our Ordinary Shares, par value US$0.00003 per share (US$ 0.0009 per share after giving effect to the reverse stock split), by the prospectus supplement dated February 4, 2026 and during the commitment period commencing on January 30, 2026 and terminating on the earliest of (i) the first day of the month next following the 24-month anniversary of the date of the Purchase Agreement or (ii) the date on which the Investor shall have purchased all issuable shares pursuant to Purchase Agreement equal to the Maximum Commitment Amount (the “Commitment Period”). As at March 31, 2026, the Company have issued new shares of 43,209 Ordinary Class A ordinary shares as commitment shares and issued new shares of 859,166 Class A ordinary shares.
We may issue more ordinary shares in the future and, therefore, it may cause the market price of our ordinary shares to decline. See “Item 4. Information on the Company — C. History and Development of the Company.”
23
Risks Related to Our Corporate Structure
We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, shareholders may have less protection for their shareholder rights than they would under U.S. law.
Our corporate affairs are governed by our Ninth Amended and Restated Memorandum and Articles of Association, the Cayman Islands Companies Act (Revised) (the “Companies Act”) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our Directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management or members of the board of directors (“Board”) than they would as shareholders of a U.S. public company.
Judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and all of our assets are located outside of the United States. Our current operations are based in China and Singapore. In addition, the majority of our current directors and executive officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
The determination of our status as a foreign private issuer is made annually on the last business day of our most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on or after June 30, 2025. We would lose our foreign private issuer status if (1) a majority of our outstanding voting securities are directly or indirectly held of record by U.S. residents; and (2) a majority of our shareholders or a majority of our Directors or management are U.S. citizens or residents, a majority of our assets are located in the United States, or our business is administered principally in the United States. If we were to lose our foreign private issuer status, the regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. We may also be required to modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers, which would involve additional costs.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
We believe that any disclosure controls and procedures, or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
24
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our Ordinary Shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm and due to a transition period established by rules of the SEC for newly public companies, we are not required to include a report of management’s assessment regarding internal control over financial reporting in this Annual Report. The presence of material weaknesses in internal control over financial reporting could result in financial statement errors which, in turn, could lead to errors in our financial reports and/or delays in our financial reporting, which could require us to restate our operating results. The material weakness identified consisted of (i) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and accruals; (iii) inadequate controls with respect to the maintenance of sufficient documentation for, and the evaluation of the accounting implications of, significant and non-routine payment transactions; and (iv) a lack of sufficient documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and accruals, as defined in the standards established by the Public Company Accounting Oversight Board of the United States.
We have already taken some steps and have continued to implement measures to remediate the material weakness identified, including but not limited to providing trainings to staff, changing to a new and well-established accounting system, and continuing to monitor the internal control over financial reporting. However, we cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future.
Due to the material weakness in our internal controls over financial reporting, we conclude that our internal controls over financial reporting are ineffective and therefore investors may lose confidence in our operating results, the price of the Ordinary Shares could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the Ordinary Shares may not be able to remain listed on the NASDAQ Capital Market.
We will likely not to pay dividends in the foreseeable future.
Dividend policy is subject to the discretion of our Board and will depend on, among other things, our earnings, financial condition, capital requirements and other factors. There is no assurance that our Board will declare dividends even if we are profitable. The payment of dividends by entities organized in China is subject to limitations as described herein. Under Cayman Islands law, we may only pay dividends from profits of the Company, or credits standing in the Company’s share premium account, and we must be solvent before and after the dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business; and the realizable value of assets of our Company will not be less than the sum of our total liabilities, other than deferred taxes as shown on our books of account, and our capital. Pursuant to the Chinese enterprise income tax law, dividends payable by a foreign investment entity to its foreign investors are subject to a withholding tax of 10%. Similarly, dividends payable by a foreign investment entity to its Hong Kong investor who owns 25% or more of the equity of the foreign investment entity is subject to a withholding tax of 5%. The payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with the accounting standards and regulations in China. The transfer to this reserve must be made before distribution of any dividends to shareholders.
25
Our business may be materially and adversely affected if our Chinese subsidiary declare bankruptcy or become subject to a dissolution or liquidation proceeding.
The Enterprise Bankruptcy Law of China provides that an enterprise may be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts. Our Chinese subsidiaries hold certain assets that are important to our business operations. If any of our Chinese subsidiary undergo a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards; these practices may afford less protections to shareholders than they would enjoy if we complied fully with such corporate governance listing standards.
As a Cayman Islands exempted company listed on the Nasdaq Stock Market, we are subject to the Nasdaq listing standards. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Currently, we rely on home country practice with respect to certain aspects of our corporate governance. See “Item 16G. Corporate Governance.” Our shareholders may be afforded less protections than they would otherwise enjoy under the Nasdaq listing standards applicable to U.S. domestic issuers given our reliance on the home country practice exception.
Risks Related to Our Ordinary Shares
Our Ordinary Shares may be delisted from the Nasdaq Capital Market as a result of our failure to meet the Nasdaq Capital Market continued listing requirements.
Our Ordinary Shares are currently listed on the Nasdaq Capital Market under the symbol “XTKG.” We must continue to meet the requirements set forth in Nasdaq Listing Rule 5550 to remain listing on the Nasdaq Capital Market. On April 10, 2024, the Company received a written notification from Nasdaq’s Listing Qualifications Staff (the “Staff”) of The NASDAQ Stock Market LLC (“Nasdaq”) notifying the Company that the minimum bid price per share for its common shares has been below $1.00 for a period of over 30 consecutive business days and the Company therefore no longer meets the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) (the “Deficiency”).
Under the Nasdaq Listing Rules, the Company had until October 7, 2024 to cure the Deficiency and the Company has received an extension of another 180 calendar days, until April 7, 2025, from Nasdaq, to regain compliance with the Nasdaq Listing Rule 5550(a)(2), provided that the Company’s ordinary shares must have a closing bid price of at least US$1.00 for a minimum of 10 consecutive trading days.
On February 10, 2026, the Company has received a determination letter (the “Letter”) from the Nasdaq regarding a failure to meet Nasdaq’s minimum bid price requirements. The Letter notified that the bid price of the Company’s listed securities has closed at less than $1 per share over the previous 32 consecutive business days, and as a result, not comply with Nasdaq Listing Rule 5550(a)(2) (the “Rule”). The Company would be afforded a 180-calendar day period to demonstrate compliance with the Rule. However, due to the fact that the Company effected a one-for-six reverse stock split on December 30, 2025, pursuant to Nasdaq Listing Rule 5810(c)(3)(A)(iv), the Company is not eligible for any compliance period specified in Nasdaq Listing Rule 5810(c)(3)(A). As a result, the Letter states that Nasdaq has determined to delist the Company’s securities from The Nasdaq Capital Market. The Company has submitted a request for a hearing before the Nasdaq Hearings Panel as the next step in the process in seeking an extension to satisfy the minimum bid price requirement set forth in the Rule for continued listing on The Nasdaq Capital Market. The request for a hearing would stay the suspension of the Company’s securities and the filing of the Form 25-NSE pending the Panel’s decision.
If the Company fails to regain compliance with the minimum bid price requirements or any other listing rules when required in the future, we could be subject to suspension and delisting proceedings. There can be no assurance that our Ordinary Shares will be eligible for trading on any such alternative exchanges or markets in the United States. If Nasdaq determines to delist our ordinary shares, or if we fail to list our Ordinary Shares on other stock exchanges or find alternative trading venue for our Ordinary Shares, the market liquidity and the price of our Ordinary Shares and our ability to obtain financing for our operations could be materially and adversely affected.
26
We may need to finance our future cash needs through public or private equity offerings and debt financings. Any additional funds that we obtain may adversely impact the market price of our Ordinary Shares.
We may need to raise additional funds to pay outstanding vendor invoices, meet operating expenses and execute our business plan, including any expansion plans. Our future cash flows depend on our ability to market and sell our common shares, and our ability to continue to cut expenses to reach net even or positive cashflows from operations. There can be no assurance that we will have sufficient funds to execute our business plan or complete a strategic transaction, or that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.
For the foreseeable future, we may have to fund a portion of our operations and capital expenditures from cash on hand, public or private equity offerings, debt financings, bank credit facilities, other borrowings (including borrowings from our officers and directors) or corporate collaboration and/or licensing arrangements. We will also need to raise additional funds if we choose to continue to expand our operational development efforts more rapidly than we presently anticipate.
Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares may view as beneficial.
Our company is controlled through a dual class voting structure. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share in respect of matters requiring the votes of shareholders, while holders of Class B ordinary shares are entitled to thirty votes per share, subject to certain exceptions. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any direct or indirect transfer of Class B ordinary shares or associated voting power by a holder thereof to any person or entity which is not an affiliate of such holder, such Class B ordinary shares will be automatically and immediately converted into the equal number of Class A ordinary shares. As a result, Mr. Stewart Lor, holding 4,610,365 Class B ordinary shares might have considerable influence over matters such as approving material mergers, acquisitions or other business combination transactions. This concentrated control will limit your ability to influence corporate matters and could also discourage others from pursuing any potential merger, takeover or other change of control transactions, which could have the effect of depriving the holders of our Class A ordinary shares of the opportunity to sell their shares at a premium over the prevailing market price.
The trading prices of our ordinary shares have been and are likely to continue to be volatile.
The trading price of our ordinary shares has been volatile since our ordinary shares started to trade on the Nasdaq, and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with operations located in mainland China, or because of trends in the global economy in general or the Chinese economy, or because of international geopolitical tensions. In addition to market and industry factors, the prices and trading volumes for our listed securities may be highly volatile for factors specific to our own operations, including the following:
| ● | variations in our revenues, earnings, cash flow and data related to our operations; |
| ● | announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; |
| ● | announcements of new product and service offerings, solutions and expansions by us or our competitors; |
| ● | detrimental adverse publicity about us, our products and services or our industry; |
| ● | additions or departures of key personnel; |
| ● | sales of additional ordinary shares or other equity-related securities in the public markets, or issuance of ordinary shares upon conversion of convertible notes we issued, or the perception of these events; and |
| ● | actual or potential litigation or regulatory investigations. |
An active public trading market for our ordinary shares may not develop or be sustained to provide adequate liquidity.
An active public trading market for our ordinary shares may not develop or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your ordinary shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your ordinary shares. An inactive market may also impair our ability to raise capital by selling ordinary shares and may impair our ability to acquire other companies by using our shares as consideration.
27
Risks Related to Doing Business in China
The Chinese government may exert substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to issue securities to foreign investors, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.
The Chinese government has significant authority to exert influence on our operations in mainland China in various aspects in accordance with laws and regulations. There are uncertainties regarding the interpretation and application of PRC laws and regulations from time to time, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with borrowers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
Changes in China’s economic, political or social conditions, or government policies could materially and adversely affect our business, financial condition, and results of operations. We cannot predict whether the resulting changes will have any adverse effect on our current or future business, financial condition or results of operations. Despite these economic reforms and measures, the PRC government continues to play a significant role in regulating industrial development. It also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency- denominated obligations, setting monetary policies, restricting the inflow and outflow of foreign capital and providing preferential treatment to particular industries or companies. The PRC government also has significant authority to exert influence on the ability of a China-based company, such as our Company, to conduct its business. There can be no assurance that the PRC government will continue to pursue a policy of economic reform or that the direction of reform will continue to be market friendly. Our ability to successfully expand business operations in the PRC depends on a number of factors, including macro-economic and other market conditions. Demand for our future products in the Chinese market and our business, financial condition and results of operations may be materially and adversely affected by the following factors, which might be affected by a number of variables that are beyond our control:
| ● | changes in political or social conditions of the PRC; |
| ● | changes in laws, regulations, and administrative directives or the interpretation thereof; |
| ● | measures which may be introduced to control inflation or deflation; and |
| ● | changes in the rate or method of taxation. |
The PRC government has recently indicated its intent to exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers. Such actions could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. For instance, anti-monopoly regulators in mainland China have promulgated new anti-monopoly and competition laws and regulations and strengthened the enforcement under these laws and regulations. There remain uncertainties as to how the laws, regulations and guidelines recently promulgated will be implemented and whether these laws, regulations and guidelines will have a material impact on our business, financial condition, results of operations and prospects. If any non-compliance is identified by the relevant authorities, we may be subject to fines and other penalties.
The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severely Cracking Down on Illegal Securities Activities. According to Law, (the “Opinions”), which was made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with the risks and incidents of China-concept overseas listed companies. As of the date of this Annual Report, we have not received any inquiry, notice, warning, or sanctions from PRC government authorities in connection with the Opinions.
On June 10, 2021, the Standing Committee of the National People’s Congress of China (the “SCNPC”), promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data and information.
28
In early July 2021, regulatory authorities in China launched cybersecurity investigations with regard to several China-based companies that are listed in the United States. The Chinese cybersecurity regulator announced on July 2, 2021 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s app be removed from smartphone app stores. On July 5, 2021, the Chinese cybersecurity regulator launched the same investigation on two other Internet platforms, China’s Full Truck Alliance of Full Truck Alliance Co. Ltd. (NYSE: YMM) and KANZHUN LIMITED (Nasdaq: BZ). On July 24, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly released the Guidelines for Further Easing the Burden of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory Education, pursuant to which foreign investment in such firms via mergers and acquisitions, franchise development, and variable interest entities are banned from this sector.
On August 17, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure (the “Regulations”), which took effect on September 1, 2021. The Regulations supplemented and specified the provisions on the security of critical information infrastructure as stated in the Cybersecurity Review Measures. The Regulations provide, among others, that protection department of certain industry or sector shall notify the operator of the critical information infrastructure in time after the identification of certain critical information infrastructure.
On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law of the PRC (the “Personal Information Protection Law”), which took effect in November 2021. As the first systematic and comprehensive law specifically for the protection of personal information in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual’s consent shall be obtained to use sensitive personal information, such as biometric characteristics and individual location tracking; (ii) personal information operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s rights; and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the individual may file a lawsuit with a People’s Court.
As such, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company could be subject to regulations by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with the existing and newly adopted laws and regulations or penalties for any failure to comply. Additionally, the governmental and regulatory interference could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Furthermore, we are required to file with the CSRC within 3 working days after the subsequent securities offering is completed and we might face warnings or fines if we fail to fulfill related filing procedure. Although there are still uncertainties regarding the interpretation and implementation of relevant regulatory guidance, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry.
On February 17, 2023, the China Securities Regulatory Commission, or the CSRC, promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”) and five relevant guidelines which became effective on March 31, 2023. The Overseas Listing Trial Measures regulate both direct and indirect overseas offering and listing by PRC domestic companies by adopting a filing-based regulatory regime.
The Overseas Listing Trial Measures provide that if the issuer both meets the following criteria, the overseas securities offering and listing conducted by such issuer will be deemed as indirect overseas offering subject to the filing procedure set forth under the Overseas Listing Trial Measures: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by the issuer’s domestic companies; and (ii) the issuer’s business activities are substantially conducted in mainland China, or its principal place of business are located in mainland China, or the senior managers in charge of its business operations and management are mostly Chinese citizens or domiciled in mainland China. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on a substance over form basis.
29
On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that on or prior to the effective date of the Overseas Listing Trial Measures, domestic companies that have been completed their overseas offering and listing, which are called as “the stock enterprises”. As a stock enterprise, we shall file with the CSRC within 3 working days after the subsequent securities offering is completed. The CSRC shall order rectification, issue warnings and impose fines on the company which fails to fulfill the filing procedure as stipulated in Overseas Listing Trial Measures.
Even though we are not required to complete the filing procedures with the CSRC for our historical issuance of securities, we may be required by the Trial Measures to file with the CSRC in connection with future securities offerings and listings outside of China, including follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities. There remain substantial uncertainties about the interpretation, application and implementation of the laws and regulations relating to the CSRC filing. If we fail to obtain any requisite approvals with respect to future offerings of our equity securities to foreign investors, or if we inadvertently conclude that such approvals are required or not required, or if the applicable laws, regulations or interpretations thereof change and we become subject to the requirement of additional permissions or approvals in the future, our ability to execute our financing and equity offering plans may be significantly limited or completely hindered. We cannot assure you that we will be able to obtain such permissions or approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could impede our efforts to improve our liquidity or expand our business operation, and we cannot assure you that there will not be material negative impacts on our financial condition and result of operations, or a significant decline in the value of our ordinary shares.
In addition, the CSRC published the Provisions on Strengthening Confidentiality and Archives Administration in Respect of Overseas Issuance and Listing of Securities by Domestic Enterprises on February 24, 2023, which became effective on March 31, 2023. The CSRC stipulates domestic enterprises, securities companies and securities service agencies which provide the corresponding services in the course of overseas issuance and listing of domestic enterprises, shall strengthen legal awareness of confidentiality of State secrets and archives administration, establish a sound system for confidentiality and archives work, adopt the requisite measures to perform the responsibilities of confidentiality and archives administration.
As there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure you that we will always be able to comply with new regulatory requirements relating to our future overseas capital-raising activities. We may become subject to more stringent requirements with respect to matters including cross-border investigation and enforcement of legal claims.
In addition, on December 28, 2021, the CAC, the National Development and Reform Commission (“NDRC”), and several other administrations jointly issued the revised Measures for Cybersecurity Review (the “Revised Review Measures”), which became effective and replaced the Measures for Cybersecurity Review on February 15, 2022. According to the Revised Review Measures, if an “online platform operator” that is in possession of personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity review. Based on a set of Q&A published on the official website of the State Cipher Code Administration in connection with the issuance of the Revised Review Measures, an official of the said administration indicated that an online platform operator should apply for a cybersecurity review prior to the submission of its listing application with non-PRC securities regulators. Given the recency of the issuance of the Revised Review Measures, there is a general lack of guidance and substantial uncertainties exist with respect to their interpretation and implementation. For example, it is unclear whether the requirement of cybersecurity review applies to follow-on offerings by an “online platform operator” that is in possession of personal data of more than one million users where the offshore holding company of such operator that is already listed overseas. Furthermore, the CAC released the draft of the Regulations on Network Data Security Management (the “Draft Regulations”) in November 2021 for public consultation, which among other things, stipulates that a data processor listed overseas must conduct an annual data security review by itself or by engaging a data security service provider and submit the annual data security review report for a given year to the municipal cybersecurity department before January 31 of the following year.
30
On July 7, 2022, CAC promulgated Measures for the Security Assessment of Outbound Data Transfers, (the “Data Cross Border Measures”), which became effective on September 1, 2022 and provide that a data processor is required to apply for security assessment for cross-border data transfer in any of the following circumstances: (i) where a data processor provides critical data to offshore entities and individuals; (ii) where a CIIO or a data processor which processes personal information of more than one million individuals provides personal information to offshore entities and individuals; (iii) where a data processor has provided personal information in the aggregate of more than 100,000 individuals or sensitive personal information of more than 10,000 individuals in total to offshore entities and individuals since January 1 of the previous year; or (iv) other circumstances prescribed by the CAC for which declaration for security assessment for cross-board transfer of data is required. Furthermore, on August 31, 2022, the CAC promulgated the Guidelines for filing the Outbound Data Transfer Security Assessment (Version 1), which provides that acts of outbound data transfer include (i) overseas transmission and storage by data processors of data generated during mainland China domestic operations; (ii) the access to, use, download or export of the data collected and generated by data processors and stored in mainland China by overseas institutions, organizations or individuals; and (iii) other acts as specified by the CAC. The Revised Review Measures and the Draft Regulations remain unclear on whether the relevant requirements will be applicable to companies, which have been listed in the United States, such as us. They also remain uncertain whether the future regulatory changes would impose additional restrictions on companies like us. We cannot predict the impact of the Revised Review Measures and the Draft Regulations, if any, at this stage, and we will closely monitor and assess any development in the rule-making process.
We have been closely monitoring the development in the regulatory landscape in China, particularly regarding the requirement of approvals, including on a retrospective basis, from the CSRC, the CAC or other PRC authorities, as well as regarding any annual data security review or other procedures that may be imposed on us. If any approval, review or other procedure is in fact required, we are not able to guarantee that we will obtain such approval or complete such review or other procedure timely or at all. For any approval that we may be able to obtain, it could nevertheless be revoked and the terms of its issuance may impose restrictions on our operations and offerings relating to our securities.
Since these regulations are relatively new and remain unclear on how they will be interpreted, amended and implemented by the PRC government authorities, it remains uncertain whether we can obtain the specific regulatory approvals from, or complete the required filings with the CSRC, CAC or any other PRC government authorities for our future securities offering or for foreign investment in China-based issuers in a timely basis or at all. If we are unable to obtain such approvals or complete such filings, or such approvals or filings are rescinded even if obtained, our ability to offer or continue to offer securities to investors will be significantly limited or completely hindered and the value of such securities may be significantly declined or become worthless. In addition, implementation of industry-wide regulations directly targeting our operations could result in adverse effect on the value of our securities. Therefore, investors of our Company and our business face potential uncertainty from actions taken by the PRC government affecting our business and operations.
As of the date of this Annual Report, we and our PRC subsidiaries have received from relevant PRC authorities all requisite licenses, permissions, approvals or certificates needed for operations in China, and no permission or approval has been denied. As of the date of this Annual Report, our Company and the subsidiaries have not been involved in any investigations or review initiated by any PRC regulatory authority, not has any of them received any inquiry, notice or sanction for the business operation, accepting foreign investment or listing on the Nasdaq Stock Market. We are required to continue to comply with the provisions of the laws, regulations and policies of mainland China for the operations of our subsidiaries in China and we remain subject to the supervision of the relevant regulatory authorities of mainland China. However, since these statements and regulatory actions are newly published, it is uncertain what future impact such modified or new laws and regulations will have on our daily business operations, the ability to accept foreign investments and our continued listing on the Nasdaq Stock Market. Given the uncertainties of interpretation and implementation of laws and regulations and the enforcement practice by government authorities, we may be required to obtain additional licenses, permits, filings or approvals for our business and operations in the future. We cannot assure you that we will be able to obtain, in a timely manner or at all, or maintain such licenses, permits or approvals, and we may also inadvertently conclude that such permissions or approvals are not required. Any lack of or failure to maintain requisite approvals, licenses or permits applicable to us or our PRC subsidiaries may have a material adverse impact on our business, results of operations, financial condition and prospects, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the value of our securities to significantly decline or become worthless.
31
Adverse changes in political, economic and other policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could materially and adversely affect the growth of our business and our competitive position.
A very substantial portion of our assets and operations are currently located in mainland China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. Although the PRC economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between the Renminbi and foreign currencies, and regulate the growth of the general or specific market. While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. Furthermore, the current global economic crisis is adversely affecting economies throughout the world. As the PRC economy has become increasingly linked with the global economy, China is affected in various respects by downturns and recessions of major economies around the world. The various economic and policy measures enacted by the PRC government to forestall economic downturns or bolster China’s economic growth could materially affect our business. Any adverse changes in the economic conditions in China, in policies of the PRC government or in laws and regulations in China could have a material adverse effect on the overall economic growth of China and market demand for our outsourcing services. Such developments could adversely affect our businesses, lead to reduction in demand for our services and adversely affect our competitive position.
Uncertainties with respect to the PRC legal system, including uncertainties regarding the interpretation and enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us and limit the legal protections available to you and us.
We conduct our business primarily through our subsidiaries in China. Our operations in China are governed by the laws and regulations of China. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China. As a civil law jurisdiction, the legal system of China is based on written statutes. Compared to common law systems, prior court decisions may be cited for reference but have limited precedential value.
Changes in laws, regulations and policies in mainland China and uncertainties with respect to the interpretation and enforcement of the laws, regulations and policies in mainland China and the fact that rules and regulations in mainland China can change quickly with little advance notice. Rules and regulations in China are subject to changes by the relevant authorities. Sometimes such authorities will publish draft of the revisions to existing rules and regulations for public comments and consultation before enacting such revisions. But such consultations are done on case-by-case basis and we otherwise lack public channels to learn the extents of the revisions beforehand, in which case we might have limited time to ensure timely compliance upon the enactment of such revisions. Such action could significantly limit or hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline.
The Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and foreign investment in China-based issuers. In addition, the enforcement of laws and regulations in China can change quickly with little advance notice. In 2021, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. We do not expect to be subject to cybersecurity review with the Cyberspace Administration of China (“CAC”) if the draft Measures for Cybersecurity Censorship become effective as they are published, since: (i) our products and services are offered not directly to individual consumers; (ii) we do not possess a large amount of personal information in our business operations; and (iii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. or other foreign exchange.
Furthermore, we cannot assure you that the authorities of mainland China will not promulgate new laws to further regulate the listing of our ordinary shares, or impose new compliance obligations for us to maintain the listing of our ordinary shares. Certain of our actions in relation to our overseas listing may also constitute a violation of the PRC Securities Law or other relevant laws, and as a consequence, subject us to penalties, including without limitation, fines, limitations on our ability of financing activities, or the suspension or termination of certain aspects of our business operations, which may in turn result in substantial difficulty for us to maintain our listing overseas. We may be required in the future to procure additional permits, authorizations and approvals for our existing and future operations, which may not be obtainable in a timely fashion or at all, or may involve substantial costs and unforeseen risks. Any failure of us to fully comply with applicable laws and regulations may significantly limit or completely hinder our ability and the ability of any holder of our securities to offer or continue to offer such securities, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our securities to significantly decline in value or become worthless.
32
Recent regulatory initiatives implemented by the PRC competent government authorities on cyberspace data security may have introduced uncertainty in our business operations and compliance status, which could result in materially adverse impact on our business, results of operations and our listing on Nasdaq.
We are subject to complex and evolving statutory and regulatory requirements relating to cybersecurity, information security, privacy and data protection. Regulatory authorities in mainland China have enhanced data protection and cybersecurity regulatory requirements. These laws continue to develop, and the PRC government may adopt other rules and restrictions in the future. Non-compliance could result in penalties or other significant legal liabilities.
The PRC Cybersecurity Law, which took effect in June 2017, created China’s first national-level data protection framework for “network operators.” It is relatively new and subject to interpretations by the regulator. It requires, among other things, that network operators take security measures to protect the network from unauthorized interference, damage and unauthorized access and prevent data from being divulged, stolen or tampered with. Network operators are also required to collect and use personal information in compliance with the principles of legitimacy, properness and necessity, and strictly within the scope of authorization by the subject of personal information unless otherwise prescribed by laws or regulations. Significant capital, managerial and human resources are required to comply with legal requirements, enhance information security and address any issues caused by security failures.
The Measures for Cybersecurity Review promulgated in April 2020 provides that critical information infrastructure operators must pass a cybersecurity review when purchasing network products and services which do or may affect national security. Pursuant to the Revised Cybersecurity Review Measures that took effect on February 15, 2022, operators of critical information infrastructure that intend to purchase network products and services that affect or may affect national security must apply for a cybersecurity review. However, as advised by our PRC counsel, as such new laws, regulations and rules were only recently promulgated, their interpretation and implementation shall be determined in accordance with the laws and regulations in force at the time. Currently, we are not required to file for a cybersecurity review by the CAC for our past issuance of securities to foreign investors and maintaining our listing status on the Nasdaq, since a company already listed in a foreign stock exchange before promulgation of the latest Cybersecurity Review Measures is not required to file for a cybersecurity review by the CAC to maintain its listing status on the foreign stock exchange on which its securities have been listed. As of the date of this Annual Report, we have not been involved in any investigations or become subject to a cybersecurity review initiated by the CAC, and we have not received any inquiry, notice, warning, sanctions in such respect or any regulatory objections to our listing status from the CAC.
The Regulations on Security Protection of Critical Information Infrastructure that took effect on September 1, 2021 defines critical information infrastructure and its operators, who must adhere to specific security requirements. As this regulation is newly issued, the governmental authorities, including the administration departments for each critical industry and sector, may further formulate detailed rules or explanations with respect to the interpretation and implementation of this regulation.
The PRC Personal Information Protection Law, effective since November 2021, sets stringent rules for processing personal and sensitive information, which significantly affects our data handling practices. Some information we collect, such as location and mobile numbers, may be deemed to be sensitive personal information under the Personal Information Protection Law. As the interpretation and implementation of the Personal Information Protection Law shall be determined in accordance with the laws and regulations in force at the time, we cannot assure you that we will be able to comply with the Personal Information Protection Law in all respects, or that regulatory authorities will not order us to rectify or terminate our current practice of collecting and processing sensitive personal information. We may also become subject to fines and other penalties under the Personal Information Protection Law, which may have material adverse effect on our business, operations and financial condition.
On November 14, 2021, the CAC published a discussion draft of Regulations on the Administration of Cyber Data Security for public comments. These measures, if and when formalized, could impose additional cybersecurity review requirements for data processors, especially those involving national security concerns. Based on the facts that, (i) the Revised Cybersecurity Review Measures were newly adopted and the discussion draft of Regulations on the Administration of Cyber Data Security have not been formally adopted, and the implementation and interpretation of both are subject to uncertainties, and (ii) we have not been involved in any investigations on cyber security review made by the CAC on such basis, nor have we received any inquiries, notices, warnings, or sanctions from any competent PRC regulatory authorities related to cybersecurity, data security and personal data protection, we believe, as of the date of this annual report, we are in compliance with the existing PRC laws and regulations on cybersecurity, data security and personal data protection issued by the CAC. The PRC government authorities also further enhanced the supervision and regulation of cross-border data transmission. On July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Cross-border Data Transfer, which took effect on September 1, 2022. In accordance with such measures, data processors will be subject to security assessment conducted by the CAC prior to any cross-border transfer of data if the transfer involves (i) important data; (ii) personal information transferred overseas by operators of critical information infrastructure or a data processor that has processed personal data of more than one million persons; (iii) personal information transferred overseas by a data processor which has already provided personal data of 100,000 persons or sensitive personal data of 10,000 persons overseas since January 1 of the preceding year; or (iv) other circumstances as required by the CAC. In addition, any cross-border data transfer activities conducted in violation of the Measures for the Security Assessment of Cross-border Data Transfer before the effectiveness of such measures are required to be rectified within six months of the effectiveness date thereof. Since these measures are relatively new, there are still substantial uncertainties with respect to the interpretation and implementation of these measures in practice and how they will affect our business operation.
33
In addition, internet information in mainland China is regulated from a national security standpoint. According to the PRC National Security Law, institutions and mechanisms for national security review and administration will be established to conduct national security review on key technologies and IT products and services that affect or may affect national security. The PRC Data Security Law took effect in September 2021 and provides for a security review procedure for the data activities that may affect national security. It also introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The appropriate level of protection measures is required to be taken for each respective category of data.
While we take measures to comply with applicable data privacy and protection laws and regulations, we cannot guarantee the effectiveness of the measures undertaken and those implemented by us. In addition, we could be subject to new laws or regulations or the interpretation and application of existing consumer and data protection laws or regulations. These new laws, regulations and interpretations are often uncertain and in flux and may be inconsistent with our practices. We cannot guarantee that we will be able to maintain compliance at all times, especially in light of the fact that laws and regulations on cybersecurity and data protection are evolving. Complying with these new or additional laws, regulations and requirements could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.
It may be difficult for overseas regulators to conduct investigations or collect evidence within the PRC.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the United States may not be efficient in the absence of a mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC; no organization or individual is allowed to provide documents and information related to securities business activities to overseas securities regulators without the consent of the securities regulatory authority under the State Council and the relevant competent department under the State Council; and according to the Data Security Law, no organization or individual within the territory of the PRC may provide foreign judicial or law enforcement authorities with data stored within the territory of the PRC without the approval of the competent authorities of the PRC. While detailed interpretation of or implementation rules under these regulations have yet to be promulgated, the inability of an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of the stock of our operating company.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the PRC State Administration of Taxation on December 10, 2009, or Circular 698, where a foreign investor transfers the equity interests of a PRC resident enterprise indirectly by way of the sale of equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5%; or (ii) does not tax foreign income of its residents, the foreign investor should report such Indirect Transfer to the competent tax authority of the PRC resident enterprise. The PRC tax authority will examine the true nature of the Indirect Transfer, and if the tax authority considers that the foreign investor has adopted an abusive arrangement in order to avoid PRC tax, they will disregard the existence of the overseas holding company and re-characterize the Indirect Transfer and as a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at the rate of up to 10%. In addition, the PRC resident enterprise is supposed to provide necessary assistance to support the enforcement of Circular 698. At present, the PRC tax authorities will neither confirm nor deny that they would enforce Circular 698, in conjunction with other tax collection and tax withholding rules, to make claims against our PRC subsidiary as being indirectly liable for unpaid taxes, if any, arising from Indirect Transfers by shareholders who did not obtain their shares in the IPO of our shares.
34
On February 3, 2015, the PRC State Administration of Taxation issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Public Notice 7. SAT Public Notice 7 supersedes the rules with respect to the Indirect Transfer under SAT Circular 698, but does not touch upon the other provisions of SAT Circular 698, which remain in force. SAT Public Notice 7 has introduced a new tax regime that is significantly different from the previous one under SAT Circular 698. SAT Public Notice 7 extends its tax jurisdiction to not only Indirect Transfers set forth under SAT Circular 698 but also transactions involving transfer of other taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Public Notice 7 provides clearer criteria than SAT Circular 698 for assessment of reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Public Notice 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our Company may be subject to filing obligations or taxations if our Company is transferor in such transactions, and may be subject to withholding obligations if our Company is transferee in such transactions, under SAT Circular 698 and SAT Public Notice 7. For transfer of shares in our Company by investors that are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing under SAT Circular 698 and SAT Public Notice 7. As a result, we may be required to expend valuable resources to comply with SAT Circular 698 and SAT Public Notice 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our Company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our ability to acquire PRC companies or to inject capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute profits to us, or otherwise materially and adversely affect us.
In July 2014, China’s State Administration of Foreign Exchange (“SAFE”) has promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with local branches of SAFE in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, will be required to register such investments with the SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its filed registration with the local branch of SAFE with respect to that SPV, to reflect any material changes. Moreover, any subsidiaries of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed registration, the subsidiaries of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contribution into its subsidiary in China. On February 28, 2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investment and outbound overseas direct investment, including those required under the SAFE Circular 37, will be filed with qualified banks instead of the SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of the SAFE.
35
Mr. Ban Lor and Stewart Lor are not PRC resident, thus, they are not subject to SAFE Circular 37. We have informed our shareholders that we know are PRC residents and hold direct or indirect interests in us to make the necessary applications, filings and amendments as required under SAFE Circular 37 and other related rules. However, we may not at all times be fully aware or informed of the identities of all our beneficial owners who are PRC residents, and we may not always be able to compel our beneficial owners to comply with the SAFE Circular 37 requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents will at all times comply with, or in the future make or obtain any applicable registrations or approvals required by, SAFE Circular 37 or other related regulations. Failure by any such shareholders or beneficial owners to comply with SAFE Circular 37 could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiary’s ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant governmental authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements that we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.
We are a Cayman Islands holding company conducting our operations in China through our PRC subsidiaries, and therefore we rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and repay any debt that we may incur. The ability of our PRC subsidiaries to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, which is determined in accordance with the PRC accounting standards and regulations. In addition, according to the PRC Company Law, each of our PRC subsidiaries, as a wholly foreign-owned enterprise in China, is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until the aggregate amount of such reserve reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may also restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiaries to distribute dividends or other payments to their respective shareholders could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business.
PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of the offerings to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
In utilizing the proceeds from the offerings or any future offerings, as an offshore holding company of our PRC subsidiary, we may make loans to our PRC subsidiary and controlled PRC affiliate, or we may make additional capital contributions to our PRC subsidiary. Any loans to our PRC subsidiary or controlled PRC affiliate are subject to PRC regulations and approvals. For example, loans by us to our PRC subsidiary in China, each of which is a foreign-invested enterprise, to finance their activities cannot exceed the statutory limits and must be registered with SAFE or its local counterpart.
36
We may also decide to finance our PRC subsidiary through capital contributions. These capital contributions must be approved by the Ministry of Commerce in China or its local counterpart. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or controlled PRC affiliate or capital contributions by us to our subsidiaries or any of their respective subsidiaries. If we fail to receive such registrations or approvals, our ability to use the proceeds of the IPO and to capitalize our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.
In 2015, SAFE promulgated Circular 19, a notice regulating the conversion by a foreign-invested enterprise of foreign currency into Renminbi by restricting how the converted Renminbi may be used. Circular 19 requires that Renminbi converted from the foreign currency-denominated capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless specifically provided for otherwise in its business scope. In addition, SAFE strengthened its oversight of the flow and use of Renminbi funds converted from the foreign currency-denominated capital of a foreign-invested enterprise. The use of such Renminbi may not be changed without approval from SAFE and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used for purposes within the foreign-invested enterprise’s approved business scope.
We cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or controlled PRC affiliate or with respect to future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we receive from the offerings and to capitalize or otherwise fund our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.
Governmental control of currency conversion may limit our ability to use our revenues effectively and the ability of our PRC subsidiary to obtain financing.
The PRC government imposes control on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive a majority of our revenues in Renminbi, which currently is not a freely convertible currency. Restrictions on currency conversion imposed by the PRC government may limit our ability to use revenues generated in Renminbi to fund our expenditures denominated in foreign currencies or our business activities outside China. Under China’s existing foreign exchange regulations, Renminbi may be freely converted into foreign currency for payments relating to current account transactions, which include among other things dividend payments and payments for the import of goods and services, by complying with certain procedural requirements. Our PRC subsidiary is able to pay dividends in foreign currencies to us without prior approval from SAFE, by complying with certain procedural requirements. Our PRC subsidiary may also retain foreign currency in their respective current account bank accounts for use in payment of international current account transactions. However, we cannot assure you that the PRC government will not take measures in the future to restrict access to foreign currencies for current account transactions.
Conversion of Renminbi into foreign currencies, and of foreign currencies into Renminbi, for payments relating to capital account transactions, which principally includes investments and loans, generally requires the approval of SAFE and other relevant PRC governmental authorities. Restrictions on the convertibility of the Renminbi for capital account transactions could affect the ability of our PRC subsidiary to make investments overseas or to obtain foreign currency through debt or equity financing, including by means of loans or capital contributions from us.
37
We may be classified as a “resident enterprise” for PRC enterprise income tax purposes; such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.
The Enterprise Income Tax Law provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered PRC tax resident enterprises and will generally be subject to the uniform 25% PRC enterprise income tax rate on their global income. In addition, a tax circular issued by the State Administration of Taxation on April 22, 2009 regarding the standards used to classify certain Chinese-invested enterprises established outside of China as resident enterprises clarified that dividends and other income paid by such resident enterprises will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when recognized by non-PRC enterprise shareholders. This recent circular also subjects such resident enterprises to various reporting requirements with the PRC tax authorities. Under the implementation rules to the Enterprise Income Tax Law, a de facto management body is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and other assets of an enterprise. In addition, the tax circular mentioned above details that certain Chinese-invested enterprises will be classified as resident enterprises if the following are located or resident in China: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights.
Currently, there are no detailed rules or precedents governing the procedures and specific criteria for determining de facto management bodies which are applicable to our Company or our overseas subsidiaries. We do not believe that we meet all of the conditions required for PRC resident enterprise. The Company is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its Board and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body”. There can be no assurance that the PRC government will ultimately take a view that is consistent with ours.
However, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. Such a 10% tax rate could be reduced by applicable tax treaties or similar arrangements between China and the jurisdiction of our shareholders. For example, for shareholders eligible for the benefits of the tax treaty between China and Hong Kong, the tax rate is reduced to 5% for dividends if relevant conditions are met. In addition, non-resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that the Company is treated as a PRC resident enterprise.
Provided that our Cayman Islands holding company, we, are not deemed to be a PRC resident enterprise, our shareholders who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However, under Circular 7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee would be obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under Circular 7, and we may be required to expend valuable resources to comply with Bulletin 37, or to establish that we should not be taxed under Circular 7 and Bulletin 37.
38
In addition to the uncertainty in how the new resident enterprise classification could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. If we are required under the Enterprise Income Tax law to withhold PRC income tax on our dividends payable to our foreign shareholders, or if you are required to pay PRC income tax on the transfer of our shares under the circumstances mentioned above, the value of your investment in our shares may be materially and adversely affected. These rates may be reduced by an applicable tax treaty, but it is unclear whether, if we are considered a PRC resident enterprise, holders of our shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. Any such tax may reduce the returns on your investment in our shares.
The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. In September 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by a special purpose vehicle seeking CSRC approval of its overseas listings. The application of the M&A Rules remains unclear. These M&A Rules and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the China’s Commerce Ministry (“MOC”) be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who are granted options or other awards under the equity incentive plan are subject to these regulations as our company has become an overseas listed company. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary’s ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.
39
Failure to make adequate contributions to various mandatory social security plans as required by PRC regulations may subject us to penalties.
PRC laws and regulations require us to pay several statutory social welfare benefits for our employees, including pensions, medical insurance, work-related injury insurance, unemployment insurance, maternity insurance and housing provident fund contributions. Local governments usually implement localized requirements as to mandatory social security plans considering differences in economic development in different regions. Our failure in making contributions to various mandatory social security plans and in complying with applicable PRC labor-related laws may subject us to late payment penalties. We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
Our current employment practices may be restricted under the PRC Labor Contract Law and our labor costs may increase as a result.
The PRC Labor Contract Law and its implementing rules impose requirements concerning contracts entered into between an employer and its employees and establishes time limits for probationary periods and for how long an employee can be placed in a fixed-term labor contract. Because there is lack of clarity with respect to the implementation and potential penalties and fines provided in the Labor Contract Law and tis implementing rules, it is uncertain how it will impact our current employment policies and practices. We cannot assure you that our employment policies and practices do not, or will not, violate the Labor Contract Law or its implementing rules and that we will not be subject to related penalties, fines or legal fees. If we are subject to large penalties or fees related to the Labor Contract Law or its implementing rules, our business, financial condition and results of operations may be materially and adversely affected. In addition, according to the Labor Contract Law and its implementing rules, if we intend to enforce the non-compete provision with an employee in a labor contract or non-competition agreement, we have to compensate the employee on a monthly basis during the term of the restriction period after the termination or ending of the labor contract, which may cause extra expenses to us. Furthermore, the Labor Contract Law and its implementation rules require certain terminations to be based upon seniority rather than merit, which significantly affects the cost of reducing workforce for employers. In the event we decide to significantly change or decrease our workforce in the PRC, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our circumstances or in a timely and cost-effective manner, thus our results of operations could be adversely affected.
If the chops of our PRC company and branches are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.
In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiary are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so. In addition, if the chops are misused by unauthorized persons, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from our operations.
40
You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in the prospectus supplement based on foreign laws. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.
We are a company incorporated under the laws of the Cayman Islands, and we conduct our operations in China and our assets are located in China. In addition, most of our senior executive officers reside within China for a significant portion of the time. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the U.S. or any state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the U.S. that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S. See “Enforceability of Civil Liabilities.”
It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the authorities in China may establish a regulatory cooperation mechanism with its counterparts of another country or region to monitor and oversee cross-border securities activities, such regulatory cooperation with the securities regulatory authorities in the United States may not be efficient in the absence of a practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or “Article 177”, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to foreign agencies without prior consent from the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
Our Ordinary Shares may be delisted under the HFCAA if the PCAOB is unable to inspect auditors or their affiliates that are located in mainland China. The delisting of our Ordinary Shares, or the threat of such delisting, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors of the benefits of such inspections.
The HFCAA was enacted on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our Ordinary Shares from being traded on a national securities exchange or in the over the counter trading market in the U.S.
41
On March 18, 2021, the SEC adopted on an interim basis rules disclosure requirements for companies with PCAOB member auditors whom the PCAOB has determined that it cannot inspect their operations within a foreign jurisdiction, or the Covered Issuers. Covered Issuers are required to disclose in their annual reports on Form 20 F: (i) that, during the period covered by the form, the registered public accounting firm has prepared an audit report for the issuer; (ii) the percentage of the shares of the issuer owned by governmental entities in the foreign jurisdiction in which the issuer is incorporated or otherwise organized; (iii) whether governmental entities in the applicable foreign jurisdiction with respect to that registered public accounting firm have a controlling financial interest with respect to the issuer; (iv) the name of each official of the Chinese Communist Party who is a member of the board of directors of the issuer or the operating entity with respect to the issuer; and (v) whether the articles of incorporation of the issuer (or equivalent organizing document) contains any charter of the Chinese Communist Party, including the text of any such charter. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, or the AHFCAA, which would amend the HFCAA and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. On September 22, 2021, the PCAOB adopted rules governing its procedures for making determinations as to its inability to inspect or investigate registered firms headquartered in a particular foreign jurisdiction or which has an office in a foreign jurisdiction, or a PCAOB-Identified Firm. Promptly after the effective date of this rule, the PCAOB will make determinations under the HFCAA to the extent such determinations are appropriate. Thereafter, the PCAOB will consider, at least annually, whether changes in facts and circumstances support any additional determinations. The PCAOB will make additional determinations as and when appropriate, to allow the SEC on a timely basis to identify covered issuers pursuant to the SEC rules. The rule became effective when the SEC approved the rule on November 4, 2021. On December 2, 2021, the SEC finalized its rules regarding disclosure by Covered Issuers. In addition, the release discussed the procedures the SEC will follow in implementing trading prohibitions for Covered Issuers. A foreign company would have to be designated a Covered Issuer three years in a row to be subject to a trading prohibition on that basis. The trading suspension would prohibit trading of the Covered Issuer’s securities on any exchange or in the over-the-counter markets.
The trading prohibition will be terminated if the Covered Issuer certifies to the SEC that the issuer has retained a registered public accounting firm that the PCAOB has inspected to the satisfaction of the SEC and files financial statements that include an audit report signed by the non-PCAOB-Identified Firm. The SEC is not required to engage in rulemaking to implement the trading prohibition provisions of the HFCAA. Neither the Act nor the SEC’s release create an obligation for an exchange to delist the Covered Issuer, but the SEC noted that under existing listing rules of the exchanges, a trading prohibition would be grounds for delisting. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by PRC authorities in those jurisdictions.
On August 26, 2022, the PCAOB entered into a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the PRC and, as summarized in the “Statement on Agreement Governing Inspections and Investigations of Audit Firms Based in China and Hong Kong” published on the U.S. Securities and Exchange Commission’s official website, the parties agreed to the following: (i) in accordance with the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation; (ii) the PCAOB shall have direct access to interview or take testimony from all personnel of the audit firms whose issuer engagements are being inspected or investigated; (iii) the PCAOB shall have the unfettered ability to transfer information to the SEC, in accordance with the Sarbanes-Oxley Act; and (iv) the PCAOB inspectors shall have access to complete audit work papers without any redactions, with view-only procedures for certain targeted pieces of information such as personally identifiable information. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. On December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”), was signed into law by President Joseph Biden of the United Sates. The Consolidated Appropriations Act contained, among other things, an identical provision to the AHFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two.
Our auditor, Onestop Assurance PAC, the independent registered public accounting firm that issues the consolidated financial statements incorporated by reference in this Annual Report, is a firm registered with the PCAOB and is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. However, the recent developments added uncertainties to our continued listing in the U.S. and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach, or experience as it relates to the audit of our financial statements. Such uncertainty could cause the market price of the ordinary shares to be materially and adversely affected, and our securities could be delisted or prohibited from being traded “over-the-counter” earlier than would be required by the HFCAA.
42
Item 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Corporate History and Background
We are not an operating company in China, but a holding company that was established under the laws of the Cayman Islands on July 27, 2018. We conduct our operations in China through our PRC subsidiaries, and we are a global provider of technology solutions services across multiple industries.
For the purpose of the IPO and listing on the NASDAQ Capital Market, a reorganization of the Company’s legal structure was completed on August 27, 2018. The reorganization involved the incorporation of X3 Holdings (previously known as Powerbridge Cayman), a Cayman Islands holding company, and its wholly owned subsidiary, Powerbridge HK, a holding company incorporated on July 27, 2018 under the laws of Hong Kong; and the transfer of all equity ownership of Powerbridge Zhuhai to Powerbridge HK from the former shareholders of Powerbridge Zhuhai through an investment holding company.
Prior to the reorganization, Powerbridge Zhuhai’s equity interests were held by the former shareholders through an investment holding company. Powerbridge Zhuhai was incorporated on October 30, 1997 in Zhuhai, Guangdong province under the laws of the People’s Republic of China. Powerbridge Zhuhai is an operating subsidiary that provides global trade software application and technology services to corporate and government customers located in China.
On August 7, 2018, the former shareholders transferred their 100% ownership interest in Powerbridge Zhuhai to Powerbridge HK, which is 100% owned by Powerbridge Cayman. After the reorganization, Powerbridge Cayman owns 100% equity interests of Powerbridge HK and Powerbridge Zhuhai. All shareholders have the same ownership interest in Powerbridge Cayman as in Powerbridge Zhuhai prior to the reorganization.
As of the date of this Annual Report, the Company has offices located in Singapore and China (Zhuhai, Guangzhou, Shenzhen, Changsha, Wuhan, Nanning, Hangzhou).
X3 Holdings (previously known as Powerbridge Cayman) is the sole shareholder of Powerbridge HK, incorporated in Hong Kong on July 27, 2018, and Hongding Hong Kong, incorporated in Hong Kong on August 19, 2020. Powerbridge HK is the sole shareholder of Powerbridge Zhuhai. Powerbridge Zhuhai was incorporated on October 30, 1997 under the laws of the People’s Republic of China, as a wholly-owned subsidiary of Powerbridge HK and a wholly foreign-owned entity under the PRC laws.
X3 Holdings is currently not engaged in any active business other than acting as a holding company. We conduct our business mainly through Powerbridge Zhuhai, Powerbridge HK and Hongding HK.
On April 2, 2019, our ordinary shares commenced trading on Nasdaq under the symbol “PBTS”.
On January 29, 2024, in the interest of our strategic transformation on global expansion and our commitment to broader technological and business horizons, we have shifted our full operation of global headquarter to Singapore and rebranded from Powerbridge Technologies to X3 Holdings. Accordingly, we have changed our corporate name from Powerbridge Technologies Co., Ltd. to X3 Holdings Co., Ltd. Our ordinary shares began trading on Nasdaq under the new symbol “XTKG” effective on January 30, 2024.
43
On August 17, 2021, Powerstream Supply Chain Co., Ltd. (“Powerstream”) was incorporated under the laws of the PRC, as a wholly-owned subsidiary of Powerbridge HK and a wholly foreign-owned entity under the PRC laws. Powerstream Zhuhai is engaged in supply chain services and new business development.
On October 1, 2021, Powercrypto Holding Pte. Ltd. (“Powercrypto”) was incorporated under the laws of Republic of Singapore and Powerbridge Cayman is the sole shareholder of Powercrypto. Powercrypto is planning to engage in cryptocurrencies mining and digital asset related business.
On January 21, 2022, Powermeta Digital Co., Ltd. (“Powermeta”) was incorporated under the laws of PRC, as a wholly-owned subsidiary of Powerbridge HK. Powermeta is planning to engage in development of interactive media services, metaverse and digital services.
On February 15, 2022, Metafusion Digital Co., Ltd. (“Metafusion”) was incorporated under the laws of PRC and 66% stake of Metafusion is owned by Powermeta. Metafusion is planning to engage in IPs development, metaverse and digital services.
On May 4, 2022, POWERCRYPTO Inc. (“POWERCRYPTO”) was incorporated under the laws of United States, as a wholly-owned subsidiary of Powerbridge Cayman. By the date of this Annual Report, POWERCRYPTO has not commenced its operations and Powerbridge Zhuhai has not injected any capital to the business.
On January 6, 2022, the Company entered into an equity transfer agreement (the “First SmartConn Acquisition”) with the shareholder of SmartConn., Limited (“SmartConn”) pursuant to which the Company agrees to purchase 19.99% equity of SmartConn at 90% of the appraisal price. The consideration of the First SmartConn Acquisition was to be paid in the form of newly issued shares of the Company.
On January 5, 2023, the Company entered into an equity transfer agreement (the “Second SmartConn Acquisition”) with a shareholder of SmartConn pursuant to which the Company agrees to purchase 31% equity of SmartConn at 90% of the appraisal price. The Company will hold an aggregate of 50.99% equity interest of the SmartConn following the closing of the Second SmartConn Acquisition and the First SmartConn Acquisition of 19.99% equity interest of the SmartConn in January 2022.
SmartConn wholly controls Shanghai Stamp Technology Co., Ltd. (“Stamp Technology”). Stamp Technology mainly engaged in distributed database blockchain, cryptocurrency DAPP development and web 3.0 application in the industry. By acquiring SmartConn, the Company intends to incorporate its blockchain technology and web 3.0 know how application to further elevate the Company’s product development ability.
On April 20, 2022, Powerbridge Zhuhai entered into an equity purchase agreement with the Shenzhen Chenbao Information Service Co., Ltd. (“Chenbao”), pursuant to which the Company agreed to acquire 5% equity interests (the “Acquired Interests”) of the outstanding equity interests of Chenbao.
44
On June 24, 2022, the Company entered into an equity transfer agreement (the “First Boxinrui Acquisition”) with Boxinrui’s shareholders (the “relevant shareholders”) of Boxinrui International Holdings Limited (“Boxinrui”) pursuant to which the Company agrees to purchase 15% equity of Boxinrui at 90% of the appraisal price.
On December 16, 2022, the Company entered into an equity transfer agreement (the “Second Boxinrui Acquisition”) with 14 shareholders of Boxinrui in which the Company agreed to purchase 20% of the equity interest of Boxinrui. The Company will hold an aggregate of 35% equity interest of the Boxinrui following the closing of the Second Boxinrui Acquisition and the First Boxinrui Acquisition of 20% equity interest of the Boxinrui in June 2022. Boxinrui wholly owns Hong Kong Anxin Jieda Co., Limited (“Anxin Jieda”), which in turn owns 90% equity interest in Ascendent Insights Education Co., Ltd. (“AIedu”) (also previously known as Shenzhen Wenxing Tianxia Technology Co., Ltd.). AIedu mainly engaged in Artificial Intelligence, Blockchain and NFT technology in the educational industry. Such acquisition is aligned with the Company’s metaverse strategy as the Company intends to utilize AIedu’s business know-how and technology to expand the Company’s operation.
On October 27, 2022, the Company entered into an equity transfer agreement with six individual shareholders of DTI Group Limited (“DTI”), pursuant to which the Company agreed to purchase 19% equity interest of DTI Jiangsu Corporation Limited (“DTI Jiangsu”)
On May 1, 2024, we acquired 100% equity interest in Hong Kong Hongyi Holdings Limited (“Hongyi”) and its 100% held subsidiary Shenzhen Hongchuangxin Technology Co., Ltd. (“Hongchuangxin”) is engaged in AI education and hardware equipment sales. The fair value of the consideration for this acquisition was approximately $13.9 million.
On January 12, 2025, Zhuhai Hongzhi Cultural Technology Co., Ltd. (“Zhuhai Hongzhi”) was incorporated under the laws of PRC, in which Powerbridge Technology Group Co., Ltd. holds a 35% equity interest. Zhuhai Hongzhi aims to develop an AI educational hub integrating AI-powered teaching, academic advancement support, and multifunctional learning spaces.
On April 9, 2025, Zhanjiang Huarong Enterprise Management Service Co., Ltd. (“Zhanjiang Huarong”) was incorporated under the laws of the PRC, in with Powerstream Supply Chain Co., Ltd. holds a 36% equity interest. Zhanjiang Huarong primarily engages in cross-border e-commerce and international trade.
On June 18, 2025, the Company has issued (i) 650,000 Class B restricted Ordinary Shares (108,334 shares after giving effect to the reverse stock split) to Hogstream International Ltd., a company incorporated under the laws of British Virgin Islands, which is 100% held by Mr. Stewart Lor, the Co-Chief Executive Officer of the Company; and (ii) 550,000 Class B restricted Ordinary Shares (91,666 shares after giving effect to the reverse stock split) to Ms. Yuxia Xu, the Chief Financial Officer of the Company (together with the issuance of Class B restricted Ordinary Shares to Hogstream International Ltd., collectively referred to as the “issuance of B Shares”), as stock bonuses. The issuance of B Shares was calculated pursuant to the lowest trading bid price for the past 60 calendar days from April 20, 2025 to June 18, 2025, which is US$0.6200 per share (US$3.7200 shares after giving effect to the reverse stock split), all of which will rank pari passu in all respects with all existing shares of the Company.
On July 11, 2025, the Company entered into a definitive securities purchase agreement (the “Purchase Agreement”) dated as of July 11, 2025, with certain individuals (collectively referred to as the “Purchasers”). Pursuant to the Purchase Agreement, the Company agreed to sell 60,000,000 Class A ordinary shares (333,333 shares after giving effect to the reverse stock split), with a par value of US$ 0.00003 per share (US$ 0.0009 shares after giving effect to the reverse stock split), which the purchase price per share is calculated by multiplying the lowest trading bid price over the past 60 trading days from April 15, 2025 to July 11, 2025 by 70%. The Offering is completed on July 17, 2025.
45
On July 29, 2025, the Group divested Anxin Jieda and its 90%-owned subsidiary AIedu from its holding company structure.
On August 1, 2025, the Company has entered into a definitive share purchase agreement (the “Share Purchase Agreement”) dated as of August 1, 2025, with a Non-U.S. individual, pursuant to which the Company agreed to acquire 100% of the outstanding equity interests in Creation Intelligent Co., Limited (“Creation Intelligent”), a Hong Kong-based company that holds a 51% equity interest in PicAIGames Technology Co., Ltd. (“PICAIGAMES”), a mobile game developer and operator renowned for its innovative gameplay design and strong user engagement metrics.
Pursuant to the Share Purchase Agreement, the consideration for the acquisition of Creation Intelligent consists of certain tangible assets of the Company, with a total assessed market value of approximately RMB59.4 million. Upon execution of the Share Purchase Agreement, the Company is entitled to full management and disposal rights over Creation Intelligent, including indirect control over PICAIGAMES’s 51% equity interest. The transaction was closed on August 12, 2025, and the Company directly hold 100% of the equity interest in Creation Intelligent and indirectly hold 51% equity interest in PICAIGAMES.
On December 26, 2025, the Company announced a share consolidation at a ratio of 1:6 effective on December 30, 2025.
On January 5, 2026, the Company issued (i) 4,500,000 Class B Shares to Hogstream International Ltd., a company incorporated under the laws of British Virgin Islands, which is 100% held by Mr. Stewart Lor, the Co-Chief Executive Officer of the Company; and (ii) 3,200,000 Class B Shares to Ms. Yuxia Xu, the Chief Financial Officer of the Company, as stock bonuses for the year ended December 31, 2025.
On January 7, 2026, (i) 4,542,860 Class A ordinary share (151,428 shares after giving effect to the reverse stock split) of a par value of US$0.00003 each (US$ 0.0009 shares after giving effect to the reverse stock split)), and (ii) 239,098 Class B ordinary shares of a par value of US$0.00003 each (the “Class B Shares”), are issued under the Company’s 2026 Stock Option Plan.
On January 12, 2026, the Company proposed to hold an annual general meeting on Frebuary 9, 2026, to approve the increase in Company’s authorised share capital from US$150,000 divided into 4,980,000,000 Class A ordinary shares and 20,000,000 Class B ordinary shares to US$1,500,000 divided into 49,980,000,000 Class A ordinary shares and 20,000,000 Class B ordinary shares, by creation of an addition of 45,000,000,000 Class A ordinary shares.
On January 30, 2026, the Company entered into the Equity Purchase Agreement with the Investor, on January 30, 2026. Pursuant to the Equity Purchase Agreement, we shall have the right, but not obligation, to issue and sell to the Investor up to an aggregate offering amount of US$50,000,000 (“Maximum Commitment Amount”) of our Ordinary Shares, par value US$0.00003 per share (US$ 0.0009 share after giving effect to the reverse stock split), offered by this prospectus supplement and the accompanying prospectus from time to time at our request during the Commitment period. As of February 24, 2026, the Company have issued an aggregate of 27,071,296 Class A ordinary shares (902,375 shares after giving effect to the reverse stock split) as commitment shares and new issued shares to Hudson for the fund raising purpose.
On February 10, 2026, the Board approved a share consolidation (the “Share Consolidation”) of the Company’s Class A ordinary shares at a ratio of 30-to-1 so that every 30 shares (or part thereof) are combined into one (1) share (with the fractional shares rounding up to the next whole share). The Board had sole discretion to implement the Share Consolidation under the authority granted by the annual general meeting resolution approved by the shareholders of the Company on February 9, 2026. The Share Consolidation was begun to trading on the Nasdaq Stock Market on March 5, 2026. As a result of the Share Consolidation, the par value of the Class A Shares was changed from $0.00003 per share to $0.0009 per share, and the issued and outstanding Class A shares will be reduced from 56,148,124 to approximately 1,831,650.
46
On March 6, 2026, the Company established an indirect wholly owned subsidiary, Fuzhou Powerstream Industrial Operation Services Co., Ltd. The principal activities of Fuzhou Hongrong Industrial Operation Services Co., Ltd are provision of operations, informatization and SAAS services in the bonded zone in Fuzhou Airport.
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and will file reports, registration statements and other information with the SEC. The Company’s reports, registration statements and other information can be inspected on the SEC’s website at www.sec.gov and such information can also be inspected and copies ordered at the public reference facilities maintained by the SEC at the following location: 100 F Street NE, Washington, D.C. 20549. You may also visit us on the World Wide Web at www.x3holdings.com. However, information contained on our website does not constitute a part of this Annual Report.
Corporate Information
Our principle executive offices are located at Suite 412, Tower A, Tai Seng Exchange, One Tai Seng Avenue, Singapore 536464. Our telephone number is +65.8038.6502. Our principle website address is www.x3holdings.com. The information on our website is not part of this Annual Report.
The following diagram illustrates our corporate structure of our principal subsidiaries as of the date of this Annual Report.
The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act (the “HFCAA”) was enacted on December 18, 2020, as amended by the Consolidated Appropriations Act, 2023. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded on a national securities exchange or in the over- the-counter trading market in the U.S.
On December 16, 2021, the PCAOB issued a Determination Report which found that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in: (i) mainland China; and (ii) Hong Kong.
On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and Ministry of Finance, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with the U.S. law.
47
On December 15, 2022, the PCAOB announced that it was able to conduct inspections and investigations completely of PCAOB- registered public accounting firms headquartered in mainland China and Hong Kong in 2022. The PCAOB vacated its previous determinations issued in December 2021 accordingly. As of the date of this Annual Report, the PCAOB has not issued any new determination that it is unable to inspect or investigate completely registered public accounting firms headquartered in any jurisdiction. As a result, we do not expect to be identified as a “Commission-Identified Issuer” under the HFCAA for the fiscal year ended December 31, 2024 after we file our annual report on Form 20-F for such fiscal year. On December 29, 2022, the Consolidated Appropriations Act, 2023, was signed into law, which amended the HFCAA (i) to reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two; and (ii) so that any foreign jurisdiction could be the reason why the PCAOB does not have complete access to inspect or investigate a company’s auditors. As it was originally enacted, the HFCAA applied only if the PCAOB’s inability to inspect or investigate because of a position taken by an authority in the foreign jurisdiction where the relevant public accounting firm is located. As a result of the Consolidated Appropriations Act, 2023, the HFCAA now also applies if the PCAOB’s inability to inspect or investigate the relevant accounting firm is due to a position taken by an authority in any foreign jurisdiction. The denying jurisdiction does not need to be where the accounting firm is located. However, whether the PCAOB will be able to continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA.
Our current auditor, Onestop Assurance PAC, the independent registered public accounting firm that issue the audit reports included elsewhere in this Annual Report, is registered with the PCAOB. The PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Onestop Assurance PAC is headquartered in Singapore and, as of the date of this Annual Report, is not included in the list of PCAOB Identified Firms in the PCAOB Determination Report issued in December 2021. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Our Ordinary Shares may be delisted under the HFCAA if the PCAOB is unable to inspect auditors or their affiliates that are located in mainland China. The delisting of our Ordinary Shares, or the threat of such delisting, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors of the benefits of such inspections.”
Permission Required from the PRC Authorities
As of the date of this Annual Report, our PRC subsidiaries have obtained all permissions and approvals to operate their respective business, including but not limited to the registration of incorporation, business license, permit for opening bank account, labor and employment recordation, social insurance registration, internet content provide registration record and such other permissions and approval as required by the PRC regulatory authorities.
We believe that we will not be subject to cybersecurity review with the CAC pursuant to the Cybersecurity Review Measures. No relevant laws or regulations in the PRC explicitly require us to seek approval from the CSRC for our overseas listing plan.
As of the date of this Annual Report, we and our PRC subsidiaries have not received any inquiry, notice, warning, or sanctions regarding our planned overseas listing from the CSRC or any other PRC governmental authorities. Since these statements and regulatory actions are newly published, however, official guidance and related implementation rules have not been issued. It is highly uncertain what the potential impact such modified or new laws and regulations will have on the daily business operations of our subsidiaries, our ability to accept foreign investments, and our listing on an U.S. exchange. The SCNPC or PRC regulatory authorities may in the future promulgate laws, regulations, or implementing rules that require us, our subsidiaries to obtain regulatory approval from the Chinese authorities before listing in the U.S.
48
If we do not receive or maintain the approval, or permission, or inadvertently conclude that such approval or permission is not required, or applicable laws, regulations, or interpretations change such that we are required to obtain approval or permission in the future, we may be subject to an investigation by competent regulators, fines or penalties, or an order prohibiting us from conducting an offering, and these risks could result in a material adverse change in our operations and the value of our Shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — The Chinese government may exert substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to issue securities to foreign investors, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.”
Compliance with Foreign Investment
All limited liability companies formed and operating in the PRC are governed by the Company Law of the People’s Republic of China (the “Company Law”), which was amended and promulgated by the Standing Committee of the National People’s Congress on October 26, 2018 and came into effect on the same day. Foreign invested enterprises must also comply with the Company Law, with exceptions as specified in the relevant foreign investment laws. Under our corporate structure as of the date of this Annual Report, 100% of the equity interests of Powerbridge Zhuhai are entirely and indirectly held by our Company through Powerbridge HK. Therefore, Powerbridge Zhuhai, a wholly foreign-owned enterprise (“WFOE”) of Powerbridge HK, should be regarded as a foreign-invested enterprise and comply with both the Company Law and other applicable foreign investment laws.
With respect to the establishment and operation of WFOEs, the MOFCOM, and the National Development and Reform Commission (the “NDRC”), promulgated the Catalogue of Industries for Guiding Foreign Investment (the “Catalogue”), as amended on June 28, 2017, which came into effect on August 28, 2017. The Catalogue divides industries for foreign investment into three categories: encouraged, restricted and prohibited. Those industries not set out in the Catalogue shall be classified as industries permitted for foreign investment. The Catalogue serves as the main basis for management and guidance for the MOFCOM to manage and supervise foreign investments to PRC. In addition, in June 2018, MOFCOM and NDRC promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment (the “Negative List”), effective July 2018. The Negative List expands the scope of permitted industries by foreign investment by reducing the number of industries that fall within the Negative List where restrictions on the shareholding percentage or requirements on the composition of board or senior management still exists. According to the Catalogue and the Negative List, IT services, the main business that our PRC subsidiary presently conduct, are neither restricted nor prohibited.
Emerging Growth Company Status
As a company with less than $1.235 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
| ● | being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our SEC filings; |
| ● | not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; |
| ● | reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and |
| ● | exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended. However, if certain events occur before the end of such five-year period, including if we become a “large accelerated filer”, our annual gross revenues exceed $1.235 billion or we issue more than $1.00 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company before the end of such five-year period.
In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section 107 of the JOBS Act.
49
Foreign Private Issuer Status
We are incorporated in the Cayman Islands. Less than 50% of our outstanding voting securities are held by U.S. residents and none of the following three circumstances applies: the majority of our executive officers or directors are U.S. citizens or residents; more than 50% of our assets are located in the United States; or our business is administered principally in the United States. Therefore, we are a “foreign private issuer”, as defined in Rule 405 under the Securities Act and Rule 3b-4(c) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). As a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.
B. Business Overview
Overview
X3 Holdings headquartered in Singapore, is a global provider of digital solutions and technology services spanning diverse industries. We harness cutting edge technologies to forge agile, innovative business models across targeted global markets by integrating pivotal resources in technology applications, financial prowess, and streamlined operations. We target accelerated and transformative growth across digital technologies, cryptomining operations, renewable energy, and AI gaming, focusing on key markets in Asia, the Middle East, Africa, and Europe. Our vision is to be a differentiated and valuable company excelling in high growth industries with a global reach.
Digital Technologies
With over two decades of technology and industry expertise, we capitalize on the digital transformation sweeping the global trade industry. We provide integrated solutions and services to both public and private entities by developing a comprehensive suite of cross-border digital trade platforms and services. Our global trade supply chain and compliance platform services have been adopted in China, Indonesia, the Netherlands, Spain and the United Kingdom, with plans to reach even more countries.
Cryptomining Operations
We engage in developing globally diversified bitcoin cryptomining operations supported by sustainable energy sources. We partner with top-tier mining machine providers to ensure stable access and supply of next generation miners. We also collaborate with global partners to intertwine cryptomining with agriculture and renewable energy to slash electricity and operational costs. Already operational in Central Asia, the Company plans to gear up for a sizable bitcoin mining fleet in the near term.
Renewable Energy
We align with industry leading players, weaving together policy, technology, capital and regional resources to develop scalable renewable energy projects. This initiative champions renewable energy adoption for new energy vehicle and agriculture machinery development in targeted markets. The Company also pursues integrated renewable energy solutions for cryptomining and agriculture, creating a blueprint for reduced electricity cost and environmental stewardship.
AI Gaming
Our AI Gaming segment focuses on the development, publishing, and live operation of digital games enhanced by artificial intelligence technologies. We utilize AI tools across the game development lifecycle, including content creation, iteration optimization, user acquisition, retention analytics, and monetization modeling, which we believe enables more efficient production timelines and data-driven decision-making. Our strategy is centered on a multi-title release pipeline supported by a combination of internally developed and externally collaborated titles, with performance informed by analytics-driven insights into player behavior and engagement. We distribute our games through third-party platforms, publishing partners, and digital distribution channels, and our commercial arrangements may include revenue-sharing structures based on game-level performance. We seek to expand this segment through the continued development of new titles, optimization of live operations, and strategic partnerships within the global gaming ecosystem..
We believe our competitive strengths are contributing to our success and differentiating us from our competitors. We have a diversified business with clear and robust growth strategies in what we believe are high growth markets with multiple revenue and profit models, supported by our over two decades of industry and technology expertise and capabilities underpinning business innovation and transformation.
We are striving to create values for all stakeholders, facilitated by our globally integrated resources and operations to support our overall growth. We believe that there is a potent entrepreneurial spirit prevalent throughout our global operations, shared by our management, employees, and business partners, led by our agile and seasoned management team and complemented by a partnership network adept at realizing our global vision.
50
Our corporate and government customers include (i) international trade businesses and manufacturers; (ii) governmental agencies and authorities; and (iii) logistics and other various service providers. We currently derive our revenues from five sources: (1) revenue from application development services generated from Powerbridge Digital Solutions, which require us to perform services including project planning, project design, application development and system integration based on customers’ specific needs. These services also require significant production and customization; (2) revenue from consulting and technical support services primarily generated from Powerbridge Digital Solutions; (3) revenue from subscription services generated from Powerbridge SaaS Services; (4) revenue from trading business; and (5) others revenue. We currently generate most of our revenues from application development services, which represented 49.1%, 46.1% and 58.1% of total revenue for the fiscal year ended December 2025, 2024 and 2023, respectively. Revenue from consulting and technical support services represented 38.6%, 30.7% and 21.5% of total revenue for the fiscal year ended December 31, 2025, 2024 and 2023, respectively. Revenue from subscription services represented 11.1%, 5.2% and 4.1% of total revenue for the fiscal year ended December 31, 2025, 2024 and 2023, respectively. Revenue from trading represented nil, 17.7% and 15.2% of total revenue for the fiscal year ended December 31, 2025, 2024 and 2023. Revenue from others represented 1.2%, 0.3% and 1.1% of our revenue for the fiscal year ended December 31, 2025, 2024 and 2023, respectively. For the fiscal years ended December 31, 2025, 2024 and 2023, our revenues were 6.3 million, $11.6 million and $16.8 million, respectively.
As of the date of this Annual Report, we had a total of 117 full-time employees, of which 58 are in research and development, 9 are in sales and marketing, 24 are in technical and customer services, and 26 are in general administration.
Our Competitive Strengths
We believe that the following competitive strengths contribute to our success and differentiate us from our competitors:
| ● | A diversified business with clear and robust growth strategies in high growth markets with multiple revenue and profit models. |
| ● | Over two decades of technology expertise and capabilities underpinning business innovation and transformation. |
| ● | Consistent value creation for stakeholders facilitated by globally integrated resources and operations to support overall growth. |
| ● | A potent entrepreneurial spirit prevalent throughout global operations, shared by our management, employees, and business partners. |
| ● | An agile and seasoned management, complemented by a partnership network adept at realizing the company’s global vision. |
Our Growth Strategies
We plan to grow and expand our business by pursuing the following growth strategies:
| ● | Focus on executing business segment strategies to expand and strengthen expertise, capabilities and resources to drive overall growth. |
| ● | Continue to pursue a global and diversified business growth strategy to ensure sustained growth, effectively countering market uncertainties. |
| ● | Accelerate our research and development of cutting-edge technologies to continue expanding our solutions and service offerings. |
| ● | Persist in creating and replicating agile and innovative business models, capitalizing on market opportunities to accelerate revenue and profit growth. |
| ● | Expand by organic and inorganic growth wherever strategic opportunities emerge, adopting a disciplined approach to ensure future earnings growth. |
51
We adopt differentiated and tailored growth strategies and priorities for each business segment:
| ● | Digital Technologies: Harness the power of digital transformation to redefine global trade and increase market penetration with expanded solutions and offerings. |
| ● | Cryptomining Operations: Scale up bitcoin cryptomining capacities with sustainable energy sources across globally diversified hosting sites. |
| ● | Renewable Energy: Focus on development and operations of large scale integrated renewable energy projects in key markets. |
| ● | AI Gaming: Amplify market presence with expanded AI-driven game development and publishing solutions and services in select markets. |
Our Solutions and Services
We are a provider of digital solutions and technology services spanning diverse industries in targeted markets, operating across diversified business segments in digital technologies, cryptomining operations, renewable energy and AI gaming.
Digital Technologies
With over two decades of technology and industry expertise, we capitalize on the digital transformation sweeping the global trade industry. We provide integrated solutions and services to both public and private entities by developing a comprehensive suite of cross-border digital trade platforms and services. Our global trade supply chain and compliance platform services have been adopted in China, Indonesia, the Netherlands, Spain and the United Kingdom, with plans to reach even more countries.
Global Trade Digital Platforms: We provide global digital trade platforms and services to both public and private entities, servicing all stakeholders in the global trade ecosystem including international trading partners, logistics service providers, customs authorities, and other government agencies. Our platforms and services encompass cross-border trades, logistics and shipping, customs clearance, and transactions and settlements, with enhanced traceability and transparency across the entire supply chain. We also offer fintech services for financial institutions for enhancing risk control and ensuring efficient supply chain financing.
Trade Zone Operations Solutions: We offer digital solutions and services for developing and operating free trade zones, bonded goods facilities, cross border trade zones, and other regulated trade zones and facilities. Our solutions and services are designed for trade zone operations, enterprise trade applications, customs monitoring and clearance, and other financial and logistics services for trade zone authorities and enterprises. Our blockchain applications enable supply chain transparency, streamlined customs clearance, expedited import and export process, and increased international trade volume for the regulated trade zones.
Supply Chain and Compliance Solutions: We provide global trade supply chain and compliance platforms and solutions for multinational manufacturing and international trade enterprises, satisfying regulatory requirements of customs authorities in various countries. Our solutions facilitate streamlined documentation process and integrated data sharing relating to customs, tax, logistics and shipping, and strengthen collaboration among customers’ subsidiaries and operations worldwide. Our solutions expedite the flow of raw materials and finished goods across the entire supply chain, fostering customer’s global market expansion.
International Trading of Products: We engage in international trading of select products by using data from our global trade platforms and market analysis on trade composition, trade logistics, and market trends and development. We collaborate with supply and channel partners to capitalize on international trading opportunities for consumer products and commodity products with high profit and growth opportunities. We gain access to efficient logistics channels to minimize shipping costs, leveraging on our over two decades of international trade industry experience and a global network of operations and logistics partners.
52
Cryptomining Operations
We engage in developing globally diversified bitcoin cryptomining operations supported by sustainable energy sources. We partner with top-tier mining machine providers to ensure stable access and supply of next generation miners. We also collaborate with global partners to intertwine cryptomining with agriculture and renewable energy to slash electricity and operational costs. Already operating in Central Asia, the Company plans to gear up for a sizable bitcoin mining fleet in the near term.
Cryptomining Business: We develop and operate renewable energy supported and sustainability-focused bitcoin mining operations with high performance mining machines, diversified across hosting sites in Central Asia and other regions. We adopt an asset light model by focusing on investment in mining machines rather than infrastructure for maximized return on investment on revenue generating assets and minimized capital expenditure. We partner with leading crypto machine manufacturers for stable access to top-tier performance mining hardware to drive an efficient scaling of our miner fleet.
Cryptomining Operations: We leverage our strong partnerships with diversified hosting facilities operated and supported by sustainable energy sources to minimize electricity and operational cost, and mitigate regulatory and site related risks. We focus on expansion of global bitcoin mining capacities powered by renewable energy sources collocated with the hosting sites. We continue to pursue and execute a prudent and efficient scaling of our mining capacities at existing operations and expanded locations with low-cost, energy efficient sustainable energy sources, with a projected sizable miner fleet in the near term.
Sustainability Focus: We engage in the development of bitcoin mining operations and facilities powered by renewable energy sources from solar energy, wind power and hydroelectric power across global geographically diversified locations. We continue to emphasize on a broader international footprint and deploy miners at renewable energy powered hosting sites with a long-term goal to become entirely carbon neutral. We also develop cleantech solutions to recover and repurpose excessive heat from the cryptomining facilities as a heating source for collocated farming greenhouses, further reducing carbon emissions.
Cryptomining and Agribusiness: We develop sustainability focused cleantech solutions for recovering and repurposing the excessive heat generated from the cryptomining sites for heating use in the collocated farming greenhouses. The cryptomining operations benefit from an added revenue stream and lower cooling cost offsetting electricity, while the greenhouses benefit from lower cost for heating and microclimate control, resulting in the same renewable energy being used twice, leading to substantial less carbon emissions by the efficient use of heat at collocated cryptomining operations and farming greenhouses.
Renewable Energy
We align with industry leading players, weaving together policy, technology, capital and regional resources to develop scalable renewable energy projects. This initiative champions renewable energy adoption for new energy vehicle and agriculture machinery development in targeted markets. The Company also pursues integrated renewable energy solutions for cryptomining and agriculture, creating a blueprint for reduced electricity cost and environmental stewardship.
Renewable Energy Business: We engage in an integrated renewable energy business model driving for the adoption of renewable energy and development of new energy vehicles and agriculture machinery in key developing markets. We collaborate with industry leading players, weaving together policy, technology, capital, and regional resources to cultivate a scalable renewable energy business with robust growth potential. We deploy diverse operational models in research and development, manufacturing and operations, and platform and channel services, fostering an efficient ecosystem for all stakeholders.
53
Electric Vehicles and Agriculture Equipment Projects: We collaborate with leading manufacturers and suppliers of electric vehicles and agriculture machinery and equipment for the project design, implementation and operations in target markets. We harness our partners’ technological and manufacturing capacities to establish regional brands and extend brand influence and market reach across developing and emerging markets. We implement financial and investment strategies and solutions to support production facility development and operations as well as brand and channel development.
Solar Power Projects: We forge strategic alliances with leading solar system providers in developing a portfolio of regional solar energy and storage projects catering to agricultural and industrial needs of target markets. We explore opportunities in research and development as well as assembly and production of photovoltaic panels and systems in developing countries with favorable cost structures and regulatory environments. We also develop solar energy charging stations tailored for electrical vehicles and clean energy driven agricultural machinery, complete with integrated digital technology solutions and services.
Integrated Operations Models: We develop integrated renewable energy solutions for agriculture and cryptomining, resulting in lower electricity cost and reduced carbon emission with a positive impact on the environment and society. Our renewable energy-based agriculture services encompass distributed energy and storage system installation, greenhouse and digital agritech operations, renewable energy powered farming equipment, and electric charging stations. We collaborate with cryptomining hosting facilities by leveraging cost effective renewable energy sources to drive sustainable practices.
AI Gaming
We offer AI-enabled gaming platforms and digital technologies designed to enhance game development efficiency and optimize live operations across the full publishing lifecycle. By leveraging big data, artificial intelligence, and advanced analytics, we support accelerated time-to-market, data-driven user acquisition, and sustainable monetization strategies through collaboration with global developers and publishing partners. Our integrated approach combines AI-embedded development pipelines with data-driven publishing frameworks, creating continuous feedback loops between development, launch, and live operations, which we believe reduces execution risk, improves commercialization efficiency, and enhances revenue visibility across our game portfolio.
AI Gaming Platform: We provide an AI gaming platform and related services that support the design, testing, and optimization of game mechanics through data-driven insights and decision-making tools. Our platform leverages big data, artificial intelligence, and behavioral analytics to analyze game economies, including player spending patterns, virtual currency flows, and item valuation, as well as gameplay progression metrics such as level completion rates, difficulty calibration, and reward distribution to enhance balance and engagement. In addition, we integrate analytics software development kits (SDKs), player segmentation models, churn prediction tools, and engagement indicators—including session duration, interaction patterns, and retention signals—to enable developers and publishers to manage player cohorts, optimize retention, and maintain overall community health.
AI-Powered Publishing Solution: We offer integrated publishing and live operations solutions designed to improve user acquisition efficiency, reduce customer acquisition costs, increase player lifetime value, and support scalable global deployment. Our solutions incorporate predictive analytics, A/B testing frameworks, dynamic difficulty adjustment, and fraud detection systems to enhance marketing effectiveness and player engagement, while leveraging cloud-based infrastructure and real-time data processing capabilities to support matchmaking, server load balancing, and performance optimization. We collaborate with global distribution partners to facilitate multi-channel deployment and efficient commercialization across diverse geographic markets.
Integrated Game Operations and Live Services: We provide end-to-end game operations and live services to support the ongoing performance, scalability, and longevity of game titles following launch. Our framework leverages real-time analytics, AI-driven automation, and continuous content updates to optimize player lifecycle management, including engagement, retention, and monetization strategies based on evolving player behavior and market conditions. Our services include live event management, content updates, community engagement, and continuous monitoring of key performance indicators such as retention rates, average revenue per user, and lifetime value, supported by backend infrastructure for server management, uptime monitoring, and performance optimization. This integrated approach enables rapid response to player feedback and operational dynamics, supporting sustained engagement and long-term revenue generation.
54
Our Customers
We provide our solutions and services to a broad spectrum of both private and public entities globally.
Our private sector customers include import and export companies, international trade manufacturers, cross-border eCommerce platforms, freight forwarding and shipping agencies, customs and clearance inspection brokers, warehouse operators, logistics and transportation companies, expressed courier service providers, financial institutions, insurance service providers, farming communities and groups, agribusiness organizations, agriculture related companies, and other business project related companies and organizations.
Our public sector customers are various government agencies, authorities and organizations, including government agencies such as customs, maritime affair, transportation and commerce, and government authorities and organizations such as port authorities, free trade zones, bonded facilities and warehouses, and other government regulated facility operators.
Sales and Marketing
Our go-to-market approach is focused on expanding the adoption of our solutions and services with existing customers and acquiring new customers with a direct sales force and a network of global channel partners, designed to accelerate and scale up our market adoption efficiently and globally.
We believe our customer relationship-focused sales model is an advantage compared to other competitors’ product focused approach, enabling us to develop and form strong, long-term relationships with our existing and potential customers.
Our direct sales and marketing teams are comprised of field sales, corporate sales and business development based on customer size, geographic markets, channel networks, and target industries, striving to sustain our high customer retention and long customer tenure.
We continue to focus on cross-sell additional products and platforms with our existing customers to expand the scope of adoption for our solutions and services.
Our sales team is organized by customer type and geography. Our direct sales force is supported by sales engineers and service consultants. Our indirect channel partners include value added resellers, system integrators, software and application providers, system hardware providers and other referral partners. As of the date of this Annual Report, our sales teams consisted of 9 full-time sales and marketing personnel. For the fiscal year ended December 31, 2025, 2024 and 2023, our sales and marketing expense were approximately 0.7 million, $1.1 million and $1.5 million, respectively, representing 10.4%, 9.5% and 8.8% of our total revenues for the fiscal year ended December 31, 2025, 2024 and 2023, respectively.
We generate customer leads, accelerate sales opportunities and build brand awareness through our marketing programs. Our marketing programs target management and technology executives of global trade businesses, government agencies and authorities, and various service providers, including user conferences, sponsored events and product promotions.
We continue to develop strategic partnerships with provincial and local government agencies, technology organizations, trade zone authorities and other government organizations, i.e., regional customs and commerce agencies, bonded and other trade facilities, and China port and other state-owned entities, to drive sales by leveraging their strengths and resources in targeted customer base, strong regional market influence and extensive government and industry resources.
As part of our overall strategy, we plan to expand into international markets to provide global trade software solutions and services by “piggybacking” with the infrastructure builders and other Chinese organizations who participate in the B&R’s development of global trade infrastructures in the B&R partnering countries.
55
Research and Development (“R&D”)
Our R&D organizations consist of dedicated engineering and technology employees, who are responsible for the design, development, testing and delivery of all aspects of our technologies, solutions and services. As of the date of this Annual Report, our team consists of 58 full-time R&D personnel. We incurred expenses of 2.6 million, $4.1 million and $4.8 million in R&D for the fiscal year ended December 31, 2025, 2024 and 2023, respectively.
The majority of our R&D team is based in our Zhuhai office and to a lesser degree in our branch offices. Our team is further apportioned into smaller agile development groups to foster continuous innovation and rapid delivery.
We believe we have a strong R&D culture that rapidly and consistently delivers high quality products. We plan to continue to invest substantial resources in R&D to drive core technology innovation and bring new solutions and services to market.
Competition
The market for digital solutions is highly competitive and fragmented. We face intensive competition. Our main sources of current and potential competition fall into the following categories:
| ● | Regional global trade application providers offering regulatory compliance, trade logistics and trade processing software and systems. |
| ● | Software vendors providing online or cloud-based single point or single feature functional global trade application products and services. |
| ● | Online global trade hubs or portals offering specific global trade transactional and processing application products and services. |
| ● | Enterprise resource planning, supply chain and logistics software application companies offering global trade software, systems and services. |
| ● | Government organizations providing global trade related regulatory compliance and trade logistics applications and systems. |
| ● | Emerging blockchain, artificial intelligence and IoT technology providers offering technologies and software for global trade applications. |
We believe the following competitive attributes are necessary for us to compete successfully in our industry:
| ● | Deep domain knowledge, industry experience and product expertise in global trade software applications and system integration to address customer needs. |
| ● | Enablement of emerging and disruptive technologies to develop and provide global trade software applications and services. |
| ● | Enterprise grade performance level in scalability, reliability and security as well as cost of ownership and ease of deployment. |
| ● | Breadth, depth and quality of application features and functionalities that are able to operate in multiple infrastructures such as in cloud, on premises or both. |
56
| ● | Capability of technology platforms in integrating and interoperating with legacy and other enterprise infrastructures and third-party applications. |
| ● | Strength of sales and marketing as well as customer support in service responsiveness and level of customer satisfaction. |
| ● | Brand awareness and reputation, size of customer base and level of user adoption to new and disruptive technologies and applications. |
| ● | Ability to capture market share in China and expand into international markets to operate as a global player in servicing multiple markets and countries. |
We believe we compete favorably on the basis of the competitive factors listed above. Some of our competitors have substantially greater financial, technical and other resources, greater name recognition, larger sales and marketing budgets, broader distribution channels and larger or more intellectual property portfolios.
Intellectual Property
The PRC has domestic laws for the protection of rights in copyrights, trademarks and trade secrets. The PRC is also a signatory to all of the world’s major intellectual property conventions, including:
| ● | Convention establishing the World Intellectual Property Organization (June 3, 1980); |
| ● | Paris Convention for the Protection of Industrial Property (March 19, 1985); |
| ● | Patent Cooperation Treaty (January 1, 1994); and |
| ● | Agreement on Trade-Related Aspects of Intellectual Property Rights (November 11, 2001). |
The PRC Trademark Law, adopted in 1982 and revised in 2013, with its implementation rules adopted in 2014, protects registered trademarks. The Trademark Office of the State Administration of Industry and Commerce of the PRC, handles trademark registrations and grants trademark registrations for a term of ten years.
We consider the protection of our intellectual property and proprietary information to be important to our business. We protect our proprietary technology and products through a combination of contractual provisions and intellectual property rights in trademarks, patents, copyrights, and trade secrets. We generally license our software pursuant to agreements that prohibit reverse engineering and restrict the use of access and use of our source codes. We seek to avoid disclosure of our trade secrets and other proprietary and confidential information with non-disclosure agreements executed with our employees, consultants, and contractors.
We enter into customary invention assignment agreements with our employees, consultants and contractors participated in the development of our intellectual property. We also enter into non-disclosure agreements with our business partners and other relationships where disclosure of proprietary information may be necessary.
As of the date of this Annual Report, we have 16 registered patents, 148 registered software copyrights and 23 registered trademarks in the PRC. In addition, we own 10 URL designations and domain names, including x3holdings.com, powerbridgetech.com, enlightenmetaspace.com, powercrypto.pro, pbts.cloud, pbtyun.com, pbtcloud.com, cs-estone.com, erp-china.com, and powerbridge.com.
We do not have applications pending in any jurisdiction other than China. We do not know if these applications will be granted as patents, and if they are granted as patents whether they will provide meaningful protection against their party competitors.
57
Facilities
We have set up global headquarters in Singapore (“Singapore HQ Office”) and a Guangzhou office as our strategic pursuit of global presence, which is fully operational as of December 31, 2025. We intend to procure additional space as we add employees and expand geographically. We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate any such expansion of our operations. As of the date of this Annual Report, we maintain the following facilities in China. In addition to our headquarters, we lease space in Singapore, Guangzhou, Zhuhai, Wuhan, Changsha, Nanning, and Hangzhou. Rent expenses amounted to $400,000, $460,284 and $344,775 for the fiscal years ended December 31, 2025, 2024 and 2023, respectively.
| Facility | Address | Space (㎡) | |||
| Wuhan Office | Rm 1605, Building C, Tongcheng Plaza, Hanjiang District, Wuhan, Hubei, China | 107.39 | |||
| Changsha Office | Rm 1006, 1008, 1010 10th Fl, Block C2, Wanda Plaza, No. 589 Zhongshan Road, Kaifu, Changsha, Hunan 410015, China | 185.76 | |||
| Nanning Office | Suite 2209, 22nd Fl, Block 2, 118 Dongge Road Qingxiu, Nanning, Guangxi 530012, China | 260 | |||
| Jinan Office | Room 1-802, Building 13, Jindi Huazhu, Lixia District, Jinan City | 129.3 | |||
| Zhuhai Office | 8th and 9th Fl, C2 Building, Advance Business Park, No.29 Lanwan Road, Tangjia Bay, Xiangzhou District, Zhuhai, China | 1820 | |||
| Guangzhou Office | No.69, Nanhu Middle Road, Tonghe, Baiyun District, Guangzhou, China | 3150.69 | |||
| Singapore HQ Office | Suite 412, Tower A, Tai Seng Exchange One Tai Seng Avenue, Singapore 536464 | 210 | |||
| Guangzhou Office | Room 412,4th F4, No.9 & No.11 Jiangong Road, Zhongshan Avenue, Tianhe District, Guangzhou, China | 360 |
Employees
As of the date of this Annual Report, we believe that our culture has been and will continue to be a key contributor to our success. We have optimized our operations in 2025 fiscal year and the number of our total employees decreased from 137 in December 2024 to 117 as of the date of this Annual Report,. We had a total of 117 full-time employees, of which 58 are in research and development, 9 are in sales and marketing, 24 are in technical and customer services, and 26 are in general administration.
We have standard employment, comprehensive confidentiality and non-compete agreements with our management and standard confidentiality and non-compete terms with all other employees. As required by laws and regulations in China, we participate in various social security plans that are organized by municipal and provincial governments, including pension insurance, medical insurance, unemployment insurance, maternity insurance, job-related injury insurance and housing fund. We are required by PRC laws to make contributions to employee social security plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.
We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our employee is represented by a labor union or covered by collective bargaining agreements. We have not experienced any work stoppages.
Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not currently a party to any legal proceedings that in the opinion of the management, if determined adversely to us, would have a material adverse effect on our business, financial condition, operating results or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
58
Government Regulation Relating to Our Business
The following sets forth a summary of the major laws and regulations that affect our business activities:
Regulations Related to Foreign Investment
Investment activities in China by foreign investors are principally governed by the Catalogue for the Guidance of Foreign Investment Industries, which was promulgated by MOFCOM and the National Development and Reform Commission, as amended from time to time. Industries listed in the catalogue are divided into three categories: encouraged, restricted and prohibited. Industries not listed in the catalogue are generally open to foreign investment unless specifically restricted by other PRC regulations. Establishment of wholly foreign-owned enterprises is generally allowed in encouraged industries. For some restricted industries, foreign investors can only conduct investment activities through equity or contractual joint ventures, while in some cases PRC partners are required to hold the majority interests in such joint ventures. In addition, projects in the restricted category are subject to higher-level governmental approvals. Foreign investors are not allowed to invest in industries in the prohibited category.
Regulations Relating to PRC Information Technology Service Industry
According to the Catalog on Foreign Invested Industries (2017 Revision) issued by the National Development and Reform Commission and the Ministry of Commerce, IT services fall into the category of industries in which foreign investment is encouraged. In 2018, The National Development and Reform Commission and the Ministry of Commerce launched Special Administrative Measures for Access of Foreign Investment (Negative List) (Version 2018)(“the 2018 Negative List”) to replace part of the Catalog on Foreign Invested Industries (2017 Revision) in respect of the category of industries in which foreign investment is restricted or prohibited, and foreign investment in IT services is neither restricted nor prohibited according to the 2018 Negative List. The State Council has promulgated several notices since 2000 to launch favorable policies for IT services, such as preferential tax treatments and credit support.
Under rules and regulations promulgated by various Chinese government agencies, enterprises that have met specified criteria and are recognized as software enterprises by the relevant government authorities in China are entitled to preferential treatment, including financing support, preferential tax rates, export incentives, discretion and flexibility in determining employees’ welfare benefits and remuneration. Software enterprise qualifications are subject to annual examination. Enterprises that fail to meet the annual examination standards will lose the favorable enterprise income tax treatment. Enterprises exporting software or producing software products that are registered with the relevant government authorities are also entitled to preferential treatment including governmental financial support, preferential import, export policies and preferential tax rates.
Companies in China engaging in information systems integration were used to be required to obtain qualification certificates from the Ministry of Industry and Information Technology. “Information systems integration” means plan, design, development, implementation, service and safeguard of computer system and network system. Currently the Company does not engage in information system integration business, therefore the Company is not required to have such qualification certificates. Companies planning to set up computer information systems may only retain systems integration companies with appropriate qualification certificates. The qualification certificate is subject to review every two years and is renewable every four years. In June 2015, the China Information Technology Industry Federation (CITIF) promulgated the Appraisal Condition for Qualification Grade of Information Systems Integration (Provisional) to elaborate the conditions for appraising each of the four qualification grades of systems integration companies. Companies applying for qualification are graded depending on the scale of the work they undertake. The grades range from Grade 1 (highest) to Grade 4 (lowest) in the scale of the work the respective companies can undertake.
In 2009, the Ministry of Commerce and the Ministry of Industry and Information Technology jointly promulgated a rule aiming to protect a fair competition environment in the PRC service outsourcing industry. This rule requires that each of the domestic enterprises which provides IT and technological BPO services and each of its shareholders, directors, supervisors, managers and employees should not violate the service outsourcing contract to disclose, use or allow others to use the confidential information of its customer. Such enterprises are also required to establish an information protection system and take various measures to protect customers’ confidential information, including causing their employees and third parties who have access to customers’ confidential information to sign confidentiality agreements and or non-competition agreements.
59
Regulations on Information Security
Several Provisions on Regulating the Market Order of Internet Information Services
The Ministry of Industry and Information technology (“MIIT”) issued the Several Provisions on Regulating the Market Order of Internet Information Services (the “Several Provisions”) in December 2011, which became effective in March 2012. Pursuant to the Several Provisions, internet information service providers may not collect any users’ personal information or provide any such information to third parties without the consent of the user.
An internet information service provider shall expressly inform the users of the method, content and purpose of the collection and processing of such users’ personal information and may only collect information necessary for the provision of its services. An internet information service provider is also required to properly maintain the users’ personal information, and in case of any leak or likely leak of the users’ personal information, the internet information service provider must take immediate remedial measures and, in severe circumstances, immediately report to the telecommunications authority.
Decision of the SCNPC on Strengthening Internet Information Protection
The Standing Committee of the National People’s Congress (“SCNPC”) issued the Decision on Strengthening Internet Information Protection in December 2012. Pursuant to this decision, the State protects the electronic information that can identify the personal identity of citizens and that involves privacy of citizens. No organization or individual may obtain the personal electronic information of citizens by steal or other illegal means, nor sell or illegally provide certain information to others. The Decision further set out the requirement for the internet service providers.
Cyber Security Law
The SCNPC promulgated the Cyber Security Law in November 2016, which became effective in June 2017, to protect cyberspace security and order. Pursuant to the Cyber Security Law, any individual or organization using the network must comply with the Constitution and the applicable laws, follow the public order and respect social moralities, and must not endanger cyber security, or engage in activities by making use of the network that endanger the national security, honor and interests, or infringe on the fame, privacy, intellectual property and other legitimate rights and interests of others.
Data Security Law
The Data Security Law of the PRC, which was promulgated by the SCNPC in June 2021 and took effect in September 2021, provides that the PRC shall establish a data classification and grading protection system, formulate the important data catalogs to enhance the protection of important data. Processors of important data shall specify the person responsible for data security and management agencies to implement data security protection responsibilities. Relevant authorities will establish the measures for the cross-border transfer of important data. If any company violates the Data Security Law of the PRC to provide important data outside the PRC, such company may be punished by administration sanctions, including penalties, fines, and/or suspension of relevant business or revocation of the business license.
On July 7, 2022, the Cyberspace Administration of China (“CAC”) promulgated the Measures for Security Assessment for Cross-border Data Transfer (the “Measures”), which took effect on September 1, 2022. According to the Measures, a data processor shall apply to the competent cyberspace department for security assessment and clearance of the outbound data under any of the following circumstances: (i) outbound transfer of important data by a data processor; (ii) outbound transfer of personal information by an operator of critical information infrastructure or a data processor which has processed more than one million users’ personal data; (iii) outbound transfer of personal information by a data processor which has made outbound transfers of more than one hundred thousand users’ personal information or more than ten thousand users’ sensitive personal information cumulatively since January 1 of the previous year; or (iv) such other circumstances where ex-ante security assessment and evaluation of cross-border data transfer is required by the CAC. A data processor shall, before applying for the security assessment of an outbound data transfer, conduct a self-assessment of the risks involved in the outbound data transfer.
Personal Information Protection Law
In August 2021, the SCNPC promulgated the Personal Information Protection Law, which became effective on November 1, 2021. The Personal Information Protection Law specifies the rules for processing sensitive personal information, which means personal information that, once leaked or illegally used, may easily cause harm to the dignity of natural persons or grave harm to personal or property security, including, but not limited to, information on biometric characteristics, financial accounts, and individual location tracking, as well as the personal information of minors under the age of 14. Personal information processors shall bear responsibility for their personal information handling activities and adopt the necessary measures to safeguard the security of the personal information they process. Otherwise, the personal information processors will be ordered to correct or suspend or terminate the provision of services and be subject to confiscation of illegal income, fines or other penalties.
60
Regulations Related to Labor and Social Security
Pursuant to the Labor Law, promulgated by National People’s Congress in January 1995, and the Labor Contract Law, promulgated by Standing Committee of the National People’s Congress in June 2007 and amended in December 2012, employers must execute written labor contracts with full-time employees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. All employers must comply with local minimum wage standards. Violation of the Labor Law and the Labor Contract Law may result in the imposition of fines and other administrative and criminal liability in the case of serious violation.
On December 28, 2012, the PRC Labor Contract Law was amended with effect on July 1, 2013 to impose more stringent requirements on labor dispatch. Under such law, dispatched workers are entitled to pay equal to that of full-time employees for equal work, but the number of dispatched workers that an employer hires may not exceed a certain percentage of its total number of employees as determined by the labor administrative department of the State Council. Additionally, dispatched workers are only permitted to engage in temporary, auxiliary or substitute work. According to the Interim Provisions on Labor Dispatching promulgated by the Ministry of Human Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, the number of dispatched workers hired by an employer shall not exceed 10% of the total number of its employees (including both directly hired employees and dispatched workers). The Interim Provisions on Labor Dispatching require employers which are not in compliance with the PRC Labor Contract Law in this regard to reduce the number of its dispatched workers to below 10% of the total number of its employees prior to March 1, 2016. In addition, an employer is not permitted to hire any new dispatched worker until the number of its dispatched workers has been reduced to below 10% of the total number of its employees.
Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located. According to the Social Insurance Law, an employer that fails to make social insurance contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline and be subject to a late fee of up to 0.05% or 0.2% per day, as the case may be. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to the Regulations on Management of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement. Our PRC operating entities have not made adequate employee benefit payments and we may be required to make up the contributions for these plans as well as to pay late fees and fines. See “Risks Related to Doing Business in China - Failure to make adequate contributions to various mandatory social security plans as required by PRC regulations may subject us to penalties”.
Regulations on Intellectual Property Rights
The PRC Copyright Law, as amended, together with various regulations and rules promulgated by the State Council and the National Copyright Administration, protect software copyright in China. These laws and regulations establish a voluntary registration system for software copyrights administered by the Copyright Protection Center of China. Unlike patent and trademark registration, copyrighted software does not require registration for protection. Although such registration is not mandatory under PRC law, software copyright owners are encouraged to go through the registration process and registered software may receive better protection. The PRC Trademark Law, as amended, together with its implementation rules, protect registered trademarks. The Trademark Office of the State Administration for Industry and Commerce handles trademark registrations and grants a renewable protection term of 10 years to registered trademarks.
Regulation of Foreign Currency Exchange and Dividend Distribution
Foreign Currency Exchange. The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can usually be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. By contrast, approval from or registration with appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.
On March 30, 2015, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or SAFE Circular 19. Pursuant to SAFE Circular 19, the foreign exchange capital of foreign-invested enterprises is subject to the discretional foreign exchange settlement, which means the foreign exchange capital in the capital account of foreign-invested enterprises upon the confirmation of rights and interests of monetary contribution by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the banks) may be settled at the banks based on the actual operation needs of the enterprises. The proportion of discretionary settlement of foreign exchange capital of foreign-invested enterprises is currently 100%. SAFE can adjust such proportion in due time based on the circumstances of international balance of payments.
61
The dividends paid by the subsidiaries to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities.
Dividend Distribution. The principal regulations governing the distribution of dividends by foreign holding companies include the Company Law of the PRC (1993), as amended in 2013, the Foreign Investment assets or interests to a SPV, but failed to complete foreign exchange registration of overseas investments as required prior Enterprise Law (1986), as amended in 2016, and the Administrative Rules under the Foreign Investment Enterprise Law (1990), as amended in 2001 and 2014 respectively.
Under these regulations, wholly foreign-owned investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned investment enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends, and a wholly foreign-owned enterprise is not permitted to distribute any profits until losses from prior fiscal years have been offset.
Circular 37. On July 4, 2014, SAFE issued Circular 37, which became effective as of July 4, 2014. According to Circular 37, PRC residents shall apply to SAFE and its branches for going through the procedures for foreign exchange registration of overseas investments before contributing the domestic assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required if the registered overseas SPV’s basic information such as domestic individual resident shareholder, name, operating period, or major events such as domestic individual resident capital increase, capital reduction, share transfer or exchange, merger or division has changed. Although the change of overseas funds raised by overseas SPV, overseas investment exercised by overseas SPV and non-cross-border capital flow are not included in Circular 37, we may be required to make foreign exchange registration if required by SAFE and its branches.
Moreover, Circular 37 applies retroactively. As a result, PRC residents who have contributed domestic to implementation of Circular 37, are required to send a letter to SAFE and its branches for explanation. Under the relevant rules, failure to comply with the registration procedures set forth in Circular 37 may result in receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000 for an organization or up to RMB 50,000 for an individual. In the event of failing to register, if capital outflow occurred, a fine up to 30% of the illegal amount may be assessed. PRC residents who control our company are required to register with SAFE in connection with their investments in us. If we use our equity interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be subject to the registration procedures described in Circular 37.
New M&A Regulations and Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006 and was amended on June 22, 2009. This New M&A Rule, among other things, includes provisions that purport to require that an offshore special purpose vehicle formed for purposes of overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain the approval of CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.
On September 21, 2006, CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process. The application of this new PRC regulation remains unclear with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirement.
The corporate structure of the Group Companies shall not be deemed as “a foreign investor’s merger and acquisition of a domestic enterprise” as specified in the Article 2 of the New M&A Rule, so the Company is not required to obtain approval from the CSRC for listing and trading of its shares. However, uncertainties still exist as to how the New M&A Rule will be interpreted and implemented and our opinion stated above is subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the New M&A Rule.
62
Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC subsidiary
An offshore company may invest equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the Wholly Foreign Owned Enterprise Law, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture Enterprise Law, all as amended from time to time, and their respective implementing rules; the Administrative Provisions on Foreign Exchange in Domestic Direct Investment by Foreign Investors; and the Notice of the State Administration on Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment. Under the aforesaid laws and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval by the original approval authority of its establishment. In addition, the increase of registered capital and total investment amount shall both be registered with SAIC and SAFE. Shareholder loans made by offshore parent holding companies to their PRC subsidiary are regarded as foreign debts in China for regulatory purpose, which is subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange. Under these regulations, the shareholder loans made by offshore parent holding companies to their PRC subsidiary shall be registered with SAFE. Furthermore, the total amount of foreign debts that can be borrowed by such PRC subsidiary, including any shareholder loans, shall not exceed the difference between the total investment amount and the registered capital amount of the PRC subsidiary, both of which are subject to the governmental approval.
C. Our Structure
See “Item 4. Information on the Company – A. History and Development of the Company.”
D. Property, Plants and Equipment
Information regarding our property, plants and equipment is described in “Item 4. Information on the Company – B. Business Overview.”
Item 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report.
Overview
X3 Holdings Co., Ltd. (hereinafter referred to as “we,” “our,” or the “Company”), formerly known as Powerbridge Technologies Co., Ltd., is a company that was established under the laws of the Cayman Islands on July 27, 2018 as a holding company.
We are a provider of software application and technology solutions and services to corporate and government customers engaged in global trade. All of our customers are located in China. We currently generate most of our revenues from application development services, which represent 49.1%,46.1% and 58.1% of total revenue for the years ended December 31, 2025, 2024 and 2023, respectively. We generate revenue from consulting and technical support services, which represent 38.6%, 30.7% and 21.5% of our revenue for the years ended December 31, 2025, 2024 and 2023, respectively. We also earn subscription service revenue from customers accessing our SaaS, which represent 11.1%, 5.2% and 4.1% of our revenue for the years ended December 31, 2025, 2024 and 2023. We generated revenue from trading business, which represent nil, 17.7% and 15.2% of total revenue for the years ended December 31, 2025, 2024 and 2023, respectively. Other revenue represented 1.2%, 0.3% and 1.1% of our revenue for the years ended December 31, 2025, 2024 and 2023, respectively.
63
Recent Developments
Effective on April 30, 2025, Ms. Yuxia Xu resigned as an executive Director. To fill in the vacancy created by the resignation of Ms. Yuxia Xu, the Board appointed Mr. Ee Fong Voon to serve as an executive Director, with effect on and from April 30, 2025. In addition, we appointed Mr. Voon as the co-chief executive officer (“Co-CEO”), effective as of April 30, 2025. Acting jointly in the capacity as Co-CEO with Mr. Lor, Mr. Voon is responsible for overseeing our international business expansion and strategic partnerships. He also leads the cross-border business development initiatives and strengthens regional operational capabilities to support our global growth strategy. On February 12, 2026, Mr. Ee Fong Voon and Mr. Philip Tao Qiu resigned as an executive Director and a co-chief executive officer and an independent Director, a chairman of the compensation committee of the Board and a member of the nominating committee and the audit committee of the Board, respectively. To fill in the vacancy created by the resignations of Mr. Voon and Mr. Qiu, respectively, the Board appointed Ms. Yuxia Xu and Mr. Haoqing Su to serve as an executive Director and an independent Director, a chairman of the compensation committee and a member of the nominating committee and the audit committee, respectively, with effect on and from February 13, 2026.
On May 19, 2025, we entered into purchase agreements with thirteen investors. Pursuant to the Purchase Agreement, we agreed to sell 124,031 Class A ordinary shares, at a purchase price of $77.4 per share. We have received proceeds of $5.0 million as of December 31, 2025. Outstanding subscription receivable amounted to $4.6 million as of December 31, 2025.
On July 11, 2025, we entered into a definitive securities purchase agreement with certain individuals, the Company agreed to sell 333,333 Class A ordinary shares with consideration of $25.8 million. We issued 333,333 Class A ordinary shares on July 17, 2025, outstanding subscription receivable amounted to $25.8 million as of December 31, 2025.
On August 1, 2025, we acquired 100% equity interest in Creation Intelligent Co., Limited (“Creation Intelligent”) (2and its 51% held subsidiary PicAIGames Technology Co., Ltd. (“PicAIGames”) PicAIGames is engaged in mobile game developer and operator renowned for its innovative gameplay design and strong user engagement metrics. The fair value of the consideration for this acquisition was approximately $8.9 million.
On August 13, 2025, we entered into a promissory note agreement with a creditor, pursuant to which we issued the creditor an unsecured promissory note with original principal amount of $1,095,000 for $1,000,000 in gross proceeds. The promissory note bears interest at a rate of 8% per annum compounding daily and have a term of twelve months. The promissory note includes an original issue discount of $80,000 along with $15,000 for creditor costs and other transaction expenses incurred in connection with the purchase and sale of the promissory note. We may prepay all or a portion of the promissory note at any time by paying 120% of the outstanding balance elected for pre-payment. We have collected $1.0 million as of December 31, 2025.
On January 30, 2026, we entered into purchase agreements with an investor to sell up to $50,000,000 of newly issued Class A ordinary shares, over the period of 24 months from the date of the execution of the purchase agreement, and an aggregate of 43,209 of Class A ordinary shares issue to the investor as consideration for its commitment to enter into the purchase agreement. We will receive gross proceeds of $50.0 million in connection with the offering before deducting the related offering expenses. As of this annual report filing date, we have received proceeds of approximately $2.7 million.
Key Factors that Affect Operating Results
We currently derive a majority of revenues from our application development services, consulting and technical support services, subscription services and trading. We intend to continually enhance our services and cross-sell new services to our existing customers and acquire new customers by increasing our market penetration with a deeper market coverage and a broader geographical reach. Our ability to maintain and expand our customer base with our application development services significantly affects our operating results. We intend to expand the scope of our offerings to service existing customers and acquire new customers by continually making significant investments in R&D as well as sales and marketing activities to increase our subscription revenue and profit. Our ability to drive increased customer adoption and usage of our SaaS services affects our operating results.
Our business of providing digital solutions and technology services spans diverse industries. We harness cutting edge technologies to forge agile, innovative business models by integrating pivotal resources in technology applications, financial prowess, and streamlined operations. We target accelerated and transformative growth across digital technologies and crypto mining operations.
We intend to pursue strategic acquisitions and investments in selective technologies and businesses that will enhance our technology capabilities, expand our offerings and increase our market penetration. We believe our strategic acquisition and investment strategy is critical for us to accelerate our growth and strengthen our competitive position. Our ability to identify and execute strategic acquisitions and investments will have an effect on our operating results.
64
| A. | Operating Results |
For the years ended December 31, 2025 and 2024
The following table summarizes the results of our operations for the years ended December 31, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| For the Years Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2025 | 2024 | Change | % Change | |||||||||||||
| REVENUES: | ||||||||||||||||
| Application development services | $ | 3,091,745 | $ | 5,348,816 | $ | (2,257,071 | ) | (42.2 | )% | |||||||
| Consulting and technical support services | 2,426,085 | 3,563,248 | (1,137,163 | ) | (31.9 | )% | ||||||||||
| Subscription services | 697,387 | 606,313 | 91,074 | 15.0 | % | |||||||||||
| Trading revenue | - | 2,055,815 | (2,055,815 | ) | (100.0 | )% | ||||||||||
| Others revenue | 76,792 | 37,250 | 39,542 | 106.2 | % | |||||||||||
| Total revenues | 6,292,009 | 11,611,442 | (5,319,433 | ) | (45.8 | )% | ||||||||||
| COST OF REVENUES: | ||||||||||||||||
| Application development services | 1,386,061 | 3,421,696 | (2,035,635 | ) | (59.5 | )% | ||||||||||
| Consulting and technical support services | 702,567 | 1,420,126 | (717,559 | ) | (50.5 | )% | ||||||||||
| Subscription services | 64,279 | 49,642 | 14,637 | 29.5 | % | |||||||||||
| Trading | - | 2,044,973 | (2,044,973 | ) | (100.0 | )% | ||||||||||
| Others | 93,261 | 53,770 | 39,491 | 73.4 | % | |||||||||||
| Total cost of revenues | 2,246,168 | 6,990,207 | (4,744,039 | ) | (67.9 | )% | ||||||||||
| GROSS PROFIT | 4,045,841 | 4,621,235 | (575,394 | ) | (12.5 | )% | ||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling and marketing | 654,494 | 1,103,266 | (448,772 | ) | (40.7 | )% | ||||||||||
| General and administrative | 6,458,581 | 7,179,289 | (720,708 | ) | (10.0 | )% | ||||||||||
| (Recovery of) provision for credit losses | (1,352,466 | ) | 5,358,510 | (6,710,976 | ) | (125.2 | )% | |||||||||
| Research and development | 2,553,431 | 4,062,297 | (1,508,866 | ) | (37.1 | )% | ||||||||||
| Share-based compensation | 6,027,637 | 5,834,999 | 192,638 | 3.3 | % | |||||||||||
| Impairment charges | 21,847,760 | 64,485,916 | (42,638,156 | ) | (66.1 | )% | ||||||||||
| Total operating expenses | 36,189,437 | 88,024,277 | (51,834,840 | ) | (58.9 | )% | ||||||||||
| OPERATING LOSS FROM OPERATIONS | (32,143,596 | ) | (83,403,042 | ) | 51,259,446 | (61.5 | )% | |||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Gain from disposition of a subsidiary | 4,581,885 | - | 4,581,885 | - | % | |||||||||||
| (Loss) gain from equity investment | (50,192 | ) | - | (50,192 | ) | - | % | |||||||||
| Loss on debt extinguishment | - | (473,653 | ) | 473,653 | (100.0 | )% | ||||||||||
| Change in fair value of convertible notes | - | 1,048,271 | (1,048,271 | ) | (100.0 | )% | ||||||||||
| Other expense, net | (454,977 | ) | (1,127,491 | ) | 672,514 | (59.6 | )% | |||||||||
| Total other income (expenses) | 4,076,716 | (552,873 | ) | 4,629,589 | (837.4 | )% | ||||||||||
| LOSS BEFORE INCOME TAXES | (28,066,880 | ) | (83,955,915 | ) | 55,889,035 | (66.6 | )% | |||||||||
| INCOME TAX BENEFIT | (1,664,473 | ) | (122,754 | ) | (1,541,719 | ) | 1255.9 | % | ||||||||
| NET LOSS | $ | (26,402,407 | ) | $ | (83,833,161 | ) | $ | 57,430,754 | (68.5 | )% | ||||||
65
Revenues
We derive revenues from five sources: (1) revenue from application development services, (2) revenue from consulting and technical support services, (3) revenue from subscription services, (4) trading revenue, and (5) others.
For the year ended December 31, 2025, our total revenue was approximately $6.3 million as compared to approximately $11.6 million for the year ended December 31, 2024. Our total revenue decreased by approximately $5.3 million, or 45.8%. The overall decrease in total revenue was primarily attributable to approximately $2.3 million decrease in revenue from application development services, approximately $2.1 million decrease in trading revenue and approximately $1.1 million decrease in consulting and technical support services.
Revenue from application development services
Our application development service contracts are primarily on a fixed-price basis, which require us to perform services including project planning, project design, application development and system integration based on customers’ specific needs. These services also require significant production and customization. Revenue from application development service is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.
For the year ended December 31, 2025, our application development service revenue was approximately $3.1 million as compared to approximately $5.3 million for the year ended December 31, 2024. The decrease in application development service revenue was approximately $2.3 million or 42.2% due to fewer new projects in current period. In certain application development service arrangements, the contacts included sales of IT equipment. Such revenue was approximately $2.9 million for the year ended December 31, 2025, as compared with approximately $4.7 million of the related revenue for the year ended December 31, 2024.
Revenue from consulting and technical support services
Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require us to provide professional consulting and technical support services over contract terms beginning on the commencement date of each contract, which is the date its service is made available to customers. Billings to the customers are generally on a monthly or quarterly basis over the contract term, which is typically 12 to 24 months. The consulting and technical support services contracts typically include a single performance obligation. The revenue from consulting and technical support services is recognized over the contract term on a straight-line basis as customers receive and consume benefits of such services.
For the year ended December 31, 2025, our consulting and technical support service revenue was approximately $2.4 million as compared to approximately $3.6 million for the year ended December 31, 2024. The decrease in consulting and technical support service revenue was approximately $1.1 million, or 31.9% due to fewer new projects during such period.
Revenue from subscription services
Revenue from subscription services is comprised of subscription fees from customers accessing our software-as-a-service applications. Our monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers. The subscription services contracts typically include a single performance obligation. The revenue from subscription services is recognized over the contract term on a straight-line basis or based on the actual usage as customers receive and consume benefits of such services.
For the year ended December 31, 2025, our subscription service revenue was approximately $0.7 million as compared to approximately $0.6 million for the year ended December 31, 2024.
Trading revenue
We start to sell products to its customers for the year ended December 31, 2021. Revenue from trading revenue was nil for the year ended December 31, 2025 as compared to approximately $2.1 million for the year ended December 31, 2024.
66
Others revenue
We began to receive income from other fields, Revenue from other fields was approximately $0.1 million and approximately $0.04 million for the years ended December 31, 2025 and 2024, respectively, and represented 1.2% and 0.3% of our total revenue for the years ended December 31, 2025 and 2024, respectively.
Cost of Revenues
Our cost of revenues mainly consists of compensation benefit expenses for our professionals, material cost, travel expenses related to revenue contracts and purchase cost of products.
Our cost of revenues decreased by approximately $4.7 million or 67.9% to approximately $2.2 million for the year ended December 31, 2025 from approximately $7.0 million for the year ended December 31, 2024, which was mainly attributable to a decrease of approximately $2.0 million in cost of revenue from trading, a decrease of approximately $2.0 million in cost of revenue from application development service and a decrease of approximately $0.7 million in cost of revenue from consulting and technical support services. Our cost of revenue from application development services, consulting and technical support services, subscription services, trading and others was approximately $1.4 million, $0.7 million, $0.06 million, nil and $0.1 million for the year ended December 31, 2025, respectively, as compared to approximately $3.4 million, $1.4 million, $0.05 million, $2.0 million and $0.1 million for the year ended December 31, 2024, respectively.
Gross profit
| For the Years Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| GROSS PROFIT | Gross Profit | Gross Margin | Gross Profit | Gross Margin | ||||||||||||
| Application development services | $ | 1,705,684 | 55.2 | % | $ | 1,927,120 | 36.0 | % | ||||||||
| Consulting and technical support services | 1,723,518 | 71.0 | % | 2,143,122 | 60.1 | % | ||||||||||
| Subscription services | 633,108 | 90.8 | % | 556,671 | 91.8 | % | ||||||||||
| Trading revenue | - | - | % | 10,842 | 0.5 | % | ||||||||||
| Others revenue | (16,469 | ) | (21.4 | )% | (16,520 | ) | (44.3 | )% | ||||||||
| Total gross profit | $ | 4,045,841 | 64.3 | % | $ | 4,621,235 | 39.8 | % | ||||||||
Our gross profit decreased by approximately $0.6 million or 12.5% from approximately $4.6 million for the year ended December 31, 2024 to approximately $4.0 million for the year ended December 31, 2025. Gross margin as a percent of overall revenue for the years ended December 31, 2025 and 2024 was 64.3% and 39.8%, respectively.
Gross profit for application development services decreased by approximately $0.2 million or 11.5% from $1.9 million for the year ended December 31, 2024 to approximately $1.7 million for the year ended December 31, 2025, the decrease was in line with decreased revenue. Gross profit margin for the years ended December 31, 2025 and 2024 was 55.2% and 36.0%, respectively.
Gross profit for consulting and technical support services decreased by approximately $0.4 million or 19.6% from approximately $2.1 million for the year ended December 31, 2024 to approximately $1.7 million for the year ended December 31, 2025, the decrease was in line with decreased revenue. Gross profit margin for the years ended December 31, 2025 and 2024 was 71.0% and 60.1%, respectively.
Gross profit for subscription services kept steady at approximately $0.6 million for the year ended December 31, 2025 and 2024. Gross profit margin was 90.8% and 91.8% for the years ended December 31, 2025 and 2024, respectively.
Gross profit for trading revenue was nil and $0.01 million for the years ended December 31, 2025 and 2024, respectively; gross profit margin was nil and 0.5% for the years ended December 31, 2025 and 2024, respectively.
Gross loss for others revenue kept steady at approximately $0.02 million for the year ended December 31, 2025 and 2024. Gross loss margin was 21.4% and 44.3% for the year ended December 31, 2025 and 2024, respectively.
67
Operating Expenses
| For the Years Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2025 | 2024 | Change | % Change | |||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling and marketing | $ | 654,494 | $ | 1,103,266 | $ | (448,772 | ) | (40.7 | )% | |||||||
| General and administrative | 6,458,581 | 7,179,289 | (720,708 | ) | (10.0 | )% | ||||||||||
| (Recovery of) provision for credit losses | (1,352,466 | ) | 5,358,510 | (6,710,976 | ) | (125.2 | )% | |||||||||
| Research and development | 2,553,431 | 4,062,297 | (1,508,866 | ) | (37.1 | )% | ||||||||||
| Share based compensation | 6,027,637 | 5,834,999 | 192,638 | 3.3 | % | |||||||||||
| Impairment charges | 21,847,760 | 64,485,916 | (42,638,156 | ) | (66.1 | )% | ||||||||||
| Total operating expenses | $ | 36,189,437 | $ | 88,024,277 | $ | (51,834,840 | ) | (58.9 | )% | |||||||
Our operating expenses consist of selling and marketing, general and administrative, research and development (“R&D”) expenses, provision for credit losses, stock-based compensation and impairment charges. Operating expenses decreased by approximately $51.8 million, or 58.9%, from approximately $88.0 million for the year ended December 31, 2024 to approximately $36.2 million for the year ended December 31, 2025. The decrease in our operating expenses was primarily due to approximately $42.6 million decreased in impairment charges, approximately $6.7 million decreased in provision for credit losses and approximately $1.5 million decreased in R&D expense.
Selling and marketing expenses primarily consisted of salary and compensation expenses relating to our sales and marketing personnel, and included entertainment, travel and transportation, and other expenses relating to our sales and marketing activities. Selling and marketing expenses decreased by approximately $0.4 million or 40.7% from approximately $1.1 million for the year ended December 31, 2024 to approximately $0.7 million for the year ended December 31, 2025. The decrease was primarily attributable to decreased salary due to personnel optimization for the year ended December 31, 2025.
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 decreased by approximately $0.7 million or 10.0% from approximately $7.2 million for the year ended December 31, 2024 to approximately $6.5 million for the year ended December 31, 2025. The decrease was due to decreased depreciation and amortization fee, partially offset by increased professional consulting fee. As a percentage of revenues, general and administrative expenses were 102.6% and 61.8% of our total revenue for the years ended December 31, 2025 and 2024, respectively.
Recovery of credit losses was approximately $1.4 million for the year ended December 31, 2025, as compared to provision for credit losses of approximately $5.4 million for the year ended December 31, 2024, the changes was due to strengthened collection for the year ended December 31, 2025.
R&D expenses primarily consisted of 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 decreased by approximately $1.5 million from approximately $4.1 million for the year ended December 31, 2024 to approximately $2.6 million for the year ended December 31, 2025, representing 40.6% and 35.0% of our total revenues for the years ended December 31, 2025 and 2024, respectively. We expect to continue investing in R&D and anticipate that our ability to effectively utilize our R&D capabilities will significantly affect our future operating results.
Share-based compensation increased by approximately $0.2 million from approximately $5.8 million for the year ended December 31, 2024 to approximately $6.0 million for the year ended December 31, 2025.
Impairment charges decreased by approximately $42.6 million from approximately $64.5 million for the year ended December 31, 2024 to approximately $21.8 million for the year ended December 31, 2025. We evaluated the recoverability of non-current assets by engaging an independent valuation firm to perform the valuation and determined that certain assets’ fair value is less than the carrying amount.
68
Other Income (Expense)
Gain from disposition of a subsidiary
On July 14, 2025, we signed an agreement with a third party to sell 100% equity interests of its wholly-owned subsidiary, Hong Kong Anxin Jieda Co., Limited and its subsidiaries, Ascendent Insight Education Co., Ltd. and Xingtai Ningyao Technology Co., Ltd., for a total consideration of $6,370 (HKD50,000). The transaction was closed on July 29, 2025. For the year ended December 31, 2025, the Group recorded a gain of approximately $4.6 million resulting from the disposition of Anxin Jieda and its subsidiaries,
Loss on debt extinguishment
Loss on debt extinguishment derived from extinguishment of debt in accordance with ASC 470, the difference between the fair value of convertible notes immediately after the modification and the carrying value of convertible notes immediately before the modification was recognized as a loss of debt extinguishment in the amount of approximately $0.5 million for the year ended December 31, 2024. No such loss incurred for the year ended December 31, 2025.
Change in fair value of convertible notes
We elected the fair value option to account for its convertible notes. For the year ended December 31, 2024, we recognized an unrealized gain of approximately nil and an unrealized gain of approximately $1.0 million, respectively. No such gain recognized for the year ended December 31, 2025.
Other expense, net
Other expense was primarily related to interest expenses, interest income, government subsidy income and other items. Our other expense decreased by approximately $0.7 million from approximately $1.1 million for the year ended December 31, 2024 to approximately $0.5 million for the year ended December 31, 2025, due to less interest expense and loss on disposal of assets.
Income Tax Benefit
Income tax benefit increased by approximately $1.5 million, or 1,255.9%, from approximately $0.1 million for the year ended December 31, 2024, to approximately $1.7 million for the year ended December 31, 2025. Under the Income Tax Laws of the PRC, companies are generally subject to income tax at a rate of 25%. Under the Income Tax Laws of the PRC, companies are generally subject to income tax at a rate of 25%. However, our major operating subsidiary - Powerbridge Zhuhai was recognized as the “high-tech enterprise” status, which reduced its statutory income tax rate to 15%. The rest of our subsidiaries in PRC are subject to an income tax rate of 25%.
Net Loss
As a result of the foregoing, our net loss decreased by $57.4 million from $83.8 million for the year ended December 31, 2024 to $26.4 million for the year ended December 31, 2025. The decreased net loss was the result of decreased operating expense and increased gain from disposition of a subsidiary as discussed above.
69
For the years ended December 31, 2024 and 2023
The following table summarizes the results of our operations for the years ended December 31, 2024 and 2023, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| For the Years Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2024 | 2023 | Change | % Change | |||||||||||||
| REVENUES: | ||||||||||||||||
| Application development services | $ | 5,348,816 | $ | 9,780,115 | $ | (4,431,299 | ) | (45.3 | )% | |||||||
| Consulting and technical support services | 3,563,248 | 3,609,158 | (45,910 | ) | (1.3 | )% | ||||||||||
| Subscription services | 606,313 | 695,010 | (88,697 | ) | (12.8 | )% | ||||||||||
| Trading revenue | 2,055,815 | 2,549,808 | (493,993 | ) | (19.4 | )% | ||||||||||
| Others revenue | 37,250 | 190,732 | (153,482 | ) | (80.5 | )% | ||||||||||
| Total revenues | 11,611,442 | 16,824,823 | (5,213,381 | ) | (31.0 | )% | ||||||||||
| COST OF REVENUES: | ||||||||||||||||
| Application development services | 3,421,696 | 9,236,901 | (5,815,205 | ) | (63.0 | )% | ||||||||||
| Consulting and technical support services | 1,420,126 | 1,404,193 | 15,933 | 1.1 | % | |||||||||||
| Subscription services | 49,642 | 102,573 | (52,931 | ) | (51.6 | )% | ||||||||||
| Trading | 2,044,973 | 2,504,352 | (459,379 | ) | (18.3 | )% | ||||||||||
| Others | 53,770 | 156,608 | (102,838 | ) | (65.7 | )% | ||||||||||
| Total cost of revenues | 6,990,207 | 13,404,627 | (6,414,420 | ) | (47.9 | )% | ||||||||||
| GROSS PROFIT | 4,621,235 | 3,420,196 | 1,201,039 | 35.1 | % | |||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling and marketing | 1,103,266 | 1,480,732 | (377,466 | ) | (25.5 | )% | ||||||||||
| General and administrative | 7,179,289 | 12,130,707 | (4,951,418 | ) | (40.8 | )% | ||||||||||
| Provision for credit losses | 5,358,510 | 539,284 | 4,819,226 | 893.6 | % | |||||||||||
| Research and development | 4,062,297 | 4,814,463 | (752,166 | ) | (15.6 | )% | ||||||||||
| Share-based compensation | 5,834,999 | 6,058,117 | (223,118 | ) | (3.7 | )% | ||||||||||
| Impairment charges | 64,485,916 | 31,958,931 | 32,526,985 | 101.8 | % | |||||||||||
| Total operating expenses | 88,024,277 | 56,982,234 | 31,042,043 | 54.5 | % | |||||||||||
| OPERATING LOSS FROM OPERATIONS | (83,403,042 | ) | (53,562,038 | ) | (29,841,004 | ) | 55.7 | % | ||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Gain from long term investment | - | 70,947 | (70,947 | ) | (100.0 | )% | ||||||||||
| Loss on debt extinguishment | (473,653 | ) | - | (473,653 | ) | - | % | |||||||||
| Change in fair value of convertible debt | 1,048,271 | (21,166 | ) | 1,069,437 | (5,052.6 | )% | ||||||||||
| Gain from fair value change in equity investments | - | 2,402,943 | (2,402,943 | ) | (100.0 | )% | ||||||||||
| Fair value loss on financial instrument | - | (71,006,115 | ) | 71,006,115 | (100.0 | )% | ||||||||||
| Other expense, net | (1,127,491 | ) | (169,107 | ) | (958,384 | ) | 566.7 | % | ||||||||
| Total other expenses | (552,873 | ) | (68,722,498 | ) | 68,169,625 | (99.2 | )% | |||||||||
| LOSS BEFORE INCOME TAXES | (83,955,915 | ) | (122,284,536 | ) | 38,328,621 | (31.3 | )% | |||||||||
| INCOME TAX BENEFIT | (122,754 | ) | (57,341 | ) | (65,413 | ) | 114.1 | % | ||||||||
| NET LOSS | $ | (83,833,161 | ) | $ | (122,227,195 | ) | $ | 38,394,034 | (31.4 | )% | ||||||
70
Revenues
We derive revenues from five sources: (1) revenue from application development services, (2) revenue from consulting and technical support services, (3) revenue from subscription services, (4) trading revenue, and (5) others.
For the year ended December 31, 2024, our total revenue was approximately $11.6 million as compared to approximately $16.8 million for the year ended December 31, 2023. Our total revenue decreased by approximately $5.2 million, or 31.0%. The overall decrease in total revenue was primarily attributable to approximately $4.4 million decrease in revenue from application development services and approximately $0.5 million decrease in trading revenue.
Revenue from application development services
Our application development service contracts are primarily on a fixed-price basis, which require us to perform services including project planning, project design, application development and system integration based on customers’ specific needs. These services also require significant production and customization. Revenue from application development service is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.
For the year ended December 31, 2024, our application development service revenue was approximately $5.3 million as compared to approximately $9.8 million for the year ended December 31, 2023. The decrease in application development service revenue was approximately $4.4 million or 45.3% due to fewer new projects in current period. In certain application development service arrangements, the contacts included sales of IT equipment. Such revenue was approximately $4.7 million for the year ended December 31, 2024, increased from approximately $2.0 million of the related revenue for the year ended December 31, 2023.
Revenue from consulting and technical support services
Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require us to provide professional consulting and technical support services over contract terms beginning on the commencement date of each contract, which is the date its service is made available to customers. Billings to the customers are generally on a monthly or quarterly basis over the contract term, which is typically 12 to 24 months. The consulting and technical support services contracts typically include a single performance obligation. The revenue from consulting and technical support services is recognized over the contract term on a straight-line basis as customers receive and consume benefits of such services.
Our consulting and technical support service revenue was approximately $3.6 million for both the years ended December 31, 2024 and 2023.
Revenue from subscription services
Revenue from subscription services is comprised of subscription fees from customers accessing our software-as-a-service applications. Our monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers. The subscription services contracts typically include a single performance obligation. The revenue from subscription services is recognized over the contract term on a straight-line basis or based on the actual usage as customers receive and consume benefits of such services.
For the year ended December 31, 2024, our subscription service revenue was approximately $0.6 million as compared to approximately $0.7 million for the year ended December 31, 2023.
Trading revenue
We start to sell products to its customers for the year ended December 31, 2021. Revenue from trading revenue was approximately $2.1 million for the year ended December 31, 2024 as compared to approximately $2.5 million for the year ended December 31, 2023.
Others revenue
We began to receive income from other fields, such as membership fee, the revenue of which was approximately $0.04 million and approximately $0.2 million for the years ended December 31, 2024 and 2023, respectively, and represented 0.3% and 1.1% of our total revenue for the years ended December 31, 2024 and 2023, respectively.
71
Cost of Revenues
Our cost of revenues mainly consists of compensation benefit expenses for our professionals, material cost, travel expenses related to revenue contracts and purchase cost of products.
Our cost of revenues decreased by approximately $6.4 million or 47.9% to approximately $7.0 million for the year ended December 31, 2024 from approximately $13.4 million for the year ended December 31, 2023, which was mainly attributable to a decrease of $5.8 million in cost of revenue from application development services and a decrease of approximately $0.5 million in cost of revenue from trading. Our cost of revenue from application development services, consulting and technical support services, subscription services, trading and others was approximately $3.4 million, $1.4 million, $0.05 million, $2.0 million and $0.1 million for the year ended December 31, 2024, respectively, as compared to approximately $9.2 million, $1.4 million, $0.1 million, $2.5 million and $0.2 million for the year ended December 31, 2023, respectively.
Gross profit
| For the Years Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| GROSS PROFIT | Gross Profit | Gross Margin | Gross Profit | Gross Margin | ||||||||||||
| Application development services | $ | 1,927,120 | 36.0 | % | $ | 543,214 | 5.6 | % | ||||||||
| Consulting and technical support services | 2,143,122 | 60.1 | % | 2,204,965 | 61.1 | % | ||||||||||
| Subscription services | 556,671 | 91.8 | % | 592,437 | 85.2 | % | ||||||||||
| Trading revenue | 10,842 | 0.5 | % | 45,456 | 1.8 | % | ||||||||||
| Others revenue | (16,520 | ) | (44.3 | )% | 34,124 | 17.9 | % | |||||||||
| Total gross profit | $ | 4,621,235 | 39.8 | % | $ | 3,420,196 | 20.3 | % | ||||||||
Our gross profit increased by approximately $1.2 million or 35.1% from approximately $3.4 million for the year ended December 31, 2023 to approximately $4.6 million for the year ended December 31, 2024. Gross margin as a percent of overall revenue for the years ended December 31, 2024 and 2023 was 39.8% and 20.3%, respectively.
Gross profit for application development services increased by approximately $1.4 million or 254.8% from $0.5 million for the year ended December 31, 2023 to approximately $1.9 million for the year ended December 31, 2024, the increase was driven by decreased outsourcing development fee. Gross profit margin for the years ended December 31, 2024 and 2023 was 36.0% and 5.6%, respectively.
Gross profit for consulting and technical support services decreased by approximately $0.1 million or 2.8% from approximately $2.2 million for the year ended December 31, 2023 to approximately $2.1 million for the year ended December 31, 2024. Gross profit margin for the years ended December 31, 2024 and 2023 was 60.1% and 61.1%, respectively.
Gross profit for subscription services stayed at approximately $0.6 million for the year ended December 31,2024 and 2023. Gross profit margin was 91.8% and 85.2% for the years ended December 31, 2024 and 2023, respectively.
Gross profit for trading revenue was $0.01 million and $0.05 million for the years ended December 31, 2024 and 2023, respectively; gross profit margin was 0.5% and 1.8% for the years ended December 31, 2024 and 2023, respectively.
Gross loss for others revenue was approximately $0.02 million for the year ended December 31, 2024 as compared to a gross profit of approximately $0.03 million for the year ended December 31, 2023. Gross (loss) profit margin was (44.3) % and 17.9% for the year ended December 31, 2024 and 2023, respectively.
Operating Expenses
| For the Years Ended | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2024 | 2023 | Change | % Change | |||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling and marketing | $ | 1,103,266 | $ | 1,480,732 | $ | (377,466 | ) | (25.5 | )% | |||||||
| General and administrative | 7,179,289 | 12,130,707 | (4,951,418 | ) | (40.8 | )% | ||||||||||
| Provision for credit losses | 5,358,510 | 539,284 | 4,819,226 | 893.6 | % | |||||||||||
| Research and development | 4,062,297 | 4,814,463 | (752,166 | ) | (15.6 | )% | ||||||||||
| Share based compensation | 5,834,999 | 6,058,117 | (223,118 | ) | (3.7 | )% | ||||||||||
| Impairment charges | 64,485,916 | 31,958,931 | 32,526,985 | 101.8 | % | |||||||||||
| Total operating expenses | $ | 88,024,277 | $ | 56,982,234 | $ | 31,042,043 | 54.5 | % | ||||||||
72
Our operating expenses consist of selling and marketing, general and administrative, research and development (“R&D”) expenses, provision for credit losses, stock-based compensation and impairment charges. Operating expenses increased by approximately $31.0 million, or 54.5%, from approximately $57.0 million for the year ended December 31, 2023 to approximately $88.0 million for the year ended December 31, 2024. The increase in our operating expenses was primarily due to approximately $32.5 million increase in impairment charges, and approximately $4.8 million increase in provision for credit losses, partially offset by approximately $5.0 million decrease in general and administrative expenses.
Selling and marketing expenses primarily consisted of salary and compensation expenses relating to our sales and marketing personnel, and also included entertainment, travel and transportation, and other expenses relating to our sales and marketing activities. Selling and marketing expenses decreased by approximately $0.4 million or 25.5% from approximately $1.5 million for the year ended December 31, 2023 to approximately $1.1 million for the year ended December 31, 2024. The decrease was primarily attributable to decreased salary due to personnel optimization for the year ended December 31, 2024.
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 decreased by approximately $5.0 million or 40.8% from approximately $12.1 million for the year ended December 31, 2023 to approximately $7.2 million for the year ended December 31, 2024, due to decreased professional consulting fee and salaries. As a percentage of revenues, general and administrative expenses were 61.8% and 72.1% of our total revenue for the years ended December 31, 2024 and 2023, respectively.
Provision for credit losses increased by approximately $4.8 million from approximately $0.5 million for the year ended December 31, 2023 to approximately $5.4 million for the year ended December 31, 2024, due to slow collection.
R&D expenses primarily consisted of 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 decreased by approximately $0.8 million from approximately $4.8 million for the year ended December 31, 2023 to approximately $4.1 million for the year ended December 31, 2024, representing 35.0% and 28.6% of our total revenues for the years ended December 31, 2024 and 2023, respectively. We expect to continue to invest in R&D. We expect that our ability to effectively utilize our R&D capabilities significantly affect our results of operations in the future.
Stock-based compensation decreased by approximately $0.2 million from approximately $6.1 million for the year ended December 31, 2023 to approximately $5.8 million for the year ended December 31, 2024.
Impairment charges increased by approximately $32.5 million from approximately $32.0 million for the year ended December 31, 2023 to approximately $64.5 million for the year ended December 31, 2024. We evaluated the recoverability of non-current assets by engaging an independent valuation firm to perform the valuation and determined that certain assets’ fair value is less than the carrying amount.
Other Expense
Loss on debt extinguishment
Loss on debt extinguishment derived from extinguishment of debt in accordance with ASC 470, the difference between the fair value of convertible notes immediately after the modification and the carrying value of convertible notes immediately before the modification was recognized as a loss of debt extinguishment in the amount of approximately $0.5 million and nil for the years ended December 31, 2024 and 2023, respectively.
Change in fair value of convertible notes
We elected the fair value option to account for its convertible notes. For the year ended December 31, 2024 and 2023, we recognized an unrealized gain of approximately $1.0 million and an unrealized loss of approximately $0.02 million, respectively.
73
Gain from fair value change in equity investments
Gain from fair value change in equity investments derived from two step acquisitions. On January 5, 2023, we completed acquisition of 50.99% equity interest in Smartconn, consisting of an acquisition of 31% equity interest of Smartconn acquired from the previous shareholder and an investment of 19.99% equity interest in Smartconn which the Group has already held prior to January 5, 2023. We recognized a loss of approximately $0.3 million in fair value change for the previous 19.99% equity interests. On March 28, 2023, we completed acquisition of 100% equity interest in Boxirui, consisting of an acquisition of 65% equity interest of Boxinrui acquired from the previous shareholder and an investment of 35% equity interest in Boxinrui which the Group has already held prior to March 28, 2023. We recognized a gain of approximately $2.7 million in fair value change for the previous 35% equity interests. No such gain recognized for the year ended December 31, 2024.
Fair value loss on financial instruments
Fair value loss on financial instrument is derived from acquisition of Smartconn on January 5, 2023, and acquisition of Boxinrui on March 28, 2023 which involved payments of future financial instrument upon the shares price is lower than the payment date price. Put options liabilities are recorded for the estimated fair value of the financial instrument on the merger date. The fair value of the financial instrument is re-measured at each reporting period, and the change in fair value is recognized as either income or expense. We recorded an unrealized loss of approximately $71.0 million for the year ended December 31, 2023. No such loss incurred for the year ended December 31, 2024.
Other expense, net
Other expense was primarily related to interest expenses, interest income, government subsidy income and other items. Our other expense increased by approximately $1.0 million from approximately $0.2 million for the year ended December 31, 2023 to approximately $1.1 million for the year ended December 31, 2024, due to more interest expense and loss on disposal of assets.
Income Tax Benefit
Income tax benefit was approximately $0.1 million for both the years ended December 31, 2024 and 2023. Under the Income Tax Laws of the PRC, companies are generally subject to income tax at a rate of 25%. Under the Income Tax Laws of the PRC, companies are generally subject to income tax at a rate of 25%. However, our major operating subsidiary - Powerbridge Zhuhai was recognized as the “high-tech enterprise” status, which reduced its statutory income tax rate to 15%. The rest of our subsidiaries in PRC are subject to an income tax rate of 25%.
Net Loss
As a result of the foregoing, our net loss decreased by $38.4 million from $122.2 million for the year ended December 31, 2023 to $83.8 million for the year ended December 31, 2024. The decreased net loss was the result of decreased fair value loss on financial instruments and financial assets and fair value loss on financial instruments and financial assets, partially offset by increased operating expense as discussed above.
Non-GAAP Financial Measures
We use non-GAAP measures, such as adjusted net loss in evaluating its operating results and for financial and operational decision-making purposes. We believe that the non-GAAP financial measures help identify underlying trends in its business by excluding the impact of share-based compensation expenses, loss/gain on fair value change on financial instruments and convertible debt and fair value loss on financial instruments and financial assets. We believe that the non-GAAP financial measures provide useful information about our results of operations, enhance the overall understanding of our past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in its financial and operational decision-making.
The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, cash flows or liquidity, investors should not consider them in isolation, or as a substitute for net loss, cash flows provided by operating activities or other consolidated statements of operations and cash flows data prepared in accordance with U.S. GAAP.
74
We mitigate these limitations by reconciling the non-GAAP financial measures to the most comparable U.S. GAAP performance measures, all of which should be considered when evaluating our performance.
The following table sets forth unaudited reconciliation of GAAP and non-GAAP results for the periods indicated.
| For the Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Net loss: | $ | (26,402,407 | ) | $ | (83,833,161 | ) | $ | (122,227,195 | ) | |||
| Add: | ||||||||||||
| Share-based compensation expenses | 6,027,637 | 5,834,999 | 6,058,117 | |||||||||
| Change in fair value of convertible debt | - | (1,048,271 | ) | 21,166 | ||||||||
| Fair value loss on financial instrument | - | - | 71,006,115 | |||||||||
| Adjusted net loss | $ | (20,374,770 | ) | $ | (79,046,433 | ) | $ | (45,141,797 | ) | |||
Impact of Foreign Currency Fluctuations
Foreign currency translation income (loss) was approximately $0.6 million, ($0.8) million and ($1.7) million for the years ended December 31, 2025, 2024 and 2023, 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 operation. The exchange rates in effect are shown below:
| U.S. Dollar Exchange Rate | December
31, 2025 | December
31, 2024 | December
31, 2023 | |||||||||
| At the end of the period - USD: RMB | $ | 1=RMB6.9931 | $ | 1=RMB7.2993 | $ | 1=RMB7.0999 | ||||||
| Average rate for the period - USD: RMB | $ | 1=RMB7.1875 | $ | 1=RMB7.1957 | $ | 1=RMB7.0809 |
B. Liquidity and Capital Resources
Substantially all of our operations are conducted in China and all of our revenue, expenses, and cash are denominated in RMB. RMB is subject to the exchange control regulation in China, and, as a result, we may have difficulty distributing any dividends outside of China due to PRC exchange control regulations that restrict our ability to convert RMB into U.S. dollars. As of December 31, 2025, cash of approximately $1.9 million were fully held in mainland PRC.
The Cayman holding company is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiary in China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiary. Our subsidiaries in China are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, our subsidiary is required to set aside at least 10% of its 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 subsidiary out of China is subject to examination by the banks designated by SAFE. Our subsidiary has not paid dividends and will not be able to pay dividends until it generates accumulated profits and meets the requirements for statutory reserve funds. In addition, we would need to accrue and pay withholding taxes if we were to distribute funds from our subsidiary in 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.
For the year ended December 31, 2025, we incurred a net loss of approximately $26.4 million and had operating cash outflow of approximately $3.2 million. We have historically funded its working capital needs primarily from public offering, operations, bank loans, advance payments from customers and shareholders. 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.
75
In assessing its liquidity, we monitor and analyze cash on hand, its ability to generate sufficient revenue sources in the future and its operating and capital expenditure commitments. As of December 31, 2025, we had cash of approximately $2.2 million.
On May 19, 2025, we entered into purchase agreements with thirteen investors. Pursuant to the Purchase Agreement, we agreed to sell 124,031 Class A ordinary shares, at a purchase price of $77.4 per share. We have received proceeds of $5.0 million as of December 31, 2025. Outstanding subscription receivable amounted to $4.6 million as of December 31, 2025.
On July 11, 2025, we entered into a definitive securities purchase agreement with certain individuals, we agreed to sell 333,333 Class A ordinary shares with consideration of $25.8 million. We issued 333,333 Class A ordinary shares on July 17, 2025, outstanding subscription receivable amounted to $25.8 million as of December 31, 2025.
On January 30, 2026, we entered into purchase agreements with an investor to sell up to $50,000,000 of newly issued Class A ordinary shares, over the period of 24 months from the date of the execution of the purchase agreement, and an aggregate of 43,209 of Class A ordinary shares issue to the investor as consideration for its commitment to enter into the purchase agreement. We will receive gross proceeds of $50.0 million in connection with the offering before deducting the related offering expenses. As of this annual report filing date, we have received proceeds of approximately $2.7 million.
We believe that its cash on hand and financing cash flows will be sufficient to fund its operations over at least the next 12 months from the date of this report. However, we may need additional cash resources in the future if we experiences changed business conditions or other developments, and may also need additional cash resources in the future if we wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed our amounts of cash on hand, we may seek to issue debt or equity securities or obtain a credit facility.
The following summarizes the key components of our cash flows for the years ended December 31, 2025, 2024 and 2023.
| For the Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Net cash used in operating activities | $ | (3,240,755 | ) | $ | (992,440 | ) | $ | (11,152,805 | ) | |||
| Net cash used in investing activities | (872,727 | ) | (1,510,863 | ) | (2,430,858 | ) | ||||||
| Net cash provided by financing activities | 1,944,435 | 2,177,110 | 9,289,034 | |||||||||
| Effect of exchange rate change on cash, cash equivalent and restricted cash | 117,194 | (124,747 | ) | (370,193 | ) | |||||||
| Net decrease in cash, cash equivalent and restricted cash | $ | (2,051,853 | ) | $ | (450,940 | ) | $ | (4,664,822 | ) | |||
Operating Activities
Net cash used in operating activities was approximately $3.2 million for the year ended December 31, 2025. Cash used in operating activities for the year ended December 31, 2025 mainly consisted of approximately $26.4 million of net loss, adjustment of $23.6 million non-cash items, a decrease of approximately $4.5 million in accounts payable, a decrease of approximately $2.5 million in accrued expenses and other current liabilities, offset by a decrease of approximately $6.1 million in accounts receivable, a decrease of approximately $0.7 million in prepayments, deposits and other assets and a decrease of approximately $0.3 million in lease liabilities.
Net cash used in operating activities was approximately $1.0 million for the year ended December 31, 2024. Cash used in operating activities for the year ended December 31, 2024 mainly consisted of approximately $83.8 million of net loss, adjustment of $82.4 million non-cash items, a decrease of approximately $1.6 million in accounts payable, a decrease of approximately $0.6 million in deferred revenue, offset by an increase of approximately $2.3 million in accrued expenses and other current liabilities and a decrease of approximately $0.4 million in prepayments, deposits and other assets.
76
Net cash used in operating activities was approximately $11.2 million for the year ended December 31, 2023. Cash used in operating activities for the year ended December 31, 2023 mainly consisted of approximately $122.2 million of net loss, adjustment of $113.0 million non-cash items, an increase of approximately $6.4 million in accounts receivable and an increase of approximately $1.5 million in prepayments, deposits and other assets. Offset by an increase of approximately $6.1 million in accounts payable.
Investing Activities
Net cash used in investing activities was approximately $0.9 million for the year ended December 31, 2025. Cash used in investing activities for the year ended December 31, 2025 consisted of approximately $1.0 million spending on purchases of intangible assets and property and equipment and cash paid for long -term investment of approximately $0.2 million, offset by approximately $0.3 million repayment from related parties.
Net cash used in investing activities was approximately $1.5 million for the year ended December 31, 2024. Cash used in investing activities for the year ended December 31, 2024 consisted of approximately $1.6 million spending on purchases of intangible assets and property and equipment and net loans to third parties of approximately $0.3 million, offset by approximately $0.4 million repayment from related parties.
Net cash used in investing activities was approximately $2.4 million for the year ended December 31, 2023. Cash used in investing activities for the year ended December 31, 2023 consisted of approximately $1.9 million spending on purchases of intangible assets and property and equipment, net loans to third parties of approximately $1.3 million and payment to related party of approximately $0.6 million, offset by approximately $1.4 million repayment from related parties.
Financing Activities
Net cash provided by financing activities was approximately $1.9 million for the year ended December 31, 2025. Net cash provided by financing activities for the year ended December 31, 2025 was mainly consisted of proceeds of approximately $9.0 million from private placements and proceeds of approximately $3.0 million from bank loans, offset by net proceeds of approximately $5.6 million from third parties, approximately $3.9 million repayment to bank loans and approximately $0.5 million repayment to convertible notes.
Net cash provided by financing activities was approximately $2.2 million for the year ended December 31, 2024. Net cash provided by financing activities for the year ended December 31, 2024 was mainly consisted of proceeds of approximately $4.2 million from bank loan, net proceeds of approximately $1.5 million from convertible notes and proceeds of approximately $0.6 million from private placements, offset by approximately $4.2 million repayment to bank loans.
Net cash provided by financing activities was approximately $9.3 million for the year ended December 31, 2023. Net cash provided by financing activities for the year ended December 31, 2023 was mainly net proceeds approximately $8.5 million from the market offering, and net proceeds of $1.4 million on bank loan, offset by approximately $1.3 million repayment to convertible note.
Capital Expenditures
We made capital expenditures of $1.0 million, $1.6 million and $1.9 million for the years ended December 31, 2025, 2024 and 2023, respectively. In these periods, our capital expenditures were mainly used for purchases of office equipment, furniture and payments for capitalized development cost. We will continue to make capital expenditures to meet the expected growth of its business.
C. Research and Development, Patents and Licenses, Etc.
See “Item 4. Information on the Company—B. Business Overview—Research and Development.” See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
77
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2025 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition.
E. Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past two years, 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.
We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in our consolidated financial statements include but not limited to the useful lives of property and equipment and intangible assets, impairment of long-lived assets and antique art pieces, impairment of goodwill, valuation of accounts receivables, revenue recognition and realization of deferred tax assets and uncertain tax positions. Actual results could differ from these estimates.
Fair value measurement
ASC 825-10 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 our financial instruments including cash, notes and accounts receivable, due from related parties, prepayments, deposits and other current assets, notes and accounts payable, customer deposits, salaries and benefits payables, due to related party and taxes payable approximates their recorded values due to their short-term maturities. The fair value of the long-term prepayments, deposits and other assets and loans to third parties approximate their carrying amounts because the deposits were paid in cash.
78
We elected the fair value option to account for its convertible loan. We engaged an independent valuation firm to perform the valuation. The fair value of the convertible loans is calculated using the binomial tree model. The convertible loans are classified as level 3 instruments as the valuation was determined based on unobservable inputs which are supported by little or no market activity and reflect our own assumptions in measuring fair value. Significant estimates used in developing the fair value of the convertible loans include time to maturity, risk-free interest rate, straight debt discount rate, probability to convert and expected timing of conversion. Refer to Note 9 for additional information.
As the inputs used in developing the fair value for level 3 instruments are unobservable, and require significant management estimate, a change in these inputs could result in a significant change in the fair value measurement.
Accounts receivable, net
Accounts receivable, net, is stated at the original invoiced amount net of write-offs and allowance for credit losses. We estimated allowance for credit losses to reserve for potentially uncollectible receivable amounts periodically, considering factors in assessing the collectability of its accounts receivable, such as historical distribution of the age of the amounts due, payment history, creditworthiness, forward-looking factor, historical collections data of the customers, to assess the credit risk characteristics. If there is strong evidence indicating that the accounts receivable is likely to be unrecoverable, the Group also makes specific allowance in the period in which a loss is determined to be probable. Accounts receivable is considered impaired and written-off when it is probable that all contractual payments due will not be collected after all collection efforts have been exhausted.
Intangible assets, net
Our intangible assets mainly include capitalized development costs, purchased software and acquired software from business acquisitions. We follow the provisions of Accounting Standards Codification (“ASC”) 985-20, “Costs of Software to be Sold, Leased, or Marketed.” ASC 985-20 provides guidance on capitalization of the costs of software developed or obtained for sold, leased, or marketed. We expense all costs incurred during the preliminary project stage of its development, and capitalizes costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements to the application are capitalized if it is determined that these upgrades or enhancements add additional functionality to the application. The capitalized development cost is amortized on a straight-line basis over the estimated useful life, which is generally five years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Impairment for long-lived assets other than goodwill
Long-lived assets, including property, equipment, furniture and fixtures and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When these events occur, we measure impairment by comparing the carrying values of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amounts of the assets, we would recognize an impairment loss based on the excess of the carrying value over the assessed discounted cash flow amount. For the year ended December 31, 2025, due to slow development of Hongchuangxin and Creation Intelligent, we evaluated the recoverability of long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition and determined that the fair value of intangible assets of Hongchuangxin and Creation Intelligent were less than carrying value. Therefore, the Group recorded impairment on the intangible assets acquired from the acquisition of Hongchuangxin and Creation Intelligent of in the amount of approximately $7.2 million and approximately $7.9 million for the year ended December 31, 2025. For the year ended December 31, 2024, due to slow development of Smartconn and Boxinrui, we evaluated the recoverability of long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition and determined that the fair value of intangible assets of Smartconn and Boxinrui was less than carrying value. Therefore, we impaired the intangible assets acquired from the acquisition of Smartconn and Boxinrui of approximately $12.7 million and approximately $14.1 million for the year ended December 31, 2024. For the year ended December 31, 2023, due to slow development of Smartconn, we evaluated the recoverability of long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition and determined that the fair value of intangible assets of Smartconn was less than carrying value. Therefore, we impaired the intangible assets acquired from the acquisition of Smartconn of approximately $2.3 million for the year ended December 31, 2023.
79
Goodwill
Goodwill is the cost of acquired companies in excess of the fair value of identifiable net assets at acquisition date. Goodwill is not subject to amortization, but rather is evaluated for impairment at least annually. We evaluate its goodwill for impairment during the fourth quarter of its fiscal year or more frequently if indicators of potential impairment exist, in accordance with ASC 350, Intangibles - Goodwill and Other. Goodwill impairment is determined by comparing the estimated fair value of a reporting unit (generally defined as the businesses for which financial information is available and reviewed regularly by management) with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not deemed to be impaired. However, if the estimated fair value is below carrying value, further analysis is required to determine the amount of the impairment. For the year ended December 31, 2025, we performed the impairment test and determined that the fair value of goodwill acquired from the acquisition of Hongchuangxin was less than carrying value. We impaired the goodwill acquired from the acquisition of Hongchuangxin of approximately $4.8 million for the year ended December 31, 2025. For the year ended December 31, 2024, we performed the impairment test and determined that the fair value of goodwill acquired from the acquisition of Boxinrui and Hongchuagnxin was less than carrying value. We impaired the goodwill acquired from the acquisition of Boxinrui and Hongchuangxin of approximately $15.0 million and approximately $2.9 million for the year ended December 31, 2024. For the year ended December 31, 2023, we performed the impairment test and determined that the fair value of goodwill acquired from the acquisition of Boxinrui and Smartconn was less than carrying value. We impaired the goodwill acquired from the acquisition of Boxinrui and Smartconn of approximately $8.6 million and approximately $21.1 million for the year ended December 31, 2023.
Revenue recognition
We adopted ASC Topic 606. Under ASC 606, revenue is recognized when control of promised goods or services is transferred to our customers in an amount of consideration to which an entity expects to be entitled to in exchange for those goods or services and is recorded net of value-added tax (“VAT”). To achieve that core principle, the Group 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
We derive revenues from five sources: (1) revenue from application development services, (2) revenue from consulting and technical support services, (3) revenue from subscription services, (4) trading revenue. and (5) others revenue. All of our contracts with customer do not contain cancelable and refund-type provisions.
(1) Revenue from application development service
Our application development service contracts are primarily on a fixed-price basis, which require we to perform services including project planning, project design, application development and system integration based on customers’ specific needs. These services also require significant production and customization. Upon delivery of the services, customer acceptance is generally required. In the same contract, we are generally required to provide post-contract customer support (“PCS’) for a period from three months to three years (“PCS period”) after the customized application development services are delivered. The type of services for PCS clause is generally not specified in the contracts or as stand-ready services on when-and-if-available basis. The unspecified PCS is stand-ready service on when-and-if-available basis. It grants the customers on line and telephone access to technical support personnel during the term of the service. Specified PCS includes specified service term in the contract such as training.
80
Our application development service revenues are generated primarily from contracts with PRC government or related agencies and state-owned enterprises. The contracts contain negotiated billing terms which generally include multiple payment phases throughout the contract term and a significant portion (30% - 50%) of contract amount usually is billed upon the completion of the related projects. Pursuant to the contract terms, we have enforceable right on payments for the work performed.
We sometimes provide a warranty for its application development service contracts. The warranty period is typically 12-36 months upon the completion of the application development service. In accordance with ASC 606-10-25-19, we believe the warranty provision in the contracts generally represents service-type warranty, which is a distinct performance obligation and we also provide the similar service on standalone basis and customers can benefit from the related service-type warranty service. For the service warranty component, the customer simultaneously receives and consumes the benefits provided by our performance over the warranty term, therefore, the service warranty is satisfied over time. The revenue allocated to the service warranty is recognized over the warranty period.
We assess that application development service, PCS or specific service and service-type warranty service, if applicable, are distinct performance obligations in the application development service contracts. We provide these services on standalone basis and customers are able to benefit from each of the service on its own. In addition, the timing of delivery of these performance obligations can be separately identifiable in the contracts. The transaction price is allocated to these identified performance obligations based on the relative standalone selling prices. The transaction price allocated to PCS or unspecific service and service-type warranty, if applicable, on a straight-line method over the contractual period. Revenue allocated to specified PCS is recognized as the related services are rendered. The transaction price allocated to application development service is recognized over time as our performance creates or enhances the project controlled by the customer and the control is transferred continuously to our customers. We use an input method based on cost incurred as we believe that this method most accurately reflects our progress toward satisfaction of the performance obligation, which usually takes less than one year. Under this method, the transaction price allocated to application development service is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.
Incurred costs include all direct material, labor and subcontract costs, and those indirect costs related to application development performance, such as indirect labor, supplies, and tools. Cost-based input method requires us to make estimates of revenues and costs to complete the construction. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the application development, including materials, labor, and other system costs. Our estimates are based upon the professional knowledge and experience of our engineers and project managers to assess the contract’s schedule, performance, technical matters. We have adequate cost history and estimating experience, and with respect to which management believes it can reasonably estimate total development costs. If the estimated costs are greater than the related revenues, we recognize the entire estimated loss in the period the loss becomes known and can be reasonably estimated. Changes in estimates for application development services include but not limited to cost forecast changes and change orders. The cumulative effect of changes in estimates is recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. To date, we have not incurred a material loss on any contracts. However, as a policy, provisions for estimated losses on such engagements will be made during the period in which a loss becomes probable and can be reasonably estimated. If contract modifications result in additional goods or services that are distinct from those transferred before the modification, they are accounted for prospectively as if we entered into a new contract. If the goods or services in the modification are not distinct from those in the original contract, sales and gross profit are adjusted using the cumulative catch-up method for revisions in estimated total contract costs and contract values.
In certain application development service arrangements, we sell and delivers IT equipment on standalone basis prior to the delivery of the services. In these cases, we control the IT equipment before they are transferred to the customer. We have the right to direct the suppliers and control the goods or assets transferred to its customers. Thus, we consider it should recognize revenue as a principal in the gross amount of consideration to which it is entitled in exchange for the IT equipment delivered. We assesse the sale of equipment is separately identifiable from other promises in the contract and it is distinct performance obligation within the context of the contract. Accordingly, the revenue from the related IT equipment based on its relative standalone selling price is recognized upon customer acceptance after delivery.
81
(2) Revenue from consulting and technical support services
Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require we to provide professional consulting and technical support services over contract terms beginning on the commencement date of each contract, which is the date its service is made available to customers. Billings to the customers are generally on a monthly or quarterly basis over the contract term, which is typically 12 to 24 months. The consulting and technical support services contracts typically include a single performance obligation. The revenue from consulting and technical support services is recognized over the contract term on a straight-line basis as customers receive and consume benefits of such services.
(3) Revenue from subscription services
Revenue from subscription services is comprised of subscription fees from customers accessing our software-as-a-service applications for a subscribed period. Our monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers. The subscription arrangements are considered service contracts because customers do not have the right to take possession of the software and can only benefit from the software when provided the right to access the software. Accordingly, the subscription services contracts typically include a single performance obligation. The revenue from subscription services is recognized over the contract term on a straight-line basis or based on the actual usage as customers receive and consume benefits of such services.
(4) Trading revenue
We started trading business for the year ended December 31, 2021 and recognized revenue at a point in time when control of such products transfers to the customer, which generally occurs upon shipment or delivery depending on the terms of the contracts with the customer. Product sale contracts typically include a single performance obligation and there are no rights of return. The transaction price is based on the fixed contractual price with the customer. Billings to the customer for the sale of products occur at the time the products are transferred to the customer.
(5) Others revenue
In April 2023, we initiated a strategic expansion to other business, such as regional authorization membership program to engage independent merchant to assist in developing specified geographical regions. The program grants non-exclusive geographical territory business development to the authorized distributors within that defined territory. Our services under regional cooperation agreements include marketing support to advertise as well as utilization of our trademark and copyrights for business promotion purpose. The term of cooperation agreements is typically one to two years. We charge a fixed amount authorization fee which is non-refundable and to be paid upon execution of an authorization agreement. For all our cooperation agreements, the amount of fee is fixed or determinable and no right of return provision indicated in the agreement. Since we provide no financing to authorized distributors and offers no guarantees on their behalf, the services provided by we are considered to represent a single performance obligation. The agreement price is fully allocated to the single performance obligation.
In August, 2025, we started to offer mobile game distribution service for game operators (either game owner / developer or game platform) and earns monthly distribution service fee over the contractual term. We do not have the primary responsibility for fulfillment and acceptability of the game services to the end users. Our responsibilities are distributing games and providing market promotion service over the contract term. Accordingly, we records the game distribution service revenue on a net basis based on the pre-determined profit-sharing ratios when the performance obligations are satisfied on the monthly basis over the contract term.
Revenue includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenue. We report revenues net of value added tax (“VAT”). Our subsidiaries in PRC are subject to a 3% to 13% value added tax (“VAT”) and related surcharges on the revenues earned from providing services and products.
Practical Expedient and Exemptions
We do not disclose the value of unsatisfied performance obligations within one year by applying the right to invoice practical expedient provided by ASC 606-10-55-18.
82
Contract balance
The accounts receivable includes both unbilled accounts receivable and billed accounts receivable. We record unbilled accounts receivable for revenue that has been recognized in advance of billing the customer, which is common for application development service contracts. The unbilled accounts receivable represents our right to consideration in exchange for the service that we have performed to the customer before payment is due and the unbilled account receivable will be reclassified into billed accounts receivable when we have the right to invoice. Contract liabilities are presented as deferred revenue on the consolidated balance sheet. Contract liabilities relate to payments received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the completion of performance obligations. As of December 31, 2025 and 2024 the balance of deferred revenue amounted to approximately $2.0 million and $1.9 million, respectively.
Income taxes
We account for current 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.
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 during the years ended December 31, 2025 and 2024. All of the tax returns of our subsidiary in China remain subject to examination by the tax authorities for five years from the date of filing.
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.
83
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Below is a list of our directors, senior management and any employees upon whose work we are dependent as of the date of this Annual Report, and a brief account of the business experience of each of them. The business address for our directors and officers is Suite 412, Tower A, Tai Seng Exchange, One Tai Seng Avenue, Singapore 536464.
| Name | Age | Position | ||
| Stewart Lor | 63 | Chief Executive Officer, President, and Chairman of the Board | ||
| Yuxia Xu | 54 | Executive Director, Chief Financial Officer and Chief Operating Officer | ||
| Charles Tingru Ou | 50 | Chief Product Officer | ||
| Wei Jiang(1)(4) | 54 | Independent Director | ||
| Ruizhong Jiang(2) | 62 | Independent Director | ||
| Haoqing Su (3) | 64 | Independent Director |
| (1) | Chair of the Audit Committee. |
| (2) | Chair of the Nominating Committee. |
| (3) | Chair of the Compensation Committee. |
| (4) | Audit Committee financial expert. |
Stewart Lor is a co-founder of our Company and served as our chief executive officer (“CEO”) and co-Chairman of the Board from October 2019 to July 2022. After Mr. Ban Lor’s resignation from his position as the co-CEO and co-Chairman of the Board on July 29, 2022, Mr. Stewart Lor has been serving as our sole CEO and Chairman of the Board. Mr. Lor has been serving on our Board and as our chief financial officer (“CFO”) since August 2018, and as our President since October 2019. Mr. Lor ceased to act as the CFO of the Company on April 15, 2022. Previously, he served on our Board and as our Chief Operating Officer from October 1997 to September 2006. Mr. Lor served as president of Lorons International Corporation from August 1988 to October 1995. He had served various executive positions at Cmark Holdings Ltd. and Fanz Co., Ltd. from November 2006 to September 2017. He holds a B.S. in Biochemistry from State University of New York at Stony Brook. We believe he is qualified to serve on the Board because of the perspective and experience he brings as our co-founder.
Yuxia Xu is appointed as the CFO and Chief Operating Officer of the Company, with effect from May 1, 2022, and appointed as an executive director of the Company from October 28, 2022 to April 30, 2025 and then appointed as an executive director of the Company on February 12, 2026. Ms. Xu is a seasoned and proven professional in the fields of capital markets, accounting management, information technology and management consulting. She had served as a Senior Consultant to the Company since 2017 and had previously held various management and operations positions, including: chief operating officer at Fanz Corporation, an entertainment technology company; managing director at Cmark Capital, a financial services and investment firm; vice president at Ntechnology, a software provider and senior software engineer at Goldenspider, an accounting software company. Ms. Xu holds a Master of Science in Applied Mathematics from Dalian University of Technology.
Charles Tingru Ou currently serves as the Chief Product Officer of the Company. Mr. Ou, a seasoned technology professional, has extensive experience in digital and information technologies for international trade applications. He had served various managerial positions at cross-border trade related technology companies with expertise in architectural design and planning of system and platform development for customs compliance, trade logistics and supply chain. Mr. Ou is a graduate of Jiangxi Science and Technology Normal University.
Wei Jiang is an independent director of the Company. Ms. Jiang has over twenty years of experiences in the finance and accounting field. Previously, she served as a CFO at Cmark Capital, an investment management firm; senior accountant at Aluminum Corporation of China, an aluminum producer and distributor; and a financial manager at Hiking Group, a publicly listed company. Ms. Jiang holds a bachelor’s degree in Financial Management from China University of Petroleum and is a Certified Accountant.
Haoqing Su cofounded and served in various executive and operations positions in several internationally based companies in international trade of auto parts, manufacturing of textile products, consumer food and beverage service, and investment consulting and management. He is an avid investor and collector of antique collectibles and has a vast collection of antique bronze and jade, ancient porcelain and coins, traditional paintings and other antique collectibles. He holds a Bachelor degree in Physical Education from Guangzhou Sport University.
Ruizhong Jiang is an independent director of the Company and as the Chairman of the Nominating Committee and a member of the Compensation Committee and the Audit Committee of the Board of the Company. As a highly respected expert in the field of oil and natural gas engineering, Dr. Jiang is a member of the International Society of Petroleum Engineers and China Petroleum Society. He has served as a lecturer, professor and doctoral tutor in China University of Petroleum and has received numerous acclaims and awards on his research and education in oil and natural gas engineering. Dr. Jiang holds a Ph.D. degree in Oil and Gas Development Engineering from Southwest Petroleum University and a master’s degree in Oil and Gas Development Engineering from China University of Petroleum.
84
Limitation on Liability and Other Indemnification Matters
The Companies Act does not limit the extent to which the Eighth Amended and Restated Memorandum and Articles of Association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Eighth Amended and Restated Memorandum and Articles of Association permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty of such directors or officers willful default of fraud. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
B. Compensation of Directors and Executive Officers
Executive Compensation
Summary Compensation Table
For the fiscal year ended December 31, 2025, we paid an aggregate of approximately US4,279,275 in cash and benefits to our directors and executive officers. The following table sets forth all cash compensation paid by us, as well as certain other compensation paid or accrued, for the fiscal year ended December 31, 2025, 2024 and 2023 to each of the following named executive officers.
| Name/principal position | Year | Salary | Equity Compensation | All Other Compensation (3) | Total Paid | |||||||||||||
| Stewart Lor/CEO and Chairman of the Board(1) | 2023 | 192,674 | - | 436,093 | 628,767 | |||||||||||||
| 2024 | 187,275 | - | 16,009 | 203,284 | ||||||||||||||
| 2025 | 290,086 | 2,109,665 | - | 2,399,751 | ||||||||||||||
| Yuxia Xu/Executive Director, CFO and Chief Operating Officer(2) | 2023 | 84,735 | - | 14,130 | 98,865 | |||||||||||||
| 2024 | 68,791 | - | 8,894 | 77,685 | ||||||||||||||
| 2025 | 25,043 | 1,556,305 | - | 1,581,348 | ||||||||||||||
| Wei Jiang /Independent Director | 2023 | - | - | - | - | |||||||||||||
| 2024 | 60,000 | - | 32,000 | 92,000 | ||||||||||||||
| 2025 | 60,000 | - | - | 60,000 | ||||||||||||||
| Ruizhong Jiang /Independent Director | 2023 | - | - | - | - | |||||||||||||
| 2024 | 18,000 | - | - | 18,000 | ||||||||||||||
| 2025 | 60,000 | - | - | 60,000 | ||||||||||||||
| Haoqing Su /Independent Director | 2023 | - | - | - | - | |||||||||||||
| 2024 | - | - | - | - | ||||||||||||||
| 2025 | - | - | - | - | ||||||||||||||
| Tao Qiu /Independent Director | 2023 | 32,000 | - | - | 32,000 | |||||||||||||
| 2024 | 34,465 | - | 1,801 | 36,266 | ||||||||||||||
| 2025 | 139,478 | - | - | 139,478 | ||||||||||||||
| Tingru Ou/ Chief Product Officer | 2023 | 27,440 | - | 40,900 | 68,340 | |||||||||||||
| 2024 | 38,629 | - | 18,750 | 57,379 | ||||||||||||||
| 2025 | 38,698 | - | - | 38,698 | ||||||||||||||
| (1) | After Mr. Ban Lor’s resignation from his position as the co-CEO and co-Chairman of the Board on July 29, 2022, Mr. Stewart Lor has been serving as our sole CEO and Chairman of the Board. |
| (2) | Appointed as the CFO and Chief Operating Officer, with effect from May 1, 2022 and as executive Director from October 28, 2022 to April 30, 2025 and then on February 12, 2026. |
85
| (3) | Amounts reported in this column refer to the cash bonus granted to CEO and CFO provided by the Company with respect to their contribution to date approved by Compensation Committee of the Company. Cash bonuses are paid in accordance with general compensation plan of the Company to reward and further incentive officers for achievement of the Company’s business strategy and development goals. |
Under PRC laws, we may only terminate employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date on which the employment agreement is scheduled to expire. If we fail to provide this notice or if we wish to terminate an employment agreement in the absence of cause, then we are obligated to pay the employee one month’s salary for each year we have employed the employee. We are, however, permitted to terminate an employee for cause without notice or penalty to our Company, where the employee has committed a crime or the employee’s actions or inactions have resulted in a material adverse effect to us.
Employment Agreements
We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. The term will automatically extend for additional 12-month periods unless a party to the agreement terminates it upon 3-months’ notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement.
Each executive officer has agreed to hold, both during and after the termination or expiry or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to the applicable laws, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents. Copyrights and other legal rights for these inventions, designs and trade secrets.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) solicit from any customer doing business with us during the effective term of the employment agreement business of the same or of a similar nature to our business; (ii) solicit from any of our known potential customer business of the same or of a similar nature to that which has been the subject of our known written or oral bid, offer or proposal, or of substantial preparation with a view to making such a bid, proposal or offer; (iii) solicit the employment or services of, or hire or engage, any person who is known to be employed or engaged by us; or (iv) otherwise interfere with our business or accounts, including, but not limited to with respect to any relationship or agreement between any vendor or supplier and us.
Director Compensation
The directors may receive such remuneration as our Board may determine from time to time. Each director is entitled to be repaid or prepaid for all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our Board or committees of our Board or general meetings or separate meetings of any class of shares or of debenture of the Company or otherwise in connection with the discharge of his/her duties as a director. Employee directors are entitled to receive a monthly payment ranging from $1,500 to $5,000 for their services. Non-employee directors are entitled to receive stock option to purchase certain number of Ordinary Shares under the Company’s 2018 Stock Option Plan.
2018 Stock Option Plan
We adopted the 2018 Stock Option Plan (the “2018 Plan”) on April 4, 2019 (the “Effective Date”), which was further amended by the First Amendment to the 2018 Plan (the “First Amendment”, and collectively referred to as the “Plan” with the “2018 Plan”). The Plan is a stock-based compensation plan that provides for discretionary grants of stock options to key employees, directors and consultants of the Company. The purpose of the Plan is to recognize contributions made to our Company and its subsidiaries by such individuals and to provide them with additional incentive to achieve the objectives of our Company. Section 3(a) and 6(f) are amended as the following. The total number of Ordinary Shares issuable upon the exercise of all outstanding Options granted under the Plan shall not exceed 20% of the total number of outstanding Ordinary Shares.
On January 20, 2023, the Board approved to register all the shares issuable under the Company’s Amended 2018 Plan in a registration statement on a Form S-8 (File No. 333-269513) representing additional 72 Class A ordinary shares of the Company reserved for issuance under the Amended 2018 Plan, which are in addition to the 23 Class A ordinary shares registered on the Prior Registration Statement. Accordingly, the number of ordinary shares of the Company issuable upon the exercise of all outstanding options granted under the Amended 2018 Plan is 95 Class A ordinary shares.
Administration. The Plan will be administered by our Board, or, once constituted, the Compensation Committee of the Board (we refer to body administering the Plan as the “Committee”).
86
Number of Ordinary Shares. The number of Ordinary Shares that may be issued under the Plan is the total number of Ordinary Shares in the capital of the Company issuable upon the exercise of all outstanding Options granted under this Plan shall not at any time exceed 20% of the total number of outstanding Ordinary Shares at the time of issuance, from time to time. If there is a forfeiture or termination without the delivery of Ordinary Shares or of other consideration of any option made under the Plan, the Ordinary Shares underlying such option, or the number of Ordinary Shares otherwise counted against the aggregate number of Ordinary Shares available under the Plan with respect to the option, to the extent of any such forfeiture or termination, shall again be, or shall become, available for granting options under the Plan. The number of Ordinary Shares issuable under the Plan is subject to adjustment, in the event in the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the company or any similar corporate transaction. Except as the Board or the Committee determines, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Option. In the event of a spin-off transaction, the Board or the Committee may in its discretion make such adjustments and take such other action as it deems appropriate with respect to outstanding Options under the Plan.
Eligibility. All persons as the Board or the Committee may select from among the employees, directors, and consultants of the Company.
Stock Options. The Board or Committee shall determine the provisions, terms, and conditions of each option including, but not limited to, the option vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, shares, cashless settlement, or other consideration) upon settlement of the option, payment contingencies and the exercise price; each option will last for the term stated in the option agreement, provided, however that in the case of an option that is to qualify as an Incentive Share Option as such term is defined in Section 422 of the Code, the term shall not exceed ten (10) years. It is intended that stock options qualify as “performance-based compensation” under Section 162(m) of the Code and thus be fully deductible by us for federal income tax purposes, to the extent permitted by law.
Payment for Stock Options and Withholding Taxes. The Board or Committee may make one or more of the following methods available for payment of an option, including the exercise price of a stock option, and for payment of the minimum required tax obligation associated with an award: (i) cash; (ii) cheque; (iii) with respect to options, payment through a broker-dealer sale and remittance procedure pursuant to which the optionee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Ordinary Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Ordinary Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Ordinary Shares directly to such brokerage firm in order to complete the sale transaction; (iv) cashless election; or (v) any combination of the foregoing methods of payment.
No Ordinary Shares shall be delivered under the Plan to any optionee or other person until such optionee or other person has made arrangements acceptable to the Board or Committee for the satisfaction of any national, provincial or local income and employment tax withholding obligations. Upon exercise of an option the Company shall have the right, but not the obligation (except as required by the applicable laws), to withhold or collect from optionee an amount sufficient to satisfy such tax obligations. The optionee will be solely responsible for his/her own tax obligations.
Transferability of Option. Options shall be transferable (i) at will and by the laws of succession and distribution; (ii) during the lifetime of the Optionee, to the extent and in the manner authorized by the Administrator; and (iii) upon delivery of a written assignment of the Options duly executed by the Optionee at the principal office of the Company, along with the Options and funds sufficient to pay any transfer taxes payable upon the making of such transfer. The Optionee shall surrender its Options to the Company within seven (7) calendar days of the date on which the Optionee delivers the assignment form to the Company assigning its Options. Upon such surrender and, if required, such payment, the Company shall execute and deliver new Options in the name of the assignee and shall promptly cancel the surrendered Options. Notwithstanding the foregoing, the Optionee may designate one or more beneficiaries of the Optionee’s Option in the event of the Optionee’s death on a beneficiary designation form provided by the Administrator”
Amendment of Award Agreements; Amendment and Termination of the Plan; Term of the Plan. The Board may at any time amend, suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s shareholders to the extent such approval is required by applicable laws, or if such amendment would adversely affect the right of any participant under any agreement in any material way without the written consent of the participant. No option may be granted during any suspension of the Plan or after termination of the Plan. No suspension or termination of the Plan shall adversely affect any rights under options already granted to an optionee. The Plan has become effective on the date of the effectiveness of the Company’s initial public offering. It shall continue in effect for a term of ten (10) years unless sooner terminated or unless renewed for another period not to exceed ten (10) years pursuant to shareholder approval.
87
On May 26, 2021, the Board approved to issue certain options to its employees, advisors, and consultants of the Company under the Amended Plan to purchase in an aggregate amount of 9 Class A ordinary shares to be governed by the terms and conditions set forth in a form of option agreement.
On January 5, 2026, the Company issued (i) 4,500,000 Class B Shares to Hogstream International Ltd., a company incorporated under the laws of British Virgin Islands, which is 100% held by Mr. Stewart Lor, the Co-Chief Executive Officer of the Company; and (ii) 3,200,000 Class B Shares to Ms. Yuxia Xu, the Chief Financial Officer of the Company, as stock bonuses for the year ended December 31, 2025.
On January 7, 2026, the Board approved to issue (i) 4,542,860 Class A ordinary share (151,428 shares after giving effect to the reverse stock split) of the Company of a par value of $0.00003 each (US$ 0.0009 per share after giving effect to the reverse stock split), and (ii) 239,098 Class B ordinary shares of a par value of $0.00003 each to its employees, advisors, and consultants of the Company, under the Company’s 2026 Stock Option Plan, which is governed by the terms and conditions set forth in a form of option agreement.
Notwithstanding the foregoing, neither the Plan nor any outstanding option agreement can be amended in a way that results in the repricing of a stock option. Repricing is broadly defined to include reducing the exercise price of a stock option or cancelling a stock option in exchange for cash, other stock options with a lower exercise price or other stock awards. (This prohibition on repricing without shareholder approval does not apply in case of an equitable adjustment to the awards to reflect changes in the capital structure of the company or similar events.)
C. Board Practices
Composition of Board; Risk Oversight
Our Board presently consists of five (5) directors. Pursuant to our Eighth Amended and Restated Memorandum and Articles of Association, the number of our board shall not be less than two (2). At any one time, at least majority of the Board shall be independent directors. Our shareholders may elect new director either to fill in a vacancy or add additional member to the Board via ordinary resolutions and the directors may appoint any new director to fill a vacancy or as a member to the Board until the next annual meeting of the Company. The directors have been divided into two classes, being the class I directors (the “Class I Directors”) and the class II directors (the “Class II Directors”) immediately prior to the consummation of Company’s IPO. The number of directors in each class shall be as nearly equal as possible. The Class I Directors shall stand elected for a term expiring at the Company’s initial meeting after the adoption of the Eighth Amended and Restated Memorandum and Articles of Association and the Class II Directors shall stand elected for a term expiring at the Company’s third annual general meeting following the initial meeting. Directors elected to succeed those Class I Directors whose terms expire shall be elected for a term of office to expire at the first annual general meeting following their election and directors elected to succeed those Class II Directors whose terms expire shall be elected for a term of office to expire at the third annual general meeting following their election. A director will be removed from office automatically if, among other things, the director becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors, or becomes of unsound mind or dies. There is no family relationships between any of our executive officers and directors. Officers are elected by, and serve at the discretion of the Board. Our Board may meet for the dispatch of business, adjourn and otherwise regulate its meetings as it considers appropriate.
Under the NASDAQ rules, we are required to maintain a Board comprised of at least 50% independent directors, and an audit committee of at least three members, comprised solely of independent directors who also meet the requirements of Rule 10A-3 under the Exchange Act. There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. There are no other arrangements or understandings pursuant to which our directors are selected or nominated. However, the NASDAQ rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. We have utilized the exemption afforded by Nasdaq Listing Rule 5615(a)(3) to follow home country practice in lieu of certain requirements, including (i) the independence requirements for compensation committee and nomination committee as provided in Nasdaq Listing Rule 5605(d) and (e); (ii) the requirement that a majority of the board of directors must be independent as provided in Nasdaq Listing Rule 5615(b)(1); (iii) the requirement to hold annual general meeting as provided in Nasdaq Listing Rule 5620(a); (iv) the requirement to obtain shareholder approval prior to a plan or other equity compensation arrangement is established or materially amended as provided in Nasdaq Listing Rule 5635(c); and (v) the requirement of shareholder approval for entering into any transaction, other than a public offering, involving the sale, issuance or potential issuance by the Company of ordinary shares (or securities convertible into or exercisable for ordinary shares) equal to 20% or more of the outstanding share capital of the Company or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the ordinary shares as provided in Nasdaq Listing Rule 5635(d).
Under our Eighth Amended and Restated Memorandum and Articles of Association, we shall hold an annual general meeting in each year other than the year in which the Eighth Amended and Restated Memorandum and Articles of Association were adopted and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as the Board shall appoint.
Our Board plays a significant role in our risk oversight. The Board makes all relevant company decisions. As such, it is important for us to have our CEO serve on the board as he plays key roles in the risk oversight or the Company. As a smaller reporting company with a small Board, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.
88
Director Independence
Our Board has reviewed the independence of our directors, applying the NASDAQ independence standards. Based on this review, the Board determined that each of Wei Jiang, Ruizhong Jiang and Phillip Tao Qiu are “independent” within the meaning of the NASDAQ rules. In making this determination, our Board considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our Board deemed relevant in determining their independence. As required under the applicable NASDAQ rules, we anticipate that our independent directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and management.
Board Committees
Currently, three committees have been established under the Board: the Audit Committee, the Compensation Committee and the Nominating Committee.
The Audit Committee is responsible for overseeing the accounting and financial reporting processes of our Company and audits of the financial statements of our Company, including the appointment, compensation and oversight of the work of our independent auditors. The Compensation Committee of the Board reviews and makes recommendations to the Board regarding our compensation policies for our officers and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our Board retains the authority to interpret those plans). The Nominating Committee of the Board is responsible for the assessment of the performance of the Board, considering and making recommendations to the Board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors.
Audit Committee
The Audit Committee is responsible for, among other matters:
| ● | appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm; | |
| ● | discussing with our independent registered public accounting firm the independence of its members from its management; |
| ● | reviewing with our independent registered public accounting firm the scope and results of their audit; | |
| ● | approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; | |
| ● | overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; |
| ● | reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements; |
| ● | coordinating the oversight by our Board of our code of business conduct and our disclosure controls and procedures; | |
| ● | establishing procedures for the confidential and anonymous submission of concerns regarding accounting, internal controls or auditing matters; and | |
| ● | reviewing and approving related-party transactions. |
Currently, our Audit Committee consists of three members, Wei Jiang, Phillip Tao Qiu and Ruizhong Jiang, with Wei Jiang serving as the Chairman of the Audit Committee. Our Board has affirmatively determined that each of the members of the Audit Committee satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act, as amended. In addition, our Board has determined that Wei Jiang qualifies as an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K and meets the financial sophistication requirements of the NASDAQ rules.
89
Compensation Committee
The Compensation Committee is responsible for, among other matters:
| ● | reviewing and approving, or recommending to the Board to approve the compensation of our CEO and other executive officers and directors; | |
| ● | reviewing key employee compensation goals, policies, plans and programs; | |
| ● | administering incentive and equity-based compensation; | |
| ● | reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and | |
| ● | appointing and overseeing any compensation consultants or advisors. |
Our Compensation Committee consists of three members, Wei Jiang, Ruizhong Jiang and Phillip Tao Qiu, with Phillip Tao Qiu serving as the Chairman of the Compensation Committee. Our Board has affirmatively determined that each of the members of the Compensation Committee satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act.
Nominating Committee
The Nominating Committee is responsible for, among other matters:
| ● | selecting or recommending for selection candidates for directorships; |
| ● | evaluating the independence of directors and director nominees; |
| ● | reviewing and making recommendations regarding the structure and composition of our Board and the Board committees; |
| ● | developing and recommending to the Board with corporate governance principles and practices; |
| ● | reviewing and monitoring the Company’s Code of Business Conduct and Ethics; and |
| ● | overseeing the evaluation of the Company’s management. |
Our Nominating Committee consists of consists of three members, Phillip Tao Qiu, Ruizhong Jiang and Wei Jiang, with Ruizhong Jiang serving as the Chairman of the Nominating Committee. Our Board has affirmatively determined that each of the members of the Nominating Committee satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act.
Duties of Directors
Under Cayman Islands law, our directors have a duty to act honestly, in good faith and in our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our Eighth Amended and Restated Memorandum and Articles of Association. We have the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our Board include, among others:
| ● | appointing officers and determining the term of office of the officers; |
| ● | giving to any person the right or option of requiring at a future date that an allotment shall be made to him of any share at par or at such premium as may be agreed; |
| ● | exercising the borrowing powers of the Company and mortgaging the property of the Company; |
| ● | giving to any Directors, officers or employees of the Company an interest in any particular business or transaction or participation in the profits thereof or in the general profits of the Company either in addition to or in substitution for a salary or other remuneration; and |
| ● | resolving that the Company be deregistered in the Cayman Islands and continued in a named jurisdiction outside the Cayman Islands subject to the provisions of the Companies Act. |
90
Interested Transactions
A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he/she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he/she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to the Board or otherwise contained in the minutes of a meeting or a written resolution of the Board or any committee of the Board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.
Remuneration and Borrowing
The directors may receive such remuneration as our Board may determine from time to time. For the services rendered by the independent director in any capacity the Company will a cash fee ranging from USD $1,500 to $5,000 per month. Each director is entitled to be repaid or prepaid for all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our Board or committees of our Board or shareholder meetings or otherwise in connection with the discharge of his/her duties as a director. The Compensation Committee will assist the directors in reviewing and approving the compensation structure for the directors. Our Board may exercise all the powers of the Company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party.
D. Employees
As of the date of this Annual Report, we had a total of 117 full-time employees, of which 58 are in research and development, 9 are in sales and marketing, 24 are in technical and customer services, and 26 are in general administration.
We have signed standard employment, comprehensive confidentiality and non-compete agreements with our management and standard confidentiality and non-compete terms with all other employees. As required by the laws and regulations in China, we participate in various social security plans that are organized by municipal and provincial governments, including pension insurance, medical insurance, unemployment insurance, maternity insurance, job-related injury insurance and housing fund. We are required by PRC laws to make contributions to employee social security plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.
We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our employee is represented by a labor union or covered by collective bargaining agreements. We have not experienced any work stoppages.
E. Share Ownership
See Item 7 below.
F. Disclosure of A Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following tables set forth certain information with respect to the beneficial ownership of our Ordinary Shares as of the date of this Annual Report for:
| ● | each stockholder known by us to be the beneficial owner of more than 5% of our outstanding Ordinary Shares; |
| ● | each of our directors; |
| ● | each of our named executive officers; and |
| ● | all of our directors and executive officers as a group. |
91
We have determined beneficial ownership in accordance with the rules of the SEC. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to subscribe for within 60 days of the date of this Annual Report through the exercise of any warrants or other rights. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power or the power to receive the economic benefit with respect to all Ordinary Shares that they beneficially own, subject to applicable community property laws. None of the stockholders listed in the table are a broker-dealer or an affiliate of a broker dealer. Applicable percentage ownership is based on 2,092,417 Class A ordinary shares and 7,902,031 Class B ordinary shares outstanding as of the date of this Annual Report. Unless otherwise indicated, the address of each beneficial owner listed in the table below is Suite 412, Tower A, Tai Seng Exchange, One Tai Seng Avenue, Singapore 536464.
| Beneficial Ownership | ||||||||||||||||||||
| Name of Beneficial Owner | Class A Ordinary Shares | Class A Percentage | Class B Ordinary Shares | Class B Percentage | of Total Voting Power | |||||||||||||||
| Stewart Lor (1) | - | - | 4,610,365 | 58.34 | % | 58.19 | % | |||||||||||||
| Ruizhong Jiang | - | - | - | - | - | |||||||||||||||
| Wei Jiang | - | - | - | - | - | |||||||||||||||
| Yuxia Xu (2) | - | - | 3,291,666 | 41.66 | % | 41.54 | % | |||||||||||||
| Charles Tingru Ou | - | - | - | - | - | |||||||||||||||
| Haoqing Su | - | - | - | - | - | |||||||||||||||
| All directors and executive officers as a group | - | - | 7,902,031 | 100 | % | 99.73 | % | |||||||||||||
| HOGSTREAM INTERNATIONAL LTD.(1) | - | - | 4,610,365 | 58.34 | % | 58.19 | % | |||||||||||||
| 5% or greater beneficial owners as a group | - | - | 7,902,031 | 100 | % | 99.73 | % | |||||||||||||
| * | Less than 1%. |
| (1) | (1) Calculated based on Hogstream International Ltd.’s beneficial ownership of 4,610,365 Class B Ordinary Shares, consisting of (i) 4,500,000 Class B Ordinary Shares issued on January 5, 2026 and (ii) 110,365 Class B Ordinary Shares issued on June 18, 2025 (after giving effect to the 6-for-1 reverse stock split of 662,195 Class B Ordinary Shares effectuated on December 30, 2025). Hogstream International Ltd. is a British Virgin Islands company wholly owned by Stewart Lor, who is deemed to have sole voting and dispositive power over such shares. |
| (2) | (2) Calculated based on Ms. Yuxia Xu’s beneficial ownership of 3,291,666 Class B Ordinary Shares, consisting of (i) 3,200,000 Class B Ordinary Shares issued on January 5, 2026 as equity-based compensation and (ii) 91,666 Class B Ordinary Shares issued on June 18, 2025 (after giving effect to a 6-for-1 reverse stock split of 550,000 Class B Ordinary Shares effectuated on December 30, 2025). |
As of the date of this Annual Report, there were 72 holders of record entered in our share register. The number of individual holders of record is based exclusively upon our share register and does not address whether a share or shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial owner of a share or shares in our Company.
To our knowledge, no other shareholder beneficially owns more than 5% of our shares. Our Company is not owned or controlled directly or indirectly by any government or by any corporation or by any other natural or legal person severally or jointly. There are no arrangements, known to us, the operation of which may at a subsequent date result in a change in control of our Company.
92
B. Related Party Transactions
The following is a description of transactions since the beginning of the Company’s preceding three financial years up to the date hereof, in which the amount involved in the transaction exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets as of the year-end for the last two completed fiscal years, and to which any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
The relationship of related parties
| Name of Related Party | Relationship to the Group | |
| Stewart Lor | CEO | |
| Ban Lor | Co-founder, CEO’s brother | |
| Yuxia Xu | CFO | |
| Phillip Tao Qiu | Independent Director (resigned on February 12, 2026) | |
| Xiaoyan Liu | Shareholder of Ascendent | |
| Zhongchuan Dadi (Beijing) Technology Co., LTD | Shareholder of Ascendent | |
| Shanghai Yue See cultural development Co., LTD | Shareholder of Metafusion | |
| Tingru Ou | Chief Product Officer | |
| Zhanjiang Huarong Enterprise Management Service Co., Ltd.(“Huarong”) | Equity method investee of the Group |
Due from related party (1).
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Ban Lor | $ | - | $ | 13,700 | ||||
| Stewart Lor | 219,832 | 348,714 | ||||||
| Yuxia Xu | 248,327 | 60,700 | ||||||
| Huarong | 2,860 | - | ||||||
| Phillip Tao Qiu | 148,747 | 470,931 | ||||||
| Xiaoyan Liu | - | 3,370 | ||||||
| Subtotal | $ | 619,766 | $ | 897,415 | ||||
| (1) | From time to time, the Company advances funds to senior management, mainly for oversea business purpose and due on demand. |
Due to related party (1).
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Zhongchuan Dadi (Beijing) Technology Co., LTD | $ | - | $ | 218 | ||||
| Tingru Ou | 334 | - | ||||||
| Subtotal | $ | 334 | $ | 218 | ||||
| (1) | The above balances represent unpaid loan and expenses to these related parties. |
93
Related party transactions
| For the years ended | ||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||
| Stewart Lor | Interest income | $ | 10,742 | $ | 16,094 | $ | 50,663 | |||||||
| Yuxia Xu | Interest income | $ | - | $ | - | $ | 16,778 | |||||||
| Shanghai Yue See cultural development Co., LTD | Service revenue | $ | - | $ | - | $ | 4,195 | |||||||
Loan guarantee provided by related parties
In connection with the Group’s bank loans, Mr. Stewart Lor pledged his personal assets as collateral and signed guarantee agreements to provide guarantee to the Company’s bank loans. (See Note 12).
Bank loans
Outstanding balance of bank loans consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Loans from Bank of Communication Fixed interest rates ranging from 3.2% to 3.6%, maturity dates from January 15, 2025 to March 12, 2026 and guaranteed by the representative of Zhuhai Powerbridge, the Group’s CEO and CEO’s spouse and a third party. The Group pledged buildings with the aggregated carrying value of $2.1 million and $2.1 million as of December 31, 2025 and 2024 to secure the loans | $ | 1,715,977 | $ | 2,465,990 | ||||
| Loans from Bank of Zhuhai Rural Commercial Fixed interest rates ranging from 3.0%, maturity dates from July 24, 2025 to July 30, 2028. The Group pledged buildings with the aggregated carrying value of $1.6 million as of December 31, 2025 to secure the loans | 1,415,538 | - | ||||||
| Loan from SPD Bank Fixed interest rates ranging from 3.5% to 4.0%, maturity on from July 16, 2024 to December 16, 2025 and guaranteed by the Group’s CEO. The Group pledged fixed asset with the aggregated carrying value of $1.6 million as of December 31, 2024 to secure the loan, the Group’s CEO pledged personal property to secure some of these loans. | - | 1,411,094 | ||||||
| Subtotal | 3,131,515 | 3,877,084 | ||||||
| Less: Short term bank loans | (1,715,977 | ) | (3,877,084 | ) | ||||
| Less: Long term bank loan-current portion | (57,771 | ) | - | |||||
| Long term bank loan | $ | 1,357,767 | $ | - | ||||
Employment Agreements
See “Item 6. Directors, Senior Management and Employees — B. Compensation of Directors and Executive Officers — Employment Agreements.”
Share Incentives
See “Item 6. Directors, Senior Management and Employees — B. Compensation of Directors and Executive Officers”
C. Interests of Experts and Counsel
Not applicable.
94
Item 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See Item 18 “Financial Statements” for our audited consolidated financial statements filed as part of this Annual Report.
Legal Proceedings
From time to time, we are subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are not currently a party to any legal proceedings or investigations which, in the opinion of our management, is likely to have a material adverse effect on our business, financial condition or results of operations. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Dividend Policy
The holders of our Ordinary Shares are entitled to dividends out of funds legally available when and as declared by our Board, subject to certain requirements as stipulated under Cayman Islands law. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries may, from time to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our Ordinary Shares are entitled to receive, ratably, the net assets available to shareholders after payment of all creditors.
We do not have any present plan to pay any cash dividends on our Ordinary Shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
B. Significant Changes
Except as disclosed elsewhere in this Annual Report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this Annual Report.
Item 9. THE OFFER AND LISTING
A. Offering and Listing Details
The Registration Statement became effective on March 28, 2019. Our Ordinary Shares are currently listed on NASDAQ Capital Market under the symbol “XTKG.”
B. Plan of Distribution
Not applicable.
C. Markets
Our Ordinary Shares are currently listed on NASDAQ Capital Market under the symbol “XTKG”.
D. Selling Shareholders
Not applicable.
95
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Amended and Restated Memorandum and Articles of Association
Our Eighth Amended and Restated Memorandum and Articles of Association (the “Memorandum” and the “Articles”) were filed as Exhibit 99.1 of Form 6-K filed on January 8, 2025 and are hereby incorporated by reference into this Annual Report. The Articles are currently in effect, but it is still undergoing the final registration process with the Cayman Islands Registrar of Companies, and the registration per se will not affect the validity of the Articles. The following description of our Articles, as amended and restated from time to time, are summaries and do not purport to be complete. We were incorporated as an exempted company with limited liability under the Companies Act (2018 Revision) of the Cayman Islands, now the Companies Act (Revised) (“Cayman Companies Act”), on July 27, 2018. A Cayman Islands exempted company:
| ● | is a company that conducts its business mainly outside the Cayman Islands; |
| ● | is prohibited from trading in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the exempted company carried on outside the Cayman Islands (and for this purpose can effect and conclude contracts in the Cayman Islands and exercise in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands); |
| ● | does not have to hold an annual general meeting; |
| ● | does not have to make its register of members open to inspection by shareholders of that company; |
| ● | may obtain an undertaking against the imposition of any future taxation; |
| ● | may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | may register as a limited duration company; and |
| ● | may register as a segregated portfolio company. |
All of our issued and outstanding Ordinary Shares are fully paid and non-assessable. Our Ordinary Shares are issued in registered form, and are issued when registered in our register of members. Unless and until the directors resolve to issue share certificates, no share certificate shall be issued, and the records of the shareholdings of each shareholder shall be in uncertified book entry form. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their Ordinary Shares. We may not issue shares or warrants to bearer.
As of the date of this Annual Report, the authorized share capital of the Company is US$1,500,000 divided into (i) 4,980,000,000 Class A ordinary shares (1,666,000,000 shares after giving effect to the reverse stock split) of a par value of US$0.0009 each; and (ii) 20,000,000 Class B ordinary shares of a par value of US$0.00003 each. Subject to the provisions of the Cayman Companies Act and the provisions, if any, of the Articles, and any directions given by any ordinary resolution and the rights attaching to any class of existing shares, the directors may issue, allot, grant options over or otherwise dispose of shares (including any fractions of Shares) and other securities of our Company at such times, to such persons, for such consideration and on such terms as the directors may determine. Such authority could be exercised by the directors to allot shares which carry rights and privileges that are preferential to the rights attaching to ordinary shares provided that if such operates to vary the rights of holders of ordinary shares then the sanction of a special resolution of the affected class is required. No share may be issued at a discount except in accordance with the provisions of the Cayman Companies Act. The directors may refuse to accept any application for shares, and may accept any application in whole or in part, for any reason or for no reason.
96
Ordinary Shares
General. The unissued shares of the Company shall be at the disposal of the Board, under its absolute discretion, at such times and for such consideration and upon such terms and conditions and for any reason, without limitation, but so that no shares shall be issued at a discount to par value. Except as otherwise expressly provided in the resolution or resolutions providing for the establishment of any class or series of preferred shares, no vote of the holders shall be a prerequisite to the issuance of any shares of any class or series of the preferred shares authorized by and complying with the conditions of the Articles. The Board may issue options, warrants, convertible securities or other similar nature securities.
Ordinary Shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Our ordinary shares are issued in registered form and are issued when registered in our register of members.
Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.
Dividends. The holders of our Ordinary Shares are entitled to such dividends as may be declared by our Board. Our Eighth Amended and Restated Memorandum and Articles of Association provide that our Board may declare and pay dividends out of the profits of the Company, realized or unrealized, or from any reserve set aside from profits which the directors determine is no longer needed, or out of share premium account or any other fund or account which can be authorized for this purpose in accordance with the Law.
Voting Rights. In respect of all matters subject to a shareholder’s vote, at any general meeting on a show of hands every Shareholder present in person (or being a corporation, is presented by a duly authorized representative), or by proxy shall have one vote and on a poll every Shareholder present in person or by proxy or, in the case of a Shareholder being a corporation, by its duly authorized representative shall have one (1) vote for each Class A ordinary share and thirty (30) votes for each Class B ordinary share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purposes as paid up on the share. A quorum required for a meeting of shareholders consists of one shareholder who holds at least one-third of our issued voting shares. Shareholders’ meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. Extraordinary general meetings may be called by a majority of our Board or upon a requisition of shareholders holding at the date of deposit of the requisition not less one-tenth of such of the paid-up share capital of our Company that carries the right to vote at a general meeting, forthwith proceed to convene an extraordinary general meeting. An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the Ordinary Shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the Ordinary Shares cast at a meeting. A special resolution will be required for important matters such as making changes to our Eighth Amended and Restated Memorandum and Articles of Association.
Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her Ordinary Shares by an instrument of transfer in the usual or common form prescribed by the NASDAQ Stock Market (the “Designated Stock Exchange”) or in or any other form approved by our Board. Our Board may, in its absolute discretion, decline to register any transfer of any Ordinary Shares only where such share is not a fully paid up share (and being transferred to a person of whom it does not approve), or any share issued under any share incentive scheme for employees or pursuant to any other agreement, contract or other such arrangement. If the Board refuses to register a transfer of any share, it shall, within three months after the date on which the transfer was lodged with the Company, send to each of the transferor and transferee notice of the refusal. The registration of transfers of shares or of any class of shares may, subject to compliance with any notice requirement of the Designated Stock Exchange, be suspended at such times and for such periods (not exceeding in the whole thirty (30) days in any year) as the Board may determine.
Inspection of Books and Records. Holders of our Ordinary Shares have no general right under our Eighth Amended and Restated Memorandum and Articles of Association to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”
97
Issuance of Additional Shares. Our Articles authorizes our Board to issue additional Ordinary Shares from time to time as our Board shall determine, to the extent of available authorized but unissued shares. Our Articles also authorizes our Board to establish from time to time one or more series of preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including:
| ● | the designation of the series to be issued; | |
| ● | the number of shares of the series; | |
| ● | the dividend rights, conversion rights, voting rights; and | |
| ● | the liquidation preferences. |
Our Board may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of Ordinary Shares.
Anti-Takeover Provisions. Some provisions of our Eighth Amended and Restated Memorandum and Articles of Association may discourage, delay or prevent a change of control of our Company or management that shareholders may consider favorable, including provisions that authorize our Board to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders.
Differences in Corporate Law
The Companies Act is modeled after that of English law but does not follow many recent English law statutory enactments. In addition, the Companies Act differs from laws which applicable to United States corporations and their shareholders. Set forth below is a summary of some of the significant differences between the provisions of the Companies Act applicable to us and the laws applicable to the companies incorporated in the State of Delaware.
Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, a “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company.
In order to effect a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by a special resolution of the shareholders of each constituent company, and such other authorization, if any, as may be specified in such constituent company’s articles of association.
The plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with, inter alia, a declaration as to the solvency of each constituent company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger and consolidation will be published in the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the fair value of their shares if they follow the required procedures under the Companies Act subject to certain exceptions. The fair value of the shares will be determined by the Cayman Islands court if it cannot be agreed among the parties. Court approval is not required for a merger or consolidation effected in compliance with these statutory procedures.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved, for a creditor-led arrangement, by a majority in number of each class of creditors with whom the arrangement is to be made, and, in either a shareholder or a creditor arrangement, three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands.
98
While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
| ● | the statutory provisions as to the required majority vote have been met; | |
| ● | the shareholders have been fairly represented at the meeting in question; | |
| ● | the arrangement is such that an intelligent and honest man of that class acting in respect of his interest would reasonably approve; and | |
| ● | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act. |
When a take-over offer is made and accepted by holders of not less than 90% of the shares within four months, the offer, or may, within a two-month period conversing on the expiration of such four months period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.
If the arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to the dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:
| ● | a company acts or proposes to act illegally or ultra vires and is therefore incapable of ratification by the shareholders; | |
| ● | the act complained of, although not ultra vires, could only be duly effected if authorized by more than a simple majority vote that has not been obtained; and | |
| ● | those who control the company are perpetrating a “fraud on the minority.” |
Indemnification of Directors and Executive Officers and Limitation of Liability. The Companies Act does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Eighth Amended and Restated Memorandum and Articles of Association permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty of such directors or officers willful default of fraud. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation. As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he or she owes the following duties to the company: a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, courts are moving towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
99
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law provides that shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held. Our Eighth Amended and Restated Memorandum and Articles of Association provides that anything which may be done by resolution of the Company in general meeting or by resolution of a meeting of any class of the shareholders may be done without a meeting by written resolution in accordance with such Articles. A written resolution is passed when it is signed by (or in the case of a shareholder that is a corporation, on behalf of) all the shareholders, or all the shareholders of the relevant class thereof, entitled to vote thereon, or in the case of an ordinary resolution, the requisite majority, and may be signed in as many counterparts as may be necessary.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. The Companies Act provides shareholders with only limited rights to requisition a general meeting and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in articles of association. Our Eighth Amended and Restated Memorandum and Articles of Association allow our shareholders holding not less than 10% of the share capital in issue to requisition a shareholder’s meeting. Other than this right to requisition a shareholders’ meeting, a shareholder may give notice to the Company of business proposed to be brought before an annual general meeting. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the Companies Act but our Eighth Amended and Restated Memorandum and Articles of Association do not provide for cumulative voting.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a may be removed with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our Eighth Amended and Restated Memorandum and Articles of Association, directors may be removed by way of a special resolution of our shareholders at any time before the expiration of his or her period of office.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors. The Companies Act has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board of directors. Under the Companies Act, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Act and our Eighth Amended and Restated Memorandum and Articles of Association, our Company may be dissolved, liquidated or wound up by a special resolution of our shareholders.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under the Companies Act and our Eighth Amended and Restated Memorandum and Articles of Association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class.
100
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by the Companies Act, our Eighth Amended and Restated Memorandum and Articles of Association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our Eighth Amended and Restated Memorandum and Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our Eighth Amended and Restated Memorandum and Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources,” “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions,” or elsewhere in this Annual Report on Form 20-F.
D. Exchange Controls
Under Cayman Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to nonresident holders of our shares. For details relating to the PRC law, see “Item 4. Information on the Company — B. Business Overview — Regulation — Regulation of Foreign Currency Exchange and Dividend Distribution.”
E. Taxation
The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our Ordinary Shares is based upon laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to changes. This summary does not deal with all possible tax consequences relating to an investment in our Ordinary Shares, such as the tax consequences under state, local and other tax laws.
Cayman Islands Taxation
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by the Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Material PRC Income Tax Considerations
Under the new EIT Law and the Implementing Rules, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered as a resident enterprise and will be subject to a PRC income tax rate of 25% on its global income. According to the Implementing Rules, “de facto management bodies” refer to “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” Accordingly, our holding company may be considered a resident enterprise and may therefore be subject to a PRC income tax on our global income. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises and not those invested in by individuals or foreign enterprises, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or controlled by or invested in by individuals or foreign enterprises. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiary, such PRC income tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.
We do not believe that we meet all of the conditions required for PRC resident enterprise. The Company is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its Board and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body”. There can be no assurance that the PRC government will ultimately take a view that is consistent with ours.
101
However, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. Such a 10% tax rate could be reduced by applicable tax treaties or similar arrangements between China and the jurisdiction of our shareholders. For example, for shareholders eligible for the benefits of the tax treaty between China and Hong Kong, the tax rate is reduced to 5% for dividends if relevant conditions are met. In addition, non-resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ordinary shares, if such income is treated as sourced from within the PRC.
It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that the Company is treated as a PRC resident enterprise.
Provided that our Cayman Islands holding company, we, are not deemed to be a PRC resident enterprise, our shareholders who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However, under Circular 7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee would be obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under Circular 7, and we may be required to expend valuable resources to comply with Bulletin 37, or to establish that we should not be taxed under Circular 7 and Bulletin 37.
Prospective investors should consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties, and any available foreign tax credits.
Material U.S. Tax Considerations
The following is a summary of the material U.S. federal income tax consequences of owning and disposing of our Ordinary Shares. The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to a beneficial owner of our shares that is for U.S. federal income tax purposes:
| ● | an individual citizen or resident of the United States; | |
| ● | a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia; | |
| ● | an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or | |
| ● | a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust; or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If a beneficial owner of our shares is not described as a U.S. Holder in one of the four bullet points above and is not an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes, such owner will be considered a “Non-U.S. Holder”. The U.S. federal income tax consequences applicable to Non-U.S. Holders is described below under the heading “Tax Consequences to Non-U.S. Holders of Ordinary Shares.”
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing Treasury regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These authorities are subject to changes or differing interpretations, possibly on a retroactive basis.
102
This discussion does not address all aspects of U.S. federal income taxation that may be relevant to us or to any particular holder of our shares based on such holder’s individual circumstances. In particular, this discussion considers only holders that own our shares as capital assets within the meaning of Section 1221 of the Code. This discussion also does not address the potential application of the alternative minimum tax or the U.S. federal income tax consequences to holders that are subject to special rules, including:
| ● | financial institutions or financial services entities; | |
| ● | broker-dealers; | |
| ● | taxpayers who have elected mark-to-market accounting; |
| ● | tax-exempt entities; | |
| ● | governments or agencies or instrumentalities thereof; | |
| ● | insurance companies; | |
| ● | regulated investment companies; | |
| ● | real estate investment trusts; |
| ● | certain expatriates or former long-term residents of the United States; | |
| ● | persons that actually or constructively own 5% or more of our voting shares; |
| ● | persons that acquired our shares pursuant to the exercise of employee stock options, in connection with employee stock incentive plans or otherwise as compensation; | |
| ● | persons that hold our shares as part of a straddle, constructive sale, hedging, conversion or other integrated transaction; or | |
| ● | persons whose functional currency is not the U.S. dollar. |
This discussion does not address any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. tax laws. Additionally, this discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our securities through such entities. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our shares, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. This discussion also assumes that any distribution made (or deemed made) in respect of our shares and any consideration received (or deemed received) by a holder in connection with the sale or other disposition of such shares will be in U.S. dollars.
We have not sought, and will not seek, a ruling from the Internal Revenue Service (or “IRS”), or an opinion of counsel as to any U.S. federal income tax consequence described herein. The IRS may disagree with one or more aspects of the discussion herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion.
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR HOLDER OF OUR SECURITIES MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH HOLDER OF OUR SECURITIES IS URGED TO CONSULT WITH ITS TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND APPLICABLE TAX TREATIES.
103
Tax Consequences to U.S. Holders of Ordinary Shares
Taxation of Distributions Paid on Ordinary Shares
Subject to the passive foreign investment company (or “PFIC”) rules discussed below, a U.S. Holder generally will be required to include in gross income as ordinary income the amount of any cash dividend paid on our Ordinary Shares. A cash distribution on such shares will be treated as a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Any distributions in excess of such earnings and profits generally will be applied against and reduce the U.S. Holder’s basis in its Ordinary Shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of such Ordinary Shares. With respect to corporate U.S. Holders, dividends on our shares will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends on our shares will be taxed at the lower long-term capital gains rate applicable to qualified dividend income (see “— Taxation on the Disposition of Ordinary Shares” below), provided that (1) our Ordinary Shares are readily tradable on an established securities market in the United States or, in the event we are deemed to be a Chinese “resident enterprise” under the EIT Law, we are eligible for the benefits of the Agreement between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the “U.S.-PRC Tax Treaty”; (2) we are not a PFIC, as discussed below, for either the taxable year in which the dividend was paid or the preceding taxable year; and (3) certain holding period requirements are met. Under published IRS authority, shares are considered for purposes of clause (1) above to be readily tradable on an established securities market in the United States only if they are listed on certain exchanges, which presently include the Nasdaq Stock Market. U.S. Holders should consult their own tax advisors regarding the tax treatment of any dividends paid with respect to our Ordinary Shares, including the effects of any change in law after the date of this Annual Report.
If PRC taxes apply to dividends paid to a U.S. Holder on our Ordinary Shares, such U.S. Holder may be entitled to a reduced rate of PRC tax under the U.S-PRC Tax Treaty. In addition, such PRC taxes may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to certain limitations). U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.
Taxation on the Disposition of Ordinary Shares
Upon a sale or other taxable disposition of our Ordinary Shares, and subject to the PFIC rules discussed below, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between the amount realized in U.S. dollars and the U.S. Holder’s adjusted tax basis in the Ordinary Shares. Capital gains recognized by U.S. Holders generally are subject to U.S. federal income tax at the same rate as ordinary income, except that long-term capital gains recognized by non-corporate U.S. Holders are generally subject to U.S. federal income tax at a maximum rate of 20%. Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the Ordinary Shares exceeds one year. The deductibility of capital losses is subject to various limitations. If PRC taxes would otherwise apply to any gain from the disposition of our Ordinary Shares by a U.S. Holder, such U.S. Holder may be entitled to a reduction in or elimination of such taxes under the U.S.-PRC Tax Treaty. Any PRC taxes that are paid by a U.S. Holder with respect to such gain may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to certain limitations that could reduce or eliminate the available tax credit). U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.
Passive Foreign Investment Company Rules
A foreign (i.e., non-U.S.) corporation will be a PFIC if at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.
104
Based on our current composition and assets, we do not expect to be treated as a PFIC under the current PFIC rules. We must make a separate determination each year as to whether we are a PFIC. As such, our PFIC status, will not be determinable until after the end of each taxable year. Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. Depending on the amount of cash we raise in the IPO, together with any other assets held for the production of passive income, it is possible that, for our 2019 taxable year or for any subsequent taxable year, more than 50% of our assets may be assets held for the production of passive income. We will make this determination following the end of any particular tax year. If we are determined to be a PFIC and a U.S. Holder did not make either a timely qualified electing fund (or “QEF”), election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) Ordinary Shares, or a mark-to-market election, as described below, such holder generally will be subject to special rules with respect to:
| ● | any gain recognized by the U.S. Holder on the sale or other disposition of its Ordinary Shares; and |
| ● | any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the Ordinary Shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the Ordinary Shares). |
Under these rules,
| ● | the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the Ordinary Shares; |
| ● | the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary income; |
| ● | the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and |
| ● | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year of the U.S. Holder. |
In general, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our Ordinary Shares by making a timely QEF election to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. There can be no assurance, however, that we will pay current dividends or make other distributions sufficient for a U.S. Holder who makes a QEF election to satisfy the tax liability attributable to income inclusions under the QEF rules, and the U.S. Holder may have to pay the resulting tax from its other assets. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.
The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. In order to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from us. Upon request from a U.S. Holder, we will endeavor to provide to the U.S. Holder no later than 90 days after the request such information as the IRS may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided.
105
If a U.S. Holder has made a QEF election with respect to our Ordinary Shares, and the special tax and interest charge rules do not apply to such shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares), any gain recognized on the appreciation of our Ordinary Shares generally will be taxable as capital gain and no interest charge will be imposed. As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of a PFIC’s earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income generally should not be taxable as a dividend to those U.S. Holders who made a QEF election. The tax basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated under the applicable attribution rules as owning shares in a QEF.
Although a determination as to our PFIC status will be made annually, an initial determination that our company is a PFIC will generally apply for subsequent years to a U.S. Holder who held Ordinary Shares while we were a PFIC, whether or not we meet the test for PFIC status in those years. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) our Ordinary Shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such shares for any taxable year of ours that ends within or with a taxable year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) our Ordinary Shares, the PFIC rules discussed above will continue to apply to such shares unless the holder makes a purging election, and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.
Alternatively, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) shares in us and for which we are determined to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect to its Ordinary Shares. Instead, in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its Ordinary Shares at the end of its taxable year over the adjusted basis in its Ordinary Shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its Ordinary Shares over the fair market value of its Ordinary Shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its Ordinary Shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the Ordinary Shares will be treated as ordinary income.
The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the SEC, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our Ordinary Shares under their particular circumstances.
If we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC. Upon request, we will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder no later than 90 days after the request of information that may be required to make or maintain a QEF election with respect to the lower-tier PFIC. However, there is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC or will be able to cause the lower-tier PFIC to provide the required information. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs. If a U.S. Holder owns (or is deemed to own) shares during any year in a PFIC, such holder may have to file an IRS Form 8621 (whether or not a QEF election or mark-to-market election is made). The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of our Ordinary Shares should consult their own tax advisors concerning the application of the PFIC rules to our Ordinary Shares under their particular circumstances.
106
Tax Consequences to Non-U.S. Holders of Ordinary Shares
Dividends paid to a Non-U.S. Holder in respect to its Ordinary Shares generally will not be subject to U.S. federal income tax, unless the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).
In addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our Ordinary Shares, unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States) or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or other disposition and certain other conditions are met (in which case, such gain from United States sources generally is subject to tax at a 30% rate or a lower applicable tax treaty rate).
Dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to tax in the same manner as for a U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.
Backup Withholding and Information Reporting
In general, information reporting for U.S. federal income tax purposes should apply to distributions made on our Ordinary Shares within the United States to a non-corporate U.S. Holder and to the proceeds from sales and other dispositions of our Ordinary Shares by a non-corporate U.S. Holder to or through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the United States will be subject to information reporting in limited circumstances. In addition, backup withholding of United States federal income tax, currently at a rate of 24%, generally will apply to dividends paid on our Ordinary Shares to a non-corporate U.S. Holder and the proceeds from sales and other dispositions of shares by a non-corporate U.S. Holder, in each case who (a) fails to provide an accurate taxpayer identification number; (b) is notified by the IRS that backup withholding is required; or (c) in certain circumstances, fails to comply with applicable certification requirements. A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.
Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the availability of and procedure for obtaining an exemption from backup withholding in their particular circumstances.
Individual U.S. Holders may be required to report ownership of our Ordinary Shares and certain related information on their individual federal income tax returns in certain circumstances. Generally, this reporting requirement will apply if (1) the Ordinary Shares are held in an account of the individual U.S. Holder maintained with a “foreign financial institution”; or (2) the Ordinary Shares are not held in an account maintained with a “financial institution,” as such terms are defined in the Code. The reporting obligation will not apply to an individual, however, unless the total aggregate value of the individual’s foreign financial assets exceeds US$50,000 during a taxable year. For avoidance of doubt, this reporting requirement should not apply to Ordinary Shares held in an account with a U.S. brokerage firm. Failure to comply with this reporting requirement, if it applies, will result in substantial penalties. In certain circumstances, additional tax and other reporting requirements may apply, and U.S. Holders of our Ordinary Shares are advised to consult with their own tax advisors concerning all such reporting requirements.
F. Dividends and Paying Agents
On March 5, 2024, the Board of Directors approved a special stock dividend to pay in a total of 129,789 (post-reverse stock split adjusted to 4,326) Class A ordinary shares to the holders of record of all the issued and outstanding shares of the Company as of the close of business on April 26, 2024 (the “Record Date”). This dividend was distributed on May 27, 2024.
G. Statement by Experts
Not applicable.
107
H. Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. As allowed by the SEC, in Item 19 of this Annual Report, we incorporate by reference certain information we previously filed with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this Annual Report.
Documents concerning us that are referred to in this document may be inspected at Suite 412, Tower A, Tai Seng Exchange, One Tai Seng Avenue, Singapore 536464. In addition, we file annual reports and other information with the Securities and Exchange Commission. We file annual reports on Form 20-F and submit other information under the cover of Form 6-K. As a foreign private issuer, we are exempt from the proxy requirements of Section 14 of the Exchange Act and our officers, directors and principal shareholders are exempt from the insider short-swing disclosure and profit recovery rules of Section 16 of the Exchange Act. Annual reports and other information we file with the Commission may be inspected at the public reference facilities maintained by the Commission at Room 1024, 100 F. Street, N.E., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such offices upon payment of the prescribed fees. You may call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms and you can request copies of the documents upon payment of a duplicating fee, by writing to the Commission. In addition, the Commission maintains a web site that contains reports and other information regarding registrants (including us) that file electronically with the Commission which can be accessed at http://www.sec.gov.
I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information on the Company — A. History and Development of the Company.”
J. Annual Report to Security Holders
Not applicable.
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate risk primarily relates to interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. While interest-earning instruments carry a degree of interest rate risk, to date, we have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure.
Foreign Currency Risk
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by the 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.
Our functional currency is the RMB, and our financial statements are presented in U.S. dollars. The RMB depreciated by 2.9% in fiscal year 2023, further depreciated by 2.8% in fiscal year 2024 and appreciated by 4.2% in fiscal year 2025. 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 our financial results reported in the U.S. dollar terms without giving effect to any underlying changes in our business or results of operations. Currently, our 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. dollar would have an adverse effect on the RMB amount that the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisitions or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.
108
Inflation
Since our inception, inflation in China has not materially affected our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2023, 2024 and 2025 increased 0.2%, 0.2% and 0.0%, respectively. Although we have not been materially affected by inflation in the past, we may be affected if China experiences higher rates of inflation in the future.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
109
Part II
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
See “Item 10. Additional Information” for a description of the rights of securities holders.
Item 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our CEO and our CFO, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December 31, 2025. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of December 31, 2025 were not effective at the reasonable assurance level due to the material weakness described below.
In connection with the audit of our financial statements for the years ended December 31, 2025, 2024 and 2023, we and our independent registered public accounting firms identified material weakness in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States. The material weakness identified consisted of (i) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and accruals; (iii) inadequate controls with respect to the maintenance of sufficient documentation for, and the evaluation of the accounting implications of, significant and non-routine payment transactions; and (iv) a lack of sufficient documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and accruals; as defined in the standards established by the Public Company Accounting Oversight Board of the United States.
We have already taken some steps and have continued to implement measures to remediate the material weakness identified, including but not limited to providing trainings to staff, changing to a new and well-established accounting system, and continue to monitor the internal control over financial reporting. However, we cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future. See “Item 3. Key Information — D. Risk Factors — If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.”
Notwithstanding there are material weaknesses identified as described above, we believe that our consolidated financial statements contained in this Annual Report on Form 20-F fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.
110
(b) Management’s Annual Report on Internal Control over Financial Reporting Attestation Report of the Registered Public Accounting Firm
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of our Company are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of our internal control over financial reporting to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Rule 13a-15(c) of the Exchange Act, our management conducted an evaluation of our company’s internal control over financial reporting as of December 31, 2025 based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2025. The material weaknesses identified by us and our independent registered public accounting firm related to (i) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and accruals; (iii) inadequate controls with respect to the maintenance of sufficient documentation for, and the evaluation of the accounting implications of, significant and non-routine payment transactions; and (iv) a lack of sufficient documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and accruals.
Remediation of Material Weaknesses
To remediate our identified material weaknesses, we intend to adopt several measures to improve our internal control over financial reporting, including (i) hiring more qualified accounting personnel, including a financial controller, with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and setting up a financial and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; (iii) setting up an internal audit function as well as engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal controls; (iv) preparing comprehensive accounting policies, manuals and closing procedures to improve the quality and accuracy of our period-end financial closing process; (v) setting up and maintaining a control process for the accounting implication assessment of all significant payment transactions, particularly those that are non-routine; (vi) setting up and maintaining a control process for maintaining all supporting documentation regarding non-routine transactions; (vii) updating the approval requirements for non-routine transactions to ensure that they match our transaction approval policies in place on our other accounts; and (viii) partnering with third party service providers and a custodian bank to assist with borrower bank account management.
We believe that the actions we are taking, as listed above, will help remedy the material weaknesses referred to above, and help strengthen our general internal controls and procedures over financial reporting. However, the process of designing and implementing an effective financial reporting system represents a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. While we have developed a remediation plan to address these material weaknesses, this remediation plan or any additional plan we plan to implement may be insufficient to address our material weaknesses and additional material weaknesses may be discovered in the future. We plan to continue to address and remediate additional control deficiencies we may identify during our evaluation process for the year ended December 31, 2026. If we fail to implement and maintain an effective system of internal controls or fail to remediate the material weaknesses in our internal control over financial reporting that have been identified, we may be unable to accurately report our results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ordinary shares may be materially and adversely affected.
111
(c) Attestation Report on Internal Control over Financial Reporting of the Registered Public Accounting Firm
Not applicable
(d) Changes in Internal Control over Financial Reporting
Other than those disclosed above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this Annual Report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. RESERVED
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that Mr. Wei Jiang, the Chairman of the Audit Committee of our Board, qualifies as an “audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the meaning of Listing Rules of the Nasdaq Stock Market. Mr. Wei Jiang satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and Rule 10A-3 under the Securities Exchange Act of 1934, as amended.
Item 16B. CODE OF ETHICS
Our Board has adopted a code of business conduct and ethics that applies to all of our directors, officers, employees, including certain provisions that specifically apply to our principal executive officer, principal financial officer or controller and any other persons who perform similar functions for us. A copy of this code of business conduct and ethics is available on our website: www.x3holdings.com.
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table represents the approximate aggregate fees for services rendered by Onestop Assurance PAC for the periods indicated:
| December 31, 2025 | December 31, 2024 | |||||||
| Audit Fees | ||||||||
| - Onestop Assurance PAC | $ | 213,800 | $ | 201,000 | ||||
| Total Fees | $ | 213,800 | $ | 201,000 | ||||
“Audit fees” are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit and are not reported under audit fees. These fees primarily include accounting consultations regarding the accounting treatment of matters that occur in the regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time.
The policy of our Audit Committee is to pre-approve all audit and non-audit services provided by our independent auditor including audit services, audit-related services, tax services and other services.
Our Audit Committee evaluated and approved in advance the scope and cost of the engagement of an auditor before the auditor rendered its audit and non-audit services.
112
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
Item 16G. CORPORATE GOVERNANCE
As a Cayman Islands exempted company listed on the Nasdaq Stock Market, we are subject to the Nasdaq listing standards. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. We have utilized the exemption afforded by Nasdaq Listing Rule 5615(a)(3) to follow home country practice in lieu of certain requirements, including (i) the independence requirements for compensation committee and nomination committee as provided in Nasdaq Listing Rule 5605(d) and (e); (ii) the requirement that a majority of the Board must be independent as provided in Nasdaq Listing Rule 5615(b)(1); (iii) the requirement to hold annual general meeting as provided in Nasdaq Listing Rule 5620(a); (iv) the requirement to obtain shareholders’ approval prior to a plan or other equity compensation arrangement is established or materially amended as provided in Nasdaq Listing Rule 5635(c); and (v) the requirement of shareholder approval for entering into any transaction, other than a public offering, involving the sale, issuance or potential issuance by the Company of ordinary shares (or securities convertible into or exercisable for ordinary shares) equal to 20% or more of the outstanding share capital of the Company or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the ordinary shares as provided in Nasdaq Listing Rule 5635(d). Our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq listing standards applicable to U.S. domestic issuers given our reliance on the home country practice exception.
See “Item 3. Key Information — D. Risk Factors — Risks Related to Our Corporate Structure — As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with such corporate governance listing standards”.
See “Item 6. Directors, Senior Management and Employees” for more information.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
We have
113
ITEM 16K. CYBERSECURITY
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity and availability of our critical systems and information.
Our cybersecurity risk management aligns with and shares common methodologies and reporting channels with our broader risk management.
Key features of our cybersecurity risk management program include, but are not limited to, the following:
| ● | risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT Systems environment; |
| ● | a security team principally responsible for managing |
| ● | processes for monitoring for vulnerabilities of our technology which includes code review (as necessary), testing and analysis of software across the software lifecycle; |
| ● | the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; |
| ● | physical and technical security measures, including encryption, authentication, and access controls; |
| ● | cybersecurity awareness training and internal cybersecurity resources for our employees; |
| ● | a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and |
We have
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and undertakes overall risk management, including oversight of cybersecurity and other information technology risks.
Our Board receives quarterly
reports from management on our cybersecurity risks. In addition, management updates
Our management oversees efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; information obtained from governmental, public or private sources; and alerts and reports produced by security tools deployed in our IT Systems environment.
114
Part III
Item 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
Item 18. FINANCIAL STATEMENTS
The consolidated financial statements of X3 Holdings Co., Ltd., and its subsidiaries are included at the end of this Annual Report.
Item 19. EXHIBITS
EXHIBIT INDEX
115
116
| (1) | Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-229128) filed with the Securities and Exchange Commission on March 21, 2019 |
| (2) | Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-229128) filed with the Securities and Exchange Commission on January 4, 2019 |
| (3) | Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-229128) filed with the Securities and Exchange Commission on February 19, 2019. |
| (4) | Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-229128) filed with the Securities and Exchange Commission on March 12, 2019. |
| (5) | Previously filed; incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 6-K filed with the Securities and Exchange Commission on October 27, 2023, October 3, 2024 and January 8, 2025. |
| (6) | Previously filed; incorporated by reference to the identically named exhibit filed with the Form 20-F filed with the Securities and Exchange Commission on June 24, 2020. |
117
| (7) | Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange Commission on August 28, 2020. |
| (8) | Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange Commission on September 8, 2020. |
| (9) | Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange Commission on October 6, 2020. |
| (10) | Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange Commission on November 25, 2020. |
| (11) | Previously filed; incorporated by reference to Exhibit 1.01 of the Company’s Registration Statement on Form F-3 filed with the SEC on February 23, 2021. |
| (12) | Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange Commission on February 23, 2021. |
| (13) | Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange Commission on April 9, 2021. |
| (14) | Previously filed, incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form F-1 (File No. 333-229128) filed with the Commission on March 21, 2019. |
| (15) | Previously filed, incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 6-K filed with the Commission on July 2, 2020. |
| (16) | Previously filed, incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No.333-269513) filed with the Commission on February 1, 2023. |
| (17) | Previously filed, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 6-K filed with the Commission on September 2, 2022. |
| (18) | Previously filed, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 6-K filed with the Commission on September 2, 2022. |
| (19) | Previously filed, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 6-K filed with the Commission on September 9, 2022. |
| (20) | Previously filed, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 6-K filed with the Commission on September 13, 2022. |
| (21) | Previously filed, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 6-K filed with the Commission on May 30, 2024. |
| (22) | Previously filed, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 6-K filed with the Commission on May 30, 2024. |
| (23) | Previously filed, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 6-K filed with the Commission on December 13, 2024. |
| * | Filed herewith |
118
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
| X3 Holdings Co., Ltd. | ||
| By: | /s/ Stewart Lor | |
| Name: | Stewart Lor | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| Dated: | April 27, 2026 | |
119
X3 HOLDINGS CO., LTD.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of X3 HOLDINGS CO., LTD. (formerly known as Powerbridge Technologies Co., Ltd.)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of X3 HOLDINGS CO., LTD. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive loss, changes in equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial positions of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations of approximately $26.4 million and has negative operating cash flow of appropriately $3.2 million. These conditions indicate that a material uncertainty exists that raise substantial doubt on its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ OneStop Assurance PAC
April 27, 2026
PCAOB Id#:
We have served as the Company’s auditor since 2021
F-2
X3 HOLDINGS CO., LTD.
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalent | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Notes receivable | ||||||||
| Due from related parties | ||||||||
| Loan receivable, net | ||||||||
| Prepayments, deposits and other current assets, net | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Prepayments, deposits and other assets | ||||||||
| Long term investment | ||||||||
| Goodwill | ||||||||
| Right-of-use assets-operating lease | ||||||||
| Deferred tax assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Long term bank loan-current portion | ||||||||
| Accounts payable | ||||||||
| Convertible notes | ||||||||
| Deferred revenue | ||||||||
| Loan from third parties | ||||||||
| Due to a related party | ||||||||
| Operating lease liabilities -current | ||||||||
| Taxes payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liabilities -non-current | ||||||||
| Long term bank loan | - | |||||||
| Deferred tax liabilities | ||||||||
| Total Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY: | ||||||||
| Class A Common shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Subscription receivable | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total X3 Holdings Co., Ltd.’s Shareholders’ Equity | ||||||||
| Non-controlling interest | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
X3 HOLDINGS CO., LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| REVENUES: | ||||||||||||
| Application development services | $ | $ | $ | |||||||||
| Consulting and technical support services | ||||||||||||
| Subscription services | ||||||||||||
| Trading revenue | ||||||||||||
| Others revenue | ||||||||||||
| Total revenues | ||||||||||||
| COST OF REVENUES | ||||||||||||
| Cost of application development services | ||||||||||||
| Cost of consulting and technical support services | ||||||||||||
| Cost of subscription services | ||||||||||||
| Cost of trading revenue | ||||||||||||
| Cost of others revenue | ||||||||||||
| Total cost of revenues | ||||||||||||
| GROSS PROFIT | ||||||||||||
| OPERATING EXPENSES | ||||||||||||
| Selling and marketing | ||||||||||||
| General and administrative | ||||||||||||
| (Recovery of) provision for credit losses | ( | ) | ||||||||||
| Research and development | ||||||||||||
| Share-based compensation | ||||||||||||
| Impairment charges | ||||||||||||
| Total operating expenses | ||||||||||||
| OPERATING LOSS | ( | ) | ( | ) | ( | ) | ||||||
| OTHER INCOME (EXPENSE) | ||||||||||||
| Gain from disposition of a subsidiary | ||||||||||||
| (Loss) gain from equity investment | ( | ) | ||||||||||
| Loss on debt extinguishment | ( | ) | ||||||||||
| Change in fair value of convertible notes | ( | ) | ||||||||||
| Gain from fair value change in equity investments | ||||||||||||
| Fair value loss on financial instruments | ( | ) | ||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ||||||
| Total other expenses | ( | ) | ( | ) | ||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||
| INCOME TAX BENEFIT | ( | ) | ( | ) | ( | ) | ||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ||||||
| Less: loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
| NET LOSS ATTRIBUTABLE TO X3 HOLDINGS CO., LTD. | ( | ) | ( | ) | ( | ) | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||
| COMPREHENSIVE LOSS | ( | ) | ( | ) | ( | ) | ||||||
| Less: comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO X3 HOLDINGS CO., LTD. | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES * | ||||||||||||
| Basic and diluted | ||||||||||||
| LOSS PER SHARE | ||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
X3 HOLDINGS CO., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Ordinary shares * | Additional Paid-in | Subscription | Accumulated | Accumulated
Other Comprehensive | Non- controlling | Total | ||||||||||||||||||||||||||||||||||
| Class A | Amount | Class B | Amount | Capital | Receivable | Deficit | Loss | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Conversion of convertible notes | - | |||||||||||||||||||||||||||||||||||||||
| Issuance shares for acquisitions | - | |||||||||||||||||||||||||||||||||||||||
| Issuance shares as prepayment for potential acquisition | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of shares for private placement | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Share based compensation | - | |||||||||||||||||||||||||||||||||||||||
| Split shares | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Capital contribution by non-controlling shareholder | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss for the year | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Non-controlling interests recognized from step acquisitions | - | - | ||||||||||||||||||||||||||||||||||||||
| Put options compensations | - | |||||||||||||||||||||||||||||||||||||||
| Transfer Class A to Class B | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of shares for private placement | - | |||||||||||||||||||||||||||||||||||||||
| Stock dividend | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Split shares | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Capital contribution by non-controlling shareholder | - | - | ||||||||||||||||||||||||||||||||||||||
| Deregister subsidiaries | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss for the year | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Shares receivable from potential acquisition | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of shares for private placement | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Non-controlling interest from acquisition | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock dividend | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Disposal subsidiaries | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Split shares | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||
| Share based compensation | - | |||||||||||||||||||||||||||||||||||||||
| Net loss for the year | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
X3 HOLDINGS CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net loss from operations to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| (Recovery of) provision for credit losses | ( | ) | ||||||||||
| Share based compensation | ||||||||||||
| Loss from disposal of property and equipment | ||||||||||||
| Deferred tax benefit | ( | ) | ( | ) | ( | ) | ||||||
| Gain from fair value change in equity investments | ( | ) | ||||||||||
| Fair value loss on financial instruments | ||||||||||||
| Loss (gain) from long term investment | ( | ) | ||||||||||
| Settlement loss on disposition of assets | ||||||||||||
| Impairment charges | ||||||||||||
| Loss on debt extinguishment | ||||||||||||
| Change in fair value of convertible notes | ( | ) | ||||||||||
| Accrued interest of convertible notes | ||||||||||||
| Loss from disposition of a subsidiary | ( | ) | ||||||||||
| Amortization of right-of-use assets-operating lease | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||
| Notes receivable | ( | ) | ( | ) | ||||||||
| Accounts receivable | ( | ) | ||||||||||
| Prepayments, deposits and other assets | ( | ) | ||||||||||
| Accounts payable | ( | ) | ( | ) | ||||||||
| Accounts payable-related party | ||||||||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||||||
| Taxes payable | ||||||||||||
| Deferred revenue | ( | ) | ||||||||||
| Operating lease liabilities | ( | ) | ( | ) | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Repayment from (loans to) third parties | ( | ) | ( | ) | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Purchases of intangible assets | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from disposal of property and equipment | ||||||||||||
| Payment for long-term investment | ( | ) | ||||||||||
| Payments to related parties | ( | ) | ||||||||||
| Proceeds from related parties | ||||||||||||
| Net cash received from disposal of subsidiaries | ||||||||||||
| Net cash arising from business combination | ||||||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from bank loans | ||||||||||||
| Repayments of bank loans | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from private placement and market offering | ||||||||||||
| Split shares | ( | ) | ( | ) | ||||||||
| Proceeds from (payment for) issuance of convertible notes | ( | ) | ( | ) | ||||||||
| Proceeds from (payments to) related parties | ||||||||||||
| Loan from (repayment to) third party | ( | ) | ||||||||||
| NET CASH PROVIDE BY FINANCING ACTIVITIES | ||||||||||||
| EFFECT OF EXCHANGE RATE CHANGES | ( | ) | ( | ) | ||||||||
| NET DECREASE IN CASH, CASH EQUIVALENT AND RESTRICTED CASH | ( | ) | ( | ) | ( | ) | ||||||
| CASH, CASH EQUIVALENT AND RESTRICTED CASH - beginning of year | ||||||||||||
| CASH, CASH EQUIVALENT AND RESTRICTED CASH - end of year | $ | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
| Cash paid for: | ||||||||||||
| Interest | $ | $ | $ | |||||||||
| Income taxes | $ | $ | $ | |||||||||
| NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES | ||||||||||||
| Right of use assets obtained in exchange of lease liabilities | $ | $ | $ | |||||||||
| Conversion of convertible notes | $ | $ | $ | |||||||||
| Issuance shares as prepayment for potential acquisition | $ | $ | $ | |||||||||
| Issuance shares for acquisitions | $ | $ | $ | |||||||||
| Non-controlling interests recognized from step acquisitions | $ | $ | $ | |||||||||
| Due to related party transferred to non-controlling interests | $ | $ | $ | |||||||||
| Prepayments, deposits and other assets transferred from loan receivable | $ | $ | $ | |||||||||
| Prepayments, deposits and other assets as consideration for acquisitions | $ | $ | $ | |||||||||
| RECONCILIATION TO AMOUNTS ON CONSOLIDATED BALANCE SHEETS: | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Restricted cash | ||||||||||||
| Total cash and restricted cash | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Nature of business and organization
X3 Holdings Co., Ltd. (“X3” or the “Company”), formerly known as Powerbridge Technologies Co., Ltd. is a company that was established under the laws of the Cayman Islands on July 27, 2018 as a holding company. The Company, through its subsidiaries (collectively the “Group”), is a provider of software application and technology services to corporate and government customers engaged in global trade. Mr. Stewart Lor, the Company’s Chairman of the Board and Chief Executive Officer (“CEO”) is the ultimate Controlling Shareholders of the Company.
Effective January 30, 2024, the Company has undergone a transformation, changing its corporate name from Powerbridge Technologies Co., Ltd. to X3 Holdings Co., Ltd. The Nasdaq stock symbol has also transitioned from PBTS to XTKG. This change reflects the Group’s evolving global expansion strategy and its commitment to broader technological and business horizons.
As of December 31, 2025, the details of the Company’s principal subsidiaries are as follows:
| Major subsidiaries | Percentage of Ownership | Date of Incorporation | Place of Incorporation | Major Operation | ||||
| Powerbridge Holding Limited (“Powerbridge HK”) | ||||||||
| Hong Kong Hongyi Holdings Limited (“Hongyi”) | ||||||||
| Hongding Technology Co., Ltd (“Hongding”) | ||||||||
| Powercrypto Inc | ||||||||
| X3 HOLDINGS PTE. LTD. (“X3 HOLDINGS”) | ||||||||
| Hong Kong Anxin Jieda Co., Limited (“Anxin Jieda”) (1) | ||||||||
| Creation Intelligent Co., Limited (“Creation Intelligent”) (2) | ||||||||
| X3 Technologies PTE. LTD. | ||||||||
| Powerbridge Technology Group Co., Ltd. (“Powerbridge Zhuhai”) | Powerbridge HK | |||||||
| Powerstream Supply Chain Co., Ltd. (“Powerstream”) | Powerbridge HK | |||||||
| Powermeta Digital Co., Ltd. (“Powermeta”) | Powerbridge HK | |||||||
| Powerbridge Digital Trade (HK) Co., Limited | Powerbridge HK | |||||||
| SmartConn Co.Limited(“SmartConn”) | Powerbridge HK | |||||||
| Powerbridge Technology (Zhuhai Economic and Technological Development Zone) Co., Ltd | ||||||||
| PicAIGames Technology Co., Ltd. (PicAIGames) |
F-7
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Nature of business and organization (continued)
| Major subsidiaries | Percentage of Ownership | Date of Incorporation | Place of Incorporation | Major Operation | ||||
| Hongxi Data Technology Co., Ltd. | Powerbridge Zhuhai | |||||||
| Zhuhai Hongyang Supply Chain Co., Ltd. (“Zhuhai Hongyang”) | Powerbridge Zhuhai | |||||||
| Ningbo Zhijing Tongfu Technology Co., Ltd. (“Ningbo Zhijing”) (3) | Powerbridge Zhuhai | |||||||
| Metafusion Digital Co., Ltd (“Metafusion”) | Powermeta Digital | |||||||
| Shanghai Stamp Technology Co., Ltd. | ||||||||
| Ascendent Insight Education Co., Ltd. (“Ascendent”) (1) | ||||||||
| Xingtai Ningyao Technology Co., Ltd. (1) | ||||||||
| Shenzhen Hongchuangxin Technology Co., Ltd.(“Hongchuangxin”) | ||||||||
| PicAIGames Technology Co., Ltd. (“PicAIGames”) (2) |
| (1) | |
| (2) | |
| (3) |
Note 2 — Summary of significant accounting policies
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
F-8
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Principles of consolidation
The consolidated financial statements include the financial statements of the Group and its subsidiaries. All intercompany transactions and balances are eliminated upon consolidation.
Subsidiaries are those entities in which the Group, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.
Non-controlling interest represents the portion of the net assets of a subsidiary attributable to interests that are not owned by the Company. The non-controlling interest is presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Non-controlling interest’s operating result is presented on the face of the consolidated statements of income and comprehensive income as an allocation of the total income or loss for the year between non-controlling shareholders and the shareholders of the Company.
Liquidity
As of December 31, 2025, the Group had working capital deficit of $
In assessing its liquidity, the Group monitors and analyzes its cash on hand, its ability to generate sufficient revenue sources in the
future and its operating and capital expenditure commitments. The Group has historically funded its working capital needs primarily from
public offering, operations, bank loans, advance payments from customers and shareholders. 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. As of December 31, 2025, the Group had cash and cash equivalent of approximately $
On May 19, 2025, the Company
entered into purchase agreements with thirteen investors. Pursuant to the Purchase Agreement, the Company agreed to sell
On July 11, 2025, the Company
entered into a definitive securities purchase agreement with certain individuals, the Company agreed to sell
On January 30, 2026, the
Company entered into purchase agreements with an investor to sell up to $
The Group believes that its cash on hand and financing cash flows will be sufficient to fund its operations over at least the next 12 months from the date of this report. However, the Group may need additional cash resources in the future if the Group experiences changed business conditions or other developments, and may also need additional cash resources in the future if the Group wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Group’s amounts of cash on hand, the Group may seek to issue debt or equity securities or obtain a credit facility.
F-9
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Group’s consolidated financial statements include but not limited to the useful lives of property and equipment, intangible assets, impairment of long-lived assets and antique art pieces, impairment of goodwill, valuation of accounts receivables, valuation of convertible notes, revenue recognition and realization of deferred tax assets and uncertain tax positions. Actual results could differ from these estimates.
Foreign currency translation
The functional currencies of the Group are the local currency of the country in which the subsidiaries operate. The Group’s 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 at 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 of accumulated other comprehensive loss included in consolidated statements of changes in equity. Gains and losses from foreign currency transactions are included in the consolidated statement of operations and comprehensive loss.
Fair value measurement
ASC 825-10 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 Group’s financial instruments including cash, notes and accounts receivable, due from related parties, deposits and other current assets, notes and accounts payable, customer deposits, salaries and benefits payables and due to related party approximates their recorded values due to their short-term maturities. The fair value of the deposits and other assets and loans to third parties approximate their carrying amounts because the deposits were paid in cash.
F-10
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Cash and cash equivalent
Cash and cash equivalent comprise
cash at banks and on hand, which includes deposits with original maturities of three months or less with commercial banks in PRC. As of
December 31, 2025 and 2024, cash balances were $
Restricted cash
Restricted cash represents
cash that cannot be withdrawn without the permission of third parties. The Group’s restricted cash is substantially cash balance
in designated bank accounts as security for payment processing and lawsuit. As of December 31, 2025 and 2024, restricted cash consists
of cash equivalents of $ and $
Accounts receivable, net
Accounts receivable represents the amounts that the Group has an unconditional right to consideration and is recorded net of allowance for credit losses.
In 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The Group has adopted this ASC Topic 326 and several associated ASUs on January 1, 2023 using a modified retrospective approach. The adoption has no material impact to the Group’s consolidated financial statements. The Group estimated allowance for credit losses to reserve for potentially uncollectible receivable amounts periodically, considering factors in assessing the collectability of its accounts receivable, such as historical distribution of the age of the amounts due, payment history, creditworthiness, forward-looking factor, historical collections data of the customers, to assess the credit risk characteristics. If there is strong evidence indicating that the accounts receivable is likely to be unrecoverable, the Group also makes specific allowance in the period in which a loss is determined to be probable. Accounts receivable is considered impaired and written off when it is probable that all contractual payments due will not be collected after all collection efforts have been exhausted.
Notes receivable
Notes receivable represents trade accounts receivable due from various customers where the customers’ banks have guaranteed the payments. The notes are non-interest bearing and normally paid within three to twelve months. The Company has the ability to submit request for payment to the customer’s bank earlier than the scheduled payment date but will incur an interest charge and a processing fee.
Prepayments, deposits and other assets, net
Prepayment, deposit and other assets, net, primarily consists of advances to suppliers for purchasing goods or services that have not been received or provided, security deposits made to our customers, advances to employees and antique art pieces obtained in lieu of debt repayment. Prepayment, deposit and other assets are classified as either current or non-current based on the terms of the respective agreements and periods when they are expected to be realized. These advances are unsecured and these advances and antique art pieces are reviewed periodically to determine whether their carrying value has become impaired.
F-11
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Property and equipment, net
Property and equipment, net, mainly comprise furniture and furniture, vehicles, compute, equipment and buildings are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated over the estimated useful lives of the assets on a straight-line basis, after considering the estimated residual value.
The estimated useful lives are as follows:
| Useful Life | ||
| Office equipment, fixtures and furniture | ||
| Automobiles | ||
| Computer equipment | ||
| Buildings |
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 the related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is charged to the statement of income and comprehensive income.
Intangible assets, net
The Group’s intangible assets mainly include capitalized development costs, purchased software and acquired software from business acquisitions. The Group follows the provisions of Accounting Standards Codification (“ASC”) 985-20, “Costs of Software to be Sold, Leased, or Marketed.” ASC 985-20 provides guidance on capitalization of the costs of software developed or obtained for sold, leased, or marketed. The Group expenses all costs incurred during the preliminary project stage of its development, and capitalizes costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements to the application are capitalized if it is determined that these upgrades or enhancements add additional functionality to the application. The capitalized development cost is amortized on a straight-line basis over the estimated useful life, which is generally five years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
| Useful Life | ||
| Capitalized development costs | ||
| Purchased software | ||
| Software from business combinations |
Impairment for long-lived assets other than goodwill
Long-lived assets, including
property, equipment, furniture and fixtures and intangible assets with finite lives are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying value of an asset may not be recoverable. When these events occur, the Group measures impairment
by comparing the carrying values of the long-lived assets to the estimated undiscounted future cash flows expected to result from the
use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amounts
of the assets, the Group would recognize an impairment loss based on the excess of the carrying value over the assessed discounted cash
flow amount. For the year ended December 31, 2025, due to slow development of Hongchuangxin and Creation Intelligent, the Group evaluated
the recoverability of long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected
to result from the use of the assets and their eventual disposition and determined that the fair value of intangible assets of Hongchuangxin
and Creation Intelligent were less than carrying value. Therefore, the Group recorded impairment on the intangible assets acquired from
the acquisition of Hongchuangxin and Creation Intelligent in the amount of $
F-12
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Long-term investments
Long-term investments are primarily consisted of equity investments in privately held entities accounted for using the measurement alternative and equity investments accounted for using the equity method. On January 1, 2022, the Group adopted ASU 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. According to the guidance, the Group started to record equity investments at fair value, with gains and losses recorded through net earnings. And the Group elected to measure certain equity investments without readily determinable fair value at cost, less impairments, plus or minus observable price changes and assess for impairment quarterly.
Equity investments without readily determinable fair values
After the adoption of this new accounting standard, the Group elected to record equity investments without readily determinable fair values and not accounted for under the equity method at cost, less impairment, adjusted for subsequent observable price changes on a nonrecurring basis, and report changes in the carrying value of the equity investment in current earnings. Changes in the carrying value of the equity investment are required to be made whenever there are observable price changes in orderly transactions for the identical or similar investment of the same issuer. Reasonable efforts shall be made to identify price changes that are known or that can reasonably be known.
Equity investments with readily determinable fair values
Equity investments with readily determinable fair values are measured and recorded at fair value using the market approach based on the quoted prices in active markets at the reporting date.
Equity investments accounted for using the equity method
The Group accounts for its equity investment over which it has significant influence but does not own a majority equity interest or otherwise control, using the equity method. The Group adjusts the carrying amount of the investment and recognizes investment income or loss for its share of the earnings or loss of the investee after the date of investment. The Group assesses its equity investment for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, operating performance of the entity, including current earnings trends and undiscounted cash flows, and other entity-specific information. The fair value determination, particularly for investments in a privately held entity, requires judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investment and determination of whether any identified impairment is other-than-temporary.
Business combinations
The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total of the cost of the acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the identifiable net assets of the acquiree, the difference is recognized directly in earnings.
The determination and allocation of fair values to the identifiable net assets acquired, liabilities assumed and noncontrolling interest is based on various assumptions and valuation methodologies requiring considerable judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Group determines discount rates to be used based on the risk inherent in the acquiree’s current business model and industry comparisons. Although the Group believes that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from forecasted amounts and the differences could be material.
F-13
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Goodwill
Goodwill is the cost of acquired companies in excess of the fair value of identifiable net assets at acquisition date. Goodwill is not subject to amortization, but rather is evaluated for impairment at least annually. The Group evaluates its goodwill for impairment during the fourth quarter of its fiscal year or more frequently if indicators of potential impairment exist, in accordance with ASC 350, Intangibles - Goodwill and Other. Goodwill impairment is determined by comparing the estimated fair value of a reporting unit (generally defined as the businesses for which financial information is available and reviewed regularly by management) with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not deemed to be impaired. However, if the estimated fair value is below carrying value, further analysis is required to determine the amount of the impairment.
In the course of evaluating the potential impairment of goodwill, the Group may perform either a qualitative or a quantitative assessment. The Group’s qualitative assessment of potential impairment may result in the determination that a quantitative impairment analysis is not necessary. Under this elective process, the Group assesses qualitative factors to determine whether the existence of events or circumstances leads the Group to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events and circumstances, the Group determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing a quantitative analysis is not required. However, if the Group concludes otherwise, then the Group performs a quantitative impairment analysis.
If the Group either chooses not to perform a qualitative assessment, or the Group chooses to perform a qualitative assessment but is unable to qualitatively conclude that no impairment has occurred, then the Group performs a quantitative evaluation. In the case of a quantitative assessment, the Group estimates the fair value of the reporting unit with which the goodwill that is subject to the quantitative analysis is associated and compares it to the carrying value. If the estimated fair value of a reporting unit is less than its carrying value, the excess is recorded as a goodwill impairment, which is limited to the total amount of goodwill allocated to that reporting unit.
For the year ended December
31, 2025, the Group performed the impairment test and determined that the fair value of goodwill acquired from the acquisition of Hongchuangxin
was less than carrying value. The Group impaired the goodwill acquired from the acquisition of Hongchuangxin of $
For the year ended December
31, 2024, the Group performed the impairment test and determined that the fair value of goodwill acquired from the acquisition of Boxinrui
and Hongchuangxin was less than carrying value. The Group impaired the goodwill acquired from the acquisition of Boxinrui and Hongchuangxin
of $
For the year ended December
31, 2023, the Group performed the impairment test and determined that the fair value of goodwill acquired from the acquisition of Boxinrui
and Smartconn was less than carrying value. The Group impaired the goodwill acquired from the acquisition of Boxinrui and Smartconn of
$
F-14
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Revenue recognition
The Group adopted ASC Topic 606. Under ASC 606, revenue is recognized when control of promised goods or services is transferred to the Group’s customers in an amount of consideration to which an entity expects to be entitled to in exchange for those goods or services and is recorded net of value-added tax (“VAT”). To achieve that core principle, the Group 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 Group derives its revenues from four sources: (1) revenue from application development services, (2) revenue from consulting and technical support services, (3) revenue from subscription services, (4) trading revenue and (5) others revenue. All of the Group’s contracts with customer do not contain cancelable and refund-type provisions.
(1) Revenue from application development service
The Group’s application development service contracts are primarily on a fixed-price basis, which require the Group to perform services including project planning, project design, application development and system integration based on customers’ specific needs. These services also require significant production and customization. Upon delivery of the services, customer acceptance is generally required. In the same contract, the Group is generally required to provide post-contract customer support (“PCS’) for a period from three months to three years (“PCS period”) after the customized application development services are delivered. The type of services for PCS clause is generally not specified in the contracts or as stand-ready services on when-and-if-available basis. The unspecified PCS is stand-ready service on when-and-if-available basis. It grants the customers on line and telephone access to technical support personnel during the term of the service. Specified PCS includes specified service term in the contract such as training.
The Group’s application
development service revenues are generated primarily from contracts with PRC government or related agencies and state-owned enterprises.
The contracts contain negotiated billing terms which generally include multiple payment phases throughout the contract term and a significant
portion (
The Group sometimes provides a warranty for its application development service contracts. The warranty period is typically 12-36 months upon the completion of the application development service. In accordance with ASC 606-10-25-19, the Group believes the warranty provision in the contracts generally represents service-type warranty, which is a distinct performance obligation and the Group also provides the similar service on standalone basis and customers can benefit from the related service-type warranty service. For the service warranty component, the customer simultaneously receives and consumes the benefits provided by the Group performance over the warranty term, therefore, the service warranty is satisfied over time. The revenue allocated to the service warranty is recognized over the warranty period.
F-15
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
The Group assesses that application development service, PCS or specific service and service-type warranty, if applicable, are distinct performance obligations in the application development service contracts. The Group provides these services on standalone basis and customers are able to benefit from each of the service on its own. In addition, the timing of delivery of these performance obligations can be separately identifiable in the contracts. The transaction price is allocated to these identified performance obligations based on the relative standalone selling prices. The transaction price allocated to PCS or unspecific service and service-type warranty, if applicable, on a straight-line method over the contractual period. Revenue allocated to specified PCS is recognized as the related services are rendered. The transaction price allocated to application development service is recognized over time as the Group’s performance creates or enhances the project controlled by the customer and the control is transferred continuously to our customers. The Group uses an input method based on cost incurred as the Group believes that this method most accurately reflects the Group’s progress toward satisfaction of the performance obligation, which usually takes less than one year. Under this method, the transaction price allocated to application development service is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.
Incurred costs include all direct material, labor and subcontract costs, and those indirect costs related to application development performance, such as indirect labor, supplies, and tools. Cost-based input method requires the Group to make estimates of revenues and costs to complete the construction. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the application development, including materials, labor, and other system costs. The Group’s estimates are based upon the professional knowledge and experience of our engineers and project managers to assess the contract’s schedule, performance, technical matters. The Group has adequate cost history and estimating experience, and with respect to which management believes it can reasonably estimate total development costs. If the estimated costs are greater than the related revenues, the Group recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated. Changes in estimates for application development services include but not limited to cost forecast changes and change orders. The cumulative effect of changes in estimates is recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. To date, the Group has not incurred a material loss on any contracts. However, as a policy, provisions for estimated losses on such engagements will be made during the period in which a loss becomes probable and can be reasonably estimated. If contract modifications result in additional goods or services that are distinct from those transferred before the modification, they are accounted for prospectively as if the Group entered into a new contract. If the goods or services in the modification are not distinct from those in the original contract, sales and gross profit are adjusted using the cumulative catch-up method for revisions in estimated total contract costs and contract values.
In certain application development service arrangements, the Group sells and delivers IT equipment on standalone basis prior to the delivery of the services. In these cases, the Group controls the IT equipment before they are transferred to the customer. The Group has the right to direct the suppliers and control the goods or assets transferred to its customers. Thus, the Group considers it should recognize revenue as a principal in the gross amount of consideration to which it is entitled in exchange for the IT equipment delivered. The Group assesses the sale of equipment is separately identifiable from other promises in the contract and it is distinct performance obligation within the context of the contract. Accordingly, the revenue from the related IT equipment based on its relative standalone selling price is recognized upon customer acceptance after delivery.
F-16
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
(2) Revenue from consulting and technical support services
Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require the Group to provide professional consulting and technical support services over contract terms beginning on the commencement date of each contract, which is the date its service is made available to customers. Billings to the customers are generally on a monthly or quarterly basis over the contract term, which is typically 12 to 24 months. The consulting and technical support services contracts typically include a single performance obligation. The revenue from consulting and technical support services is recognized over the contract term on a straight-line basis as customers receive and consume benefits of such services.
(3) Revenue from subscription services
Revenue from subscription services is comprised of subscription fees from customers accessing the Group’s software-as-a-service applications for a subscribed period. The Group’s monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers. The subscription arrangements are considered service contracts because customers do not have the right to take possession of the software and can only benefit from the software when provided the right to access the software. Accordingly, the subscription services contracts typically include a single performance obligation. The revenue from subscription services is recognized over the contract term on a straight-line basis or based on the actual usage as customers receive and consume benefits of such services.
(4) Trading revenue
The Group started trading business for the year ended December 31, 2021 and recognized revenue at a point in time when control of such products transfers to the customer, which generally occurs upon shipment or delivery depending on the terms of the contracts with the customer. Product sale contracts typically include a single performance obligation and there are no rights of return. The transaction price is based on the fixed contractual price with the customer. Billings to the customer for the sale of products occur at the time the products are transferred to the customer.
(5) Others revenue
In April 2023, the Group initiated a strategic expansion to other business, such as regional authorization membership program to engage independent merchant to assist in developing specified geographical regions. The program grants non-exclusive geographical territory business development to the authorized distributors within that defined territory. The Group’s services under regional cooperation agreements include marketing support to advertise as well as utilization of the Group’s trademark and copyrights for business promotion purpose. The term of cooperation agreements is typically one to two years. The Group charges a fixed amount authorization fee which is non-refundable and to be paid upon execution of an authorization agreement. For all the Group’s cooperation agreements, the amount of fee is fixed or determinable and no right of return provision indicated in the agreement. Since the Group provides no financing to authorized distributors and offers no guarantees on their behalf, the services provided by the Group are considered to represent a single performance obligation. The agreement price is fully allocated to the single performance obligation. The total authorization fees are recognized ratably on a straight-line basis over the term of the cooperation agreements.
In August, 2025, the Group started to offer mobile game distribution service for game operators (either game owner / developer or game platform) and earns monthly distribution service fee over the contractual term. The Group does not have the primary responsibility for fulfillment and acceptability of the game services to the end users. The Group’s responsibilities are distributing games and providing market promotion service over the contract term. Accordingly, the Group records the game distribution service revenue on a net basis based on the pre-determined profit-sharing ratios when the performance obligations are satisfied on the monthly basis over the contract term.
Revenue includes reimbursements
of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenue. The Group reports revenues net of
value added tax (“VAT”). The Group’s subsidiaries in PRC are subject to a
F-17
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Practical Expedient and Exemptions
The Group does not disclose the value of unsatisfied performance obligations within one year by applying the right to invoice practical expedient provided by ASC 606-10-55-18.
Contract balance
The accounts receivable includes
both unbilled accounts receivable and billed accounts receivable. The Group records unbilled accounts receivable for revenue that has
been recognized in advance of billing the customer, which is common for application development service contracts. The unbilled accounts
receivable represents the Group’s right to consideration in exchange for the service that the Group has performed to the customer
before payment is due and the unbilled account receivable will be reclassified into billed accounts receivable when the Group has the
right to invoice. Contract liabilities are presented as deferred revenue on the consolidated balance sheet. Contract liabilities relate
to payments received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue
upon the completion of performance obligations. As of December 31, 2025 and 2024 the balance of deferred revenue amounted to $
Government subsidies
Government subsidies mainly represent amounts granted by local government authorities as an incentive for companies to promote development of the local technology industry. The Group receives government subsidies related to government sponsored projects, and records such government subsidies as a liability when it is received. The Group records government subsidies as other income when there is no further performance obligation.
Advertising expenditures
Advertising expenditures are
expensed as incurred and such expenses were minimal for the periods presented. Advertising expenditures have been included as part of
selling and marketing expenses. For the years ended December 31, 2025, 2024 and 2023, the advertising expense amounted to $, $
Operating leases
The Group adopted Topic 842 on January 1, 2022 using the modified retrospective transition approach. The Group has lease contracts for dormitory and office space under operating leases. The Group 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 Group 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 Group would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The Group estimates its incremental borrowing rate based on an analysis of weighted average interest rate of its own bank loans. The Group 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 Group begins recognizing lease expense when the lessor makes the underlying asset available to the Group.
For leases with lease term less than one year (short-term leases), the Group records operating lease expense in its consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.
F-18
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Income taxes
The Group accounts for current 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.
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
Value added tax
Revenue represents the invoiced
value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to
Employee defined contribution plan
Full time employees of the Group in the PRC participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the Group make contributions to the government for these benefits based on a certain percentage of the employee’s salaries. The Group has no legal obligation for the benefits beyond the contributions. The total amount was expensed as incurred.
Loss per share
Earnings (loss) per ordinary share is calculated in accordance with ASC 260, Earnings per Share. Basic earnings (loss) per ordinary share is computed by dividing the net income (loss) attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between Ordinary Shares and other participating securities based on their participating rights. Diluted income per share is calculated by dividing net income attributable to ordinary shareholders as adjusted for the effect of dilutive potential ordinary shares outstanding during the period. Potential ordinary shares include ordinary shares issuable upon the exercise of outstanding share options by using the treasury stock method and ordinary shares issuable upon the conversion of convertible instruments using the if-converted method. Potential ordinary shares are not included in the denominator of the diluted net (loss)/earnings per share calculation when inclusion of such shares would be anti-dilutive. For the years ended December 31, 2025, 2024 and 2023, since the company had a loss, basic and dilutive loss per share is the same.
F-19
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Share-Based compensation
The Group accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation, and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense with graded vesting on a straight-line basis over the requisite service period for the entire award.
Comprehensive loss
Comprehensive loss consists of two components, net loss and other comprehensive loss. Other comprehensive 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 loss consists of a foreign currency translation adjustment resulting from the Group not using the U.S. dollar as its functional currencies.
Statement of Cash Flows
In accordance with ASC 230, “Statement of Cash Flows,” cash flows from the Group’s operations are formulated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Commitments and Contingencies
In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters, such as government investigations and tax matters. The Group recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Group may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter.
Segment reporting
The Group’s chief operating decision maker
(“CODM”) has been identified as its CEO, who reviews the consolidated results when making decisions about allocating resources
and assessing performance of the Group as a whole and hence, the Group has only
F-20
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Concentrations of Risks
| (a) | Concentration of credit risk |
Assets that potentially subject
the Group to significant concentration of credit risk primarily consist of cash, restricted 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 December 31,
2025 and 2024, the aggregate amount of cash, cash equivalents and restricted cash of $
| (b) | Foreign currency risk |
A majority of the Group’s expense transactions are denominated in RMB and a significant portion of the Group 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 Group 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 Group’s functional
currency is the RMB, and the Group’s financial statements are presented in U.S. dollars. The RMB deprecated by
| (c) | Significant customers |
For the year ended December
31, 2025, two customers accounted for
As of December 31, 2025, two
customers accounted for
F-21
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
| (d) | Significant suppliers |
For the year ended December
31, 2025, two suppliers accounted for
Recently issued accounting pronouncements
The Group considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended (“the JOBS Act”), the Group meets the definition of an emerging growth company, or EGC, and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2025. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. Once adopted, this ASU will result in additional disclosures. The Group is currently assessing the potential impact of the rule on our disclosures.
In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. ASU 2025-03 clarifies the guidance to determine the accounting acquirer in a business combination that is affected primarily by exchanging equity interests, when the legal acquiree is a variable interest entity (“VIE”) that meets the definition of a business. ASU 2025-03 requires entities to consider the same factors in ASC 805, Business Combinations, required for determining which entity is the accounting acquirer in other acquisition transactions. ASU 2025-03 is effective for the Company’s annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-03 is required to be applied on a prospective basis to any acquisition transaction that occurs after the initial application date. The Group is currently evaluating the potential impact of adopting this guidance on Financial Statements.
In May 2025, the FASB issued ASU 2025-04, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606). ASU 2025-04 revises the definition of the term performance condition for share-based consideration payable to a customer to incorporate conditions that are based on the volume or monetary amount of a customer’s purchases or potential purchases. ASU 2025-04 also eliminates the policy election to account for forfeitures as they occur for awards with service conditions. ASU 2025-04 also clarifies that ASC 606 variable consideration guidance does not apply to share-based payments to customers; instead, vesting probability should be assessed solely under ASC 718, Compensation—Stock Compensation. ASU 2025-04 is effective for the Company’s annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-04 may be applied on either a modified retrospective basis or on a retrospective basis. The Group is currently evaluating the potential impact of adopting this guidance on Financial Statements.
F-22
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
In July 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets. ASU 2025-05 amends ASC 326, Financial Instruments—Credit Losses, and introduces a practical expedient available for all entities and an accounting policy election available for all entities, other than public business entities, that elect the practical expedient. These changes apply to the estimation of expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue Recognition. Under the practical expedient, entities may assume that current conditions as of the balance sheet date remain unchanged for the remaining life of the asset when developing reasonable and supportable forecasts. This simplifies the estimation process for short-term financial assets. ASU 2025-05 is effective for the Company’s annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-05 should be applied on a prospective basis. The Group is currently evaluating the potential impact of adopting this guidance on Financial Statements.
In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software to modernize the accounting for internal-use software costs, primarily by simplifying the requirements to capitalize software development costs. This update is effective beginning with the Group’s 2028 fiscal year annual reporting period, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvement. ASU 2025-11 is intended to improve the navigability of required interim disclosures and clarify when that guidance is applicable, and also to provide additional guidance on what disclosures should be provided in interim reporting periods. ASU 2025-11 is effective for public business entities for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2025-11 on its financial statements and related disclosures.
In December 2025, the FASB issued ASU 2025-12, Codification Improvements. ASU 2025-12 makes thirty-three incremental improvements to generally accepted accounting principles. ASU 2025-12 is effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The Company is currently evaluating the impact of ASU 2025-12 on its financial statements and related disclosures.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the consolidated financial position, statements of operations and cash flows.
F-23
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 — Acquisition
Hongchuangxin Acquisition
On May 1, 2024, the Group
acquired
The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition based on a valuation report performed by an independent valuation firm engaged by the Group. The valuation report considered generally accepted valuation methodologies such as the income, market and cost approaches.
| Amount | ||||
| Total consideration for acquisition | $ | |||
| Assets acquired and liabilities assumed: | ||||
| Cash acquired | ||||
| Accounts receivable | ||||
| Loan receivable | ||||
| Prepayments, deposits and other current assets | ||||
| Intangible assets, net | ||||
| Accounts payable | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Total net assets acquired | ||||
| Goodwill | $ | |||
The intangible assets are
mainly attributable to franchise right acquired through the acquisition, which are amortized over
Due to sluggish business operations
subsequent to the acquisition, the Group engaged a third-party valuation firm and performed fair value assessment using income approach,
according to the valuation report, the Group recorded an impairment of goodwill of $
F-24
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 — Acquisition (continued)
Creation Intelligent Acquisition
The Company entered into a
definitive share purchase agreement (the “Share Purchase Agreement”) dated as of August 1, 2025, with a Non-U.S. individual
(“Seller”), pursuant to which the Company agreed to acquire
The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition based on a valuation report performed by an independent valuation firm engaged by the Group. The valuation report considered generally accepted valuation methodologies such as the income, market and cost approaches.
| Amount | ||||
| Total consideration for acquisition | $ | |||
| Assets acquired and liabilities assumed: | ||||
| Cash acquired | ||||
| Accounts receivable | ||||
| Prepayments, deposits and other current assets | ||||
| Right of use assets | ||||
| Intangible assets, net | ||||
| Accounts payable | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Total net assets acquired | ||||
| ( | ) | |||
| Goodwill | $ | |||
The intangible assets are
mainly attributable to software copyrights acquired through the acquisition, which are amortized over
Due to sluggish business operations
subsequent to the acquisition, the Group engaged a third-party valuation firm and performed fair value assessment using income approach,
according to the valuation report, the Group recorded an of $
F-25
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 — Divestitures
On July 14, 2025, the Company
signed an agreement with a third party to sell
Note 5 — Accounts receivable, net
Accounts receivable, net, consists of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Unbilled accounts receivable
included in accounts receivable above amounted to $
As of April 10, 2026, approximately
$
Movement of allowance for credit losses is as follows:
| As of December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Beginning balance | $ | $ | $ | |||||||||
| Provision for credit losses | ( | ) | ||||||||||
| Written-off | ( | ) | ( | ) | ( | ) | ||||||
| Decrease from disposal of subsidiaries | ( | ) | ||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||
| Ending balance | $ | $ | $ | |||||||||
F-26
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 — Prepayments, deposits and other assets, net
Prepayments, deposits and other assets, net consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Security deposits (1) | $ | $ | ||||||
| Advances to suppliers | ||||||||
| Advances to employees | ||||||||
| Prepaid expense | ||||||||
| Prepaid VAT tax | ||||||||
| Antique art pieces (2) | ||||||||
| Others | ||||||||
| Less: Long term portion | ( | ) | ( | ) | ||||
| Allowance for credit losses - advances to suppliers | ( | ) | ( | ) | ||||
| Prepayments, deposits and other assets – current portion | $ | $ | ||||||
| (1) | |
| (2) |
Movement of allowance for credit losses is as follows:
| As of December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Beginning balance | $ | $ | $ | |||||||||
| Provision for credit losses | ||||||||||||
| Written-off | ( | ) | ( | ) | ( | ) | ||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||
| Ending balance | $ | $ | $ | |||||||||
Note 7 — Loan receivable, net
Loan receivable, net consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Unsecured loan receivable from third parties (1) | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Loan receivable, net | $ | $ | ||||||
| (1) |
F-27
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 — Long term investments
| Equity investments accounted for using the equity method(ii) |
Equity investments without readily determinable fair value(i) |
Total | ||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | |||||||||
| Impairment | ( |
) | ( |
) | ||||||||
| Foreign currency translation adjustments | ( |
) | ( |
) | ||||||||
| Balance as of December 31, 2024 | $ | $ | ||||||||||
| Additions | ||||||||||||
| Loss from long term investment | ( |
) | ( |
) | ||||||||
| Foreign currency translation adjustments | ||||||||||||
| Balance as of December 31, 2025 | $ | $ | $ | |||||||||
| (i) | During the year ended December 31, 2022, the Group invested $
On November 1, 2022, the Group invested issued
On January 1, 2022, the Group gained |
| (ii) | On January 22, 2025, the Group partnered with two third-parties to form a new company Zhuhai Hongzhi Cultural Technology Co., Ltd.(“Hongzhi”) and the Group has
|
As of December 31, 2025, the Group believes there was no material market environment change or any other factor that indicating the fair value of investment was less than its carrying value, hence, the Group concluded there is no impairment of the above investment.
F-28
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 — Property and equipment, net
Property and equipment, net consist of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Computer equipment | $ | $ | ||||||
| Office equipment, fixtures and furniture | ||||||||
| Automobiles | ||||||||
| Buildings | ||||||||
| Construction in Progress | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the
years ended December 31, 2025, 2024 and 2023 amounted to $
Note 10 — Intangible assets, net
Intangible assets, net consist of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Capitalized development costs (1) | $ | $ | ||||||
| Purchased software | ||||||||
| Software from business combinations | ||||||||
| Subtotal | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Impairment of software from business combinations | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
| (1) |
Amortization expense for the
years ended December 31, 2025, 2024 and 2023 amounted to $
F-29
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 — Related party balances and transactions
The relationship of related parties
| Name of Related Party | Relationship to the Group | |
| Stewart Lor | ||
| Ban Lor | ||
| Yuxia Xu | ||
| Phillip Tao Qiu | ||
| Xiaoyan Liu | ||
| Zhongchuan Dadi (Beijing) Technology Co., LTD | ||
| Shanghai Yue See cultural development Co., LTD | ||
| Tingru Ou | ||
| Huarong |
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Ban Lor | $ | $ | ||||||
| Stewart Lor | ||||||||
| Yuxia Xu | ||||||||
| Huarong | ||||||||
| Phillip Tao Qiu | ||||||||
| Xiaoyan Liu | ||||||||
| Subtotal | $ | $ | ||||||
| (1) |
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Zhongchuan Dadi (Beijing) Technology Co., LTD | $ | $ | ||||||
| Tingru Ou | ||||||||
| Subtotal | $ | $ | ||||||
| (1) |
Related party transactions
| For the years ended | ||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||
| Stewart Lor | Interest income | $ | $ | $ | ||||||||||
| Yuxia Xu | Interest income | $ | $ | $ | ||||||||||
| Shanghai Yue See cultural development Co., LTD | Service revenue | $ | $ | $ | ||||||||||
F-30
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 — Related party balances and transactions (continued)
Loan guarantee provided by related parties
In connection with the Group’s bank loans, Mr. Stewart Lor pledged his personal assets as collateral and signed guarantee agreements to provide guarantee to the Company’s bank loans. (See Note 12).
Note 12 — Bank loans
Outstanding balance of bank loans consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Loans from Bank of Communication Fixed interest rates ranging from | $ | $ | ||||||
| Loans from Bank of Zhuhai Rural Commercial Fixed interest rates ranging from | ||||||||
| Loan from SPD Bank Fixed interest rates ranging from | ||||||||
| Subtotal | ||||||||
| Less: Short term bank loans | ( | ) | ( | ) | ||||
| Less: Long term bank loan-current portion | ( | ) | ||||||
| Long term bank loan | $ | $ | ||||||
The movement bank loans are as follows:
| For the years ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Beginning balance | $ | $ | $ | |||||||||
| Additions | ||||||||||||
| Repayments | ( | ) | ( | ) | ( | ) | ||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||
| Ending balance | $ | $ | $ | |||||||||
For the years ended December 31, 2025, 2024 and
2023, interest expense for above bank loans were $
The repayment schedule for the bank loans is as follows:
| Twelve months ending December 31, | Repayment | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total | $ | |||
F-31
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 — Lease
The Group has several operating leases for offices. The Group’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Total lease expense for the
years ended December 31, 2025, 2024 and 2023 amounted to $
Supplemental balance sheet information related to operating leases was as follows:
| December 31, 2025 | December 31, 2024 | |||||||
| Right-of-use assets, net | $ | $ | ||||||
| Operating lease liabilities - current | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Operating lease liabilities | $ | $ | ||||||
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2025:
| Remaining lease term and discount rate: | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
The following is a schedule of maturities of lease liabilities as of December 31, 2025:
| Twelve months ending December 31, | Amount | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total future minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
F-32
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 — Convertible notes
Convertible notes consist of the following:
| December 31, 2025 | December 31, 2024 | |||||||
| YA Notes | $ | $ | ||||||
| Convertible notes | $ | $ | ||||||
YA 2024 Notes
On May 16, 2024, the Group
entered into entered into a standby equity purchase agreement with YA II PN, LTD (“YA”) Pursuant to the Purchase Agreement,
YA purchases convertible notes in the principal amount of $
On May 16, 2024, The Group
closed the first tranche of the YA 2024 Notes for the principal amount of $
On December 5, 2024, the Company
and YA entered into an omnibus amendment agreement (the “December 2024 modification”).
The Group adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) by using a modified retrospective transition method. In accordance with ASU 2020-06, since the YA 2024 Notes were not issued at a substantial premium, all of the proceeds received from the issuance are recorded as a liability on the unaudited condensed consolidated balance sheet in accordance with ASC 470-20. That is, no portion of the proceeds from issuing are attributed to the conversion option at inception. The difference between the principal amount and net proceeds from the issuance is considered debt discount and is amortized at their respective effective interest rates to accrete the carrying value to its face value on the respective put dates.
During the year ended December
31, 2024, the effective interest rates of the first and second tranche of the YA 2024 Notes were ranged from
The December 2024 modification
with YA was determined to be an extinguishment of debt in accordance with ASC 470. As a result, the difference between the fair value
of YA 2024 Notes immediately after the December 2024 modification and the carrying value of the YA 2024 Notes immediately before the modification
in the amount of $
F-33
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 — Convertible notes (continued)
On February 16, 2025, the Company
entered into a forbearance and repayment agreement (the “Forbearance Agreement”) with YA, pursuant to which YA agreed (a)
to forbear from exercising certain of its rights and remedies as stipulated under the related agreements and (b) to forbear from exercising
conversion right under the outstanding YA 2024 Notes into the Company’s Ordinary shares in connection with the outstanding amounts
under the YA 2024 Notes as set forth in the Forbearance Agreement, subject to the conditions, amendments and modifications contained in
the Forbearance Agreement for the period commencing from February 16, 2025 to June 30, 2025, so long as (i) the Company strictly complies
with the terms of this Forbearance Agreement and (ii) that there is no occurrence or existence of any event of default as defined in the
related agreements or in the Forbearance Agreement, other than the existing defaults as stated in the Forbearance Agreement. In addition,
the Forbearance Agreement does not constitute a waiver of, or an amendment to, any rights, powers, or remedies of the Investor under the
related agreements in conjunction therewith as in effect prior to the date of the Forbearance Agreement. Prior to April 24, 2025, the
Company repaid $
Note 15 — Loan from third parties
Loan from third parties consist of the following:
| December 31, 2025 | December 31, 2024 | |||||||
| Loan from a third party with | $ | $ | ||||||
| Loan from a third party with | ||||||||
| Subtotal | $ | $ | ||||||
As of this annal report filing date, the Company have issued
Note 16 — Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
| December 31, 2025 |
December 31, 2024 |
|||||||
| Payroll payables | $ | $ | ||||||
| Security deposit payable | ||||||||
| Professional fee and others | ||||||||
| Accrued expenses and other current liabilities | $ | $ | ||||||
F-34
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 — Taxes
Income tax
Cayman Islands
X3 was incorporated in the Cayman Islands and is not subject to tax on income or capital gains under the laws of Cayman Islands. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.
Singapore
Under Singapore tax laws, subsidiaries
in Singapore are subject to statutory income tax rate at
Hong Kong
Powerbridge HK is established in Hong Kong. Under the Hong Kong tax laws, Powerbridge HK is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
Powerbridge Zhuhai is governed
by the Enterprise Income Tax (“EIT”) laws of PRC. Under EIT laws of PRC, domestic enterprises and Foreign Investment Enterprises
(the “FIE”) are usually subject to a unified
The impact of the preferred
tax treatment noted above decreased income taxes by $
Significant components of the provision for income taxes are as follows:
| For the years ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Current | $ | $ | ( | ) | $ | |||||||
| Deferred | ( | ) | ( | ) | ( | ) | ||||||
| Income tax benefit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
F-35
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 — Taxes (continued)
The following table reconciles China statutory rates to the Group’s effective tax rate:
| For the years ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| PRC statutory rates | % | % | % | |||||||||
| Preferential tax rates | % | ( | )% | ( | )% | |||||||
| R&D credits | % | % | % | |||||||||
| Change in valuation allowance and others | ( | )% | ( | )% | ( | )% | ||||||
| Effective tax rate | % | % | % | |||||||||
Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Deferred tax assets: | ||||||||
| Provision for credit losses | $ | $ | ||||||
| Depreciation and amortization | ||||||||
| Net operating loss carryforward | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
| Deferred tax liabilities: | ||||||||
| Increase in fair value of intangible assets acquired through acquisition | $ | $ | ||||||
| Impairment of intangible assets acquired through acquisition | ( | ) | ||||||
| Deferred tax liabilities | $ | $ | ||||||
As of December 31, 2025, the
Group has approximately $
Value added tax
Enterprises who sell goods
in the PRC are subject to a value added tax in accordance with PRC laws. VAT standard rates are
F-36
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 — Taxes (continued)
Tax payable
Taxes payable consists of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Income taxes payable | $ | $ | ||||||
| VAT and other tax payable | ||||||||
| Taxes payable | $ | $ | ||||||
Uncertain tax positions
The Group evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2025 and 2024, the Group did not have any significant unrecognized uncertain tax positions. The Group did not incur any interest and penalties related to potential underpaid income tax expenses for the years ended December 31, 2025, 2024 and 2023. The Group also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December 31, 2025.
Note 18 — Equity
Ordinary Shares
On May 30, 2023, the Company
held an extraordinary general shareholders meeting. At the Meeting, the Company’s shareholders approved (i) a share consolidation
of thirty (30) issued and unissued Class A ordinary shares with par value of $
On September 5, 2023, the
Company held its 2023 special general meeting of shareholder. At the Meeting, the Company’s shareholders approved the following
among other items: (i) a share consolidation of every eight (8) issued and unissued Class A ordinary shares with par value of $
F-37
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 — Equity (continued)
On December 1, 2023, the Company
held an extraordinary general meeting. At the Meeting, the Company’s shareholders approved the following among other items: (a)
the name of the Company be changed from Powerbridge Technologies Co., Ltd. to X3 Holdings Co., Ltd., and ticker symbol of the Company
be changed from “PBTS” to “XTKG” (the “Name Change”). (b) the authorized share capital of the Company
be increased from $
On November 4, 2024, the Company
held the annual general meeting. At the meeting, the Company’s shareholders approved the following among other items: (a) a share
consolidation of every twenty (20) issued and unissued Class A ordinary shares with par value of $
On February 10, 2025, the
Company held an extraordinary general meeting. At the meeting, the Company’s shareholders approved the following among other items:
(a) a share consolidation of every six (
F-38
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 — Equity (continued)
On February 9, 2026, the Company
held an extraordinary general meeting. At the meeting, the Company’s shareholders approved the following among other items: (a)the
Company’s authorized share capital be increased from $
On February 10, 2026, the
Board approved a Class A ordinary share consolidation at a ratio of 30-to-1 so that every 30 shares (or part thereof) are combined into
one (1) share (with the fractional shares rounding up to the next whole share). As a result of the Share Consolidation, the Company’s
authorized share capital be decreased from $
All historical share and per share amounts in these condensed financial statements have been retroactively adjusted to reflect the share consolidation.
The Company had
Shares issued for consulting services
During the period from January
4, 2023 to August 4, 2023, the Group issued in aggregated of 45 Class A ordinary shares as compensation to an advisory firm for the related
investor relations advisory service. The aggregated fair value of those shares was assessed at $
On November 29, 2023, the
Company signed a consulting agreement with an advisory firm with term of six months. The Company agreed to pay $
On December 8, 2023, the Company
signed a consulting agreement with an advisory firm with term of six months. The Company agreed to pay $
On May 9, 2025, the
Board approved
On December 31, 2025, the
Board approved to issue
For the years ended December
31, 2025, 2024 and 2023, the Group recorded a consulting fee expense of $
F-39
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 — Equity (continued)
Restricted share units (“RSUs”) issued for consulting services
On June 16, 2022, the board of directors proposed to modify the Company’s Amended 2018 Stock Option Plan), by supplementing various clauses in relation to the grant of Restricted Shares and Restricted Share Units to the employees, Directors and consultants of the Company.
On July 15, 2022 the Company
signed six consulting agreements with six third-party consultants with term of three years. Pursuant to the agreements, the Company agreed
to pay total of
For the years ended December
31, 2025, 2024 and 2023, the Company recorded a consulting fee expense of $
2018 Stock option plan
On August 18, 2018 and further amended on February 10, 2019, the Board of Directors (“Board”) approved and amended the 2018 Stock Option Plan (the “2018 Plan”).
On January 20, 2023, the Board
approved to register all the shares issuable under the Company’s Amended 2018 Plan in a registration statement on a Form S-8 (File
No. 333-269513) representing additional
F-40
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 — Equity (continued)
On May 26, 2021, the Board
approved to issue
A summary of activities of the stock options for the years ended December 31, 2025, 2024 and 2023 is presented as follows:
| Number of Share Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| US$ | Year | US$ | ||||||||||||||
| Outstanding as of December 31, 2022 | ||||||||||||||||
| Granted | - | |||||||||||||||
| Cancelled | - | |||||||||||||||
| Outstanding as of December 31, 2023 | ||||||||||||||||
| Granted | - | |||||||||||||||
| Cancelled | - | |||||||||||||||
| Outstanding as of December 31, 2024 | ||||||||||||||||
| Granted | - | |||||||||||||||
| Cancelled | - | - | ||||||||||||||
| Outstanding as of December 31, 2025 | ||||||||||||||||
| Exercisable as of December 31, 2025 | ||||||||||||||||
For the years ended December 31, 2025, 2024 and 2023, there was no share-based compensation expenses recognized for the share options granted. As of December 31, 2025 and 2024, there was no unrecognized share-based compensation expenses related to the share options granted, respectively.
Private placement
On September 1, 2022, the
Company entered into a securities purchase agreement with White Lion Capital LLC (“White Lion”). Pursuant to the agreement,
White Lion shall purchase up to $
On September 9, 2022, the
Company entered into a securities purchase agreement with YA II PN, LTD. Pursuant to the agreement, YA II PN, LTD. shall purchase up
to $
F-41
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 — Equity (continued)
On December 29, 2022, the
Company entered into a securities purchase agreement with TBS Capital LP, (“TBS”). Pursuant to the agreement, TBS shall purchase
up to $
On May 17, 2023, the Company
entered into a securities purchase agreement with Spring Field Fund SPC. Pursuant to the agreement, Spring Field Fund SPC shall purchase
$
On November 24, 2023, the
Company entered into purchase agreements with twelve investors. The investors agreed to purchase an aggregate of $
On May 19, 2025, the Company
entered into purchase agreements with thirteen investors. Pursuant to the purchase agreement, the Company agreed to sell
On July 11, 2025, the Company
entered into a definitive securities purchase agreement with certain individuals, the Company agreed to sell
Conversion of convertible notes
On February 3, 2023, the Company
issued an aggregate of
Shares issued for reserve
As of December 31, 2025,
the Company issued
F-42
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 — Equity (continued)
Shares issued for long-term investments/acquisitions
On January 5, 2023, the Group
entered into an equity transfer agreement with a shareholder of Smartconn which the Company agrees to purchase
On March 24, 2023, the Company
entered into an equity transfer agreement with a shareholder of DTI which the Company agrees to prepaid
On March 28, 2023, the Company
entered into an equity transfer agreement with fifteen individual shareholders of Boxinrui, pursuant to which the Company agreed to pre-issue
On November 22, 2023, the
Company entered into a compensation agreement with the original shareholders of Smartconn. Pursuant to the agreement, the Company shall
issue
On November 22, 2023, the
Company entered into a compensation agreement with the original shareholders of Boxinrui. Pursuant to the agreement, the Company shall
issue
Warrants
During the year ended December
31, 2021, the Company completed in aggregate of $
Dividend
On March 5, 2024, the board
of directors approved a special stock dividend to pay in total of
Statutory reserve
Under PRC law, the Company’s
subsidiary located in the PRC (collectively referred as the (“PRC entities”) are required to provide for certain statutory
reserves. The PRC entities are required to allocate at least
The Company’s subsidiaries in PRC had accumulated deficits for the years ended December 31, 2025 and 2024, as a result, the statutory reserve balances were $ as of December 31, 2025 and 2024.
F-43
X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 — Commitments and contingencies
Contingencies
The Group is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Group does not anticipate that the final outcome arising out of any such matters will have a material adverse effect on our consolidated financial position, cash flows or results of operations on an individual basis or in the aggregate.
Note 20 — Segment reporting
The following table presents revenues by the service lines:
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| REVENUES: | ||||||||||||
| Application development services | $ | $ | $ | |||||||||
| Consulting and technical support services | ||||||||||||
| Subscription services | ||||||||||||
| Trading revenue | ||||||||||||
| Others revenue | ||||||||||||
| Total revenues | $ | $ | $ | |||||||||
Note 21 — Subsequent events
On January 6, 2026, the Company
adopted a share option plan (the “2026 Plan”) to promote the success of the Company and to enhance shareholders’ value
by providing additional means, through the grant of awards, to attract, motivate, retain and reward selected employees and other eligible
persons and to enhance the alignment of the interests of the selected participants with the interests of the Company’s shareholders.
Pursuant to the 2026 Plan, up to
The Group evaluated all events and transactions that occurred after December 31, 2025 up through the date the Group issued these consolidated financial statements, Other than the events disclosed above, no other subsequent events have occurred that would require recognition or disclosure in the Company’s consolidated financial statements.
F-44
Exhibit 8.1
X3 Holdings Co., Ltd.
Subsidiaries of the Registrant
| Name of Subsidiary | Jurisdiction of Incorporation or Organization | |
| Powerbridge Holdings Limited | Hong Kong | |
| Powerbridge Digital Trade (HK) Co., Limited | Hong Kong | |
| Hong Kong Anxin Jieda Co., Ltd. | Hong Kong | |
| Hongding Technology Co., Limited | Hong Kong | |
| SmartConn Co., Limited | Hong Kong | |
| Hongxi Data Technology Co., Ltd. | Macau | |
| Powercrypto Inc. | United States | |
| X3 Technologies Pte, Ltd. | Singapore | |
| Powercrypto Holdings Pte, Ltd. | Singapore | |
| X3 HOLDINGS PTE. LTD. | Singapore | |
| Metafusion Digital Co., Ltd. | People’s Republic of China | |
| Ningbo Zhijing Tongfu Technology Co., Ltd. | People’s Republic of China | |
| Powerbridge Technologies Group Co., Ltd | People’s Republic of China | |
| Powermeta Digital Co., Ltd. | People’s Republic of China | |
| Powerstream Supply Chain Co., Ltd. | People’s Republic of China | |
| Shanghai Stamp Technology Co., Ltd. | People’s Republic of China | |
| Ascendent Insights Education Co., Ltd. | People’s Republic of China | |
| Zhuhai Hongyang Supply Chain Co., Ltd. | People’s Republic of China | |
| Xingtai Ningyao Technology Co., Ltd. | People’s Republic of China |
Exhibit 11.2
X3 HOLDINGS CO., LTD.
POLICY GOVERNING MATERIAL, NON-PUBLIC
INFORMATION AND PREVENTION OF INSIDER TRADING
| I. | OVERVIEW |
This Statement of Policy Governing Material, Non-Public Information and the Prevention of Insider Trading (this “Statement”) of the Company consists of three sections: Section I provides an overview; Section II sets forth the Company’s policies prohibiting insider trading; and Section III explains the scope of insider trading.
The ordinary shares of X3 Holdings Co., Ltd. (the “Company”) are currently trading on the Nasdaq Stock Market LLC (the “Nasdaq”). “Insider trading” occurs when you purchase or sell securities while in possession of inside information relating to such securities. As explained in Section III below, “inside information” is information which is considered to be both “material” and “non-public.” Preventing insider trading is necessary to comply with the United States securities law and to preserve the reputation and integrity of the Company as well as that of all persons affiliated with it.
The Company considers strict compliance with the policies (the “Policy”) as set forth in this statement to be a matter of utmost importance. Violation of this Policy could cause extreme embarrassment and result in possible legal liability to you and the Company. Knowing or willful violations of this Statement or its spirit will be grounds for immediate dismissal from the Company. Violation of the Policy might expose the violator to severe criminal penalties and civil liabilities. The monetary damages flowing from a violation could be three times the profit realized by the violator, as well as the attorney’s fees of the persons being harmed.
This Statement applies to all the officers, directors, employees and consultants of the Company and its subsidiaries or any consolidated entities or any other person or entity (a) over which an individual mentioned above exercises influence upon or exert control of its investment decisions; or (b) which effects a transaction in the Company’s securities, which securities are in fact beneficially owned by any of the individuals mentioned above (“Insider(s)”). Every Insider must review this Statement, and execute and return the Certificate of Compliance attached hereto to the Compliance Officer within seven (7) days after you receive this Statement.
Questions regarding the Statement should be directed to the Compliance Officer.
| II. | POLICIES PROHIBITING INSIDER TRADING |
For purposes of this Statement, while the terms “purchase” and “sell” of securities exclude the acceptance of options granted by the Company thereof and the exercise of options that does not involve the sale of securities, the cashless exercise of options does involve the sale of securities and therefore is subject to the policies as set forth below.
| A. | No Trading with Material Insider Information – no Insider shall purchase or sell any securities of the Company or enter into a binding security trading plan in compliance with Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, as amended and pursuant to the guidelines included in Exhibit A (Rule 10b5-1 Trading Plan Guidelines) (a “Trading Plan”) while in possession of material, non-public information relating to the Company, its ordinary shares or other securities (the “Material Insider Information”) or during certain periods. |
If you possess Material Insider Information, you must wait for the later of (i) forty-eight (48) hours after public disclosure of the Material Insider Information by the Company; or (ii) one full Trading Day following such public disclosure before trading the Company’s ordinary shares or other securities. The term “Trading Day” is defined as a day on which the trading markets for the securities of the Company are open for trading.
In addition, no Insider shall purchase or sell any securities of the Company or enter into a Trading Plan, regardless of whether such Insider possesses any Material Insider Information, (1) during any period commencing on the 1st day of each fiscal quarter and ending at the close of trading on the second Trading Day following the date of the Company’s public disclosure of its financial results for that fiscal quarter; or (2) without the prior clearance by the Compliance Officer, during any period designated as a “limited trading period.” The Compliance Officer may declare limited trading periods at times that he/she deems appropriate, and need not provide any reason for making a declaration.
Furthermore, beginning on the 1st day of each fiscal year, no Insider shall purchase or sell any security of the Company or enter into a Trading Plan until the close of trading on the second Trading Day following the date of the Company’s public disclosure of its financial results for the fiscal year ended on December 31 of the prior year.
Please see Section III below for an explanation of the Material Insider Information.
| B. | No Trading Outside of the Trading Window for Insiders – assuming none of the “no trading” restrictions set forth in Section II.A above applies, insiders may only purchase or sell any securities of the Company or enter into a Trading Plan during the “Trading Window.” |
Generally, there will be four Trading Windows per year, each commencing with the close of trading on the second Trading Day following the date upon which the Company’s financial results for the prior fiscal quarter is released to the public and closing on the last Trading Day of each fiscal quarter.
Furthermore, all transactions in the Company’s securities (including without limitation, acquisitions and dispositions of the ordinary shares and the sale of ordinary shares issued upon exercise of stock options and the execution of a Trading Plan, but excluding the acceptance of options granted by the Company and the exercise of options that does not involve the sale of securities) by officers, directors and key employees designated by the Company from time to time must be pre-approved by the Compliance Officer.
If the Company’s public disclosure of its financial results for a fiscal quarter or fiscal year is released on a Trading Day more than four hours before the trading market closes, then such date of disclosure shall be considered the first Trading Day following such public disclosure.
Please note that trading in Company’s securities during the Trading Window is not a “safe harbor,” and all Insiders should strictly comply with all other policies set forth in this Statement. When in doubt, please do not trade and check with the Compliance Officer first.
| C. | No Tipping |
No Insider shall directly or indirectly disclose any Material Insider Information to anyone who trades in securities (i.e. “tipping”).
| D. | Confidentiality |
No Insider shall communicate any Material Insider Information to anyone outside the Company under any circumstances unless approved by the Compliance Officer in advance, or to anyone within the Company other than on a need-to-know basis.
2
| E. | No Comment |
No Insider shall discuss any internal matters or developments of the Company with anyone outside of the Company, except as required in the performance of regular corporate duties. Unless you are expressly authorized to the contrary, if you receive any inquiries about the Company or its securities by the financial press, investment analysts or others, or any requests for comments or interviews, you should decline to comment and direct the inquiry or request to the Compliance Officer.
| F. | Corrective Action |
If any potentially Material Insider Information is inadvertently disclosed, any Insider should notify the Compliance Officer immediately so that the Company can determine whether or not corrective actions, such as general disclosure to the public, is warranted.
| III. | EXPLANATION OF INSIDER TRADING |
As noted above, “insider trading” refers to the purchase or sale of securities while in possession of “material” and “non-public” information relating to such securities. “Securities” include not only stocks, bonds, notes and debentures, but also options, warrants and similar instruments. “Purchase” and “sale” are defined broadly under the federal securities law. “Purchase” includes not only the actual purchase of securities, but any contract to purchase or otherwise acquire securities. “Sale” includes not only the actual sale of securities, but any contract to sell or otherwise dispose of securities. These definitions extend to a broad range of transactions including conventional cash-for-stock transactions, the grant and exercise of stock options and acquisitions and exercises of warrants or puts, calls or other options related to the securities. It is generally understood that insider trading includes the following:
| ● | Trading by Insiders while in possession of material, non-public information; |
| ● | Trading by persons other than Insiders while in possession of material, non-public information where the information either was given in breach of an Insider’s fiduciary duty to keep it confidential or was misappropriated; or |
| ● | Communicating or tipping material, non-public information to others, including recommending the purchase or sale of the securities while in possession of such information. |
As noted above, for the purposes of this Statement, the terms “purchase” and “sell” of securities exclude the acceptance of options granted by the Company thereof and the exercise of options that does not involve the sale of securities. Among other things, the cashless exercise of options does involve the sale of securities and therefore is subject to the policies as set forth in this Statement.
| A. | What Facts are Material? |
The materiality of a fact depends upon the circumstances. A fact is considered to be “material” if it could reasonably be expected to affect the decision of a reasonable investor to buy, sell or hold the Company’s securities or where the fact is likely to have a significant effect on the market price of the Company’s securities. Material Insider Information can be positive or negative and can relate to virtually any aspect of a company’s business or to any type of securities, debt or equity.
Examples of Material Insider Information including, but are not limited to information concerning:
| ● | dividends; |
| ● | corporate earnings or earnings forecasts; |
| ● | changes in financial condition or asset value; |
| ● | negotiations for the mergers or acquisitions or dispositions of significant subsidiaries or assets; |
| ● | significant new contracts or the loss of a significant contract; |
| ● | significant new products or services; |
3
| ● | significant marketing plans or changes in such plans; |
| ● | capital investment plans or changes in such plans; |
| ● | material litigations, administrative actions or governmental investigations or inquiries about the Company or any of its affiliated companies, officers or directors; |
| ● | significant borrowings or financings; |
| ● | defaults on borrowings; |
| ● | new equity or debt offerings; |
| ● | significant personnel changes; |
| ● | changes in accounting methods and write-offs; and |
| ● | any substantial change in industry circumstances or competitive conditions which could significantly affect the Company’s earnings or prospects for expansion. |
A good general rule of thumb: when in doubt, do not trade. One convenient rule of thumb in making this determination is to ask yourself, “Would the person on the other side of this transaction still want to complete the trade at this price if he or she knew what I know about the Company?” If the answer is “no,” you probably possess material, non-public information.
| B. | What is Non-public? |
Information is “non-public” if it has not been disclosed in a manner that allows it to be widely disseminated. In order for information to be considered public, it must be widely disseminated in a manner making it generally available to investors and confirmed by a reasonably reliable source. Wide dissemination generally occurs through a press release or in the Company’s filing with the United States Security and Exchange Commission (the “SEC”), or through such media as Dow Jones, Reuters Economic Services, The Wall Street Journal, Bloomberg, Associated Press, or United Press International. Reasonable confirmation generally includes confirmation by officers, directors and key employees who have been authorized by the Company to speak on its behalf. The circulation of rumors, even if accurate and reported in the media, does not constitute effective public dissemination.
In addition, even after a public announcement, a reasonable period of time must lapse in order for the market to react to the information. Generally, one should allow approximately forty-eight (48) hours following publication as a reasonable waiting period before such information is deemed to be public.
| C. | Who is an Insider? |
Insiders include all officers, directors, employees, consultants and advisors (e.g. accountants, attorneys, investment bankers and consultants) of the Company and its subsidiaries or consolidated entities or any other person or entity (a) over which an individual mentioned above exercises influence or exert control of its investment decisions; or (b) which effects a transaction in the Company’s securities, which securities are in fact beneficially owned by any of the individuals mentioned above. Insiders have independent fiduciary duties to their company and its shareholders not to trade on material non-public information relating to the Company’s securities. In addition, family members and friends of Insiders as well as professional advisors of the Company (such as accountants, attorneys, investment bankers and consultants) who receive material, non-public information about the Company may also fall under the definition of Insiders of the Company.
4
It should be noted that trading by members of an Insider’s family members can be the responsibility of such Insider under certain circumstances and could give rise to legal and Company- imposed sanctions.
| D. | Trading by Persons Other than Insiders |
Insiders are also prohibited from disclosing material non-public information, or making a recommendation or expressing an opinion regarding the Company’s securities based on such information, to others who might use the information to trade in the Company’s securities. Both the Insider who communicated the material non-public information and the person who receives and uses such information (the “Tippee”) may be liable under the United States securities laws.
Persons other than Insiders also can be liable for insider trading, including Tippees who trade on material, non-public information tipped to them or individuals who trade on material, non-public information which has been misappropriated. Tippees inherit an Insider’s duties and are liable for trading on material, non-public information illegally tipped to them by an Insider. Similarly, just as Insiders are liable for the insider trading of their Tippees, so are Tippees who pass the information along to others who trade. In other words, a Tippee’s liability for insider trading is no different from that of an Insider. Tippees can obtain material, non-public information by receiving overt tips from others or through, among other things, conversations at social, business, or other gatherings.
| E. | Penalties for Engaging in Insider Trading |
Penalties for trading on or tipping material, non-public information can extend significantly beyond any profits made or losses avoided, both for individuals engaging in such unlawful conduct and their employers. The SEC and the United States Department of Justice have made the civil and criminal prosecution of insider trading violations a top priority. Enforcement remedies available to the government or private plaintiffs under the federal securities laws including but not limited to:
| ● | SEC administrative sanctions; |
| ● | securities industry self-regulatory organization sanctions; |
| ● | civil injunctions; |
| ● | damage awards to private plaintiffs; |
| ● | disgorgement of all profits; |
| ● | civil fines for the violator of up to three times the amount of profit gained or loss avoided; |
| ● | civil fines for the employer or other controlling person of a violator (i.e., where the violator is an employee or other controlled person) of up to the greater of US$1,000,000 or three times the amount of profit gained or loss avoided by the violator; |
| ● | criminal fines for individual violators of up to US$1,000,000 (US$2,500,000 for an entity); and |
| ● | jail sentences of up to 10 years. |
In addition, insider trading could result in serious sanctions by the Company, including immediate dismissal. Insider trading violations are not limited to violations of the federal securities laws, other federal and state civil or criminal laws, such as the laws prohibiting mail and wire fraud and the United States Racketeer Influenced and Corrupt Organizations Act (RICO), may also be violated upon the occurrence of insider trading.
Effective as of January 1, 2025
5
Exhibit A
Rule 10b5-1 Trading Plan Guidelines
| (1) | The following guidelines apply for any Trading Plan relating to the securities of the Company. All Trading Plans entered into by any Insider (as defined below) and any amendment, suspension or termination must comply with Rule 10b5-1 of the Exchange Act, the Statement and must meet the following conditions. Capitalized terms not defined herein shall have the meanings given to them under the Statement. |
Overview of 10b5-1 Plans
| (2) | Under Rule 10b5-1, an insider who regularly possesses material non-public information (“MNPI”) but who nonetheless wish to buy or sell the issuer’s securities may establish an affirmative defense to an illegal insider trading charge by adopting a written plan to buy or sell at a time when they are not in possession of MNPI, i.e., a Trading Plan. A Trading Plan typically takes the form of a contract between the insider and his or her broker. |
Participants
| (3) | Company directors, officers and employees (each, an “Insider,” and collectively, “Insiders”) are eligible to adopt a Trading Plan. |
Plan and Approval
| (4) | The Trading Plan must be in writing and signed by the Insider, and the Insider must provide a copy to the Compliance Officer. The Company will keep a copy of each Trading Plan in its files. The form of each Trading Plan and any subsequent amendment must be consistent with these guidelines. Each Trading Plan must be approved in writing by the Compliance Officer prior to the adoption, amendment, suspension or termination of such plan. A Trading Plan must not permit an Insider to exercise any subsequent influence over how, when or whether to effect purchases or sales. Sales under a Trading Plan must be via a selected broker. The Insider must act in good faith with respect to a Trading Plan when the plan is adopted and for the duration of the Plan and must not enter into a Trading Plan as part of a plan or scheme to evade the prohibitions of Rule 10b-5. In addition, each Trading Plan must include a representation by the Insider certifying that (a) such person is not in possession of MNPI about the Company or its securities, and (b) the Trading Plan is being adopted in good faith and not as part of a plan to evade the prohibitions of Rule 10b-5. |
Timing and Term of Plan; Cooling-Off Period
| (5) | Each Trading Plan must be adopted (a) during an open Trading Window under the Statement, and (b) when the Insider does not otherwise possess MNPI about the Company. Each Trading Plan must provide for delayed effectiveness after adoption or amendment (a “Cooling-Off Period”). For Insiders who are directors or officers, each Trading Plan must specify that trades may not execute under the Trading Plan until the later of (a) 90 days after the date of adoption or amendment of the Trading Plan; and (b) two (2) business days following the Company’s filing of a quarterly or annual report covering the financial reporting period in which the Trading Plan was adopted or amended, but in no event later than 120 days after the date of adoption or amendment of the Trading Plan. For all other Insiders, each Trading Plan must specify that trades may not execute under the Trading Plan for a period of at least 30 days after the date of adoption or amendment of the Trading Plan. |
Plan Specifications
| (6) | A Trading Plan must be entered into at a time when the Insider has no MNPI about the issuer or its securities (even if no trades will occur until after the release of MNPI). The plan must: (a) specify the amount, price (which may include a limit price) and specific dates of purchases or sales; (b) include a formula or similar method for determining amount, price and date; or (c) give the broker the exclusive right to determine whether, how and when to make purchases and sales, as long as the broker does so without being aware of MNPI at the time the trades are made. |
| (7) | Under the first two alternatives, the Trading Plan cannot give the broker any discretion as to trade dates. As a result, a plan that requests the broker to sell 1,000 shares per week would have to meet the requirements under the third alternative. On the other hand, under the second alternative, the date may be specified by indicating that trades should be made on any date on which the limit price is hit. The affirmative defense is only available if the trade is in fact made pursuant to the preset terms of the Trading Plan (unless the terms are revised at a time when the insider is not aware of any MNPI and could therefore enter into a new plan). Trades are deemed not to have been made pursuant to the plan if the Insider later enters into or alters a corresponding or hedging transaction or position with respect to the securities covered by the plan (although hedging transactions could be part of the plan itself). |
6
Amendment, Suspension and Termination
| (8) | Amendments, suspensions, and terminations of Trading Plans must be approved in advance in writing by the Compliance Officer. In addition, an Insider may voluntarily amend a Trading Plan only (a) during an open Trading Window under the Statement and (b) when such Insider does not otherwise possess MNPI. Insiders may make amendments to a Trading Plan without triggering a Cooling-Off Period so long as the amendment does not change the pricing provisions of the Trading Plan, the amount of securities covered under the Trading Plan or the timing of trades under the Trading Plan, or where a broker executing trades on behalf of the Insiders is substituted by a different broker (so long as the purchase or sales instructions remain the same). |
Mandatory Suspension
| (9) | Each Trading Plan must provide for suspension of trades under such plan if legal, regulatory or contractual restrictions are imposed on the Insiders, or if these guidelines are amended, or other events occur, that would prohibit sales under such Trading Plan. |
Sales to Cover
| (10) | An Insider may have only one Trading Plan in effect at any time, except that a written, irrevocable election (an “Election”) by such Insider to sell a portion of the securities of the Company as necessary to satisfy statutory tax withholding obligations arising solely from the vesting of compensatory awards (not including options) (“Sales to Cover”) is permitted even if not included in the directions in the Insider’s Trading Plan, provided that (a) the Election is made during an open Trading Window under the Statement, (b) at the time of the Election, the Insider is not aware of any MNPI, (c) the Sales to Cover are made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5, (d) the Insider does not have, and will not attempt to exercise, authority, influence or control over any such Sales to Cover, and (e) the Election contains appropriate representations as to clauses (b)-(d). |
No Overlapping Plans
| (11) | An Insider may adopt a new Trading Plan to replace an existing Trading Plan before the scheduled termination date of such existing Trading Plan, so long as the first scheduled trade under the new Trading Plan does not occur until after all trades under the existing Trading Plan are completed or expire without execution (subject to any Cooling-Off Periods). |
| (12) | However, where the first trade under a later-commencing plan is scheduled during what would have been the Cooling-off Period for that plan assuming the termination date of the earlier-commencing plan were deemed to be the date of adoption of the later-commencing plan, then Rule 10b5-1 would not be available for the later-commencing plan. For example, an Insider who is not an officer or director has in place an existing Trading Plan with a scheduled date for the latest authorized trade of May 31, 2023. On May 1, 2023, that Insider adopts a later-commencing plan, intended to qualify for the affirmative defense under Rule 10b5-1, with a scheduled date for the first authorized trade of June 1, 2023. If that Insider terminates the earlier-commencing plan on May 15, the later-commencing plan will not receive the benefit of the affirmative defense, because June 1 is within 30 days of May 15, the date of termination of the earlier-commencing plan, and thus June 1 is during the “effective cooling-off period.” However, if the later-commencing plan were scheduled to begin trading on July 1, 2023, it could still receive the benefit of the affirmative defense because July 1, 2023 is more than 30 days after May 15 and thus is outside the “effective cooling-off period.” |
| (13) | A series of separate contracts with different brokers to execute trades under a Trading Plan may be treated as a single plan, provided the contracts as a whole meet the conditions under Rule 10b5-1, and provided further that any amendment of one contract is treated as an amendment of all of the contracts under the plan. |
Limitation on Single-Trade Arrangements
| (14) | In any 12-month period, an Insider is limited to one “single-trade plan” — one designed to effect the open market purchase or sale of the total amount of the securities subject to the plan as a single transaction. The following do not constitute single-trade plans: (a) a Trading Plan that gives discretion to an agent over whether to execute the Trading Plan as a single transaction or that provides the agent’s future acts depend on facts not known at the time the Trading Plan’s adoption and might reasonably result in multiple transactions and (b) Sales to Cover. |
No Hedging
| (15) | As described in the Statement, individuals subject to the Statement are prohibited from engaging in any hedging or similar transactions designed to decrease the risks associated with holding securities of the Company. Further to this end, an Insider adopting a Trading Plan may not have entered into or altered a corresponding or hedging transaction or position with respect to the securities subject to the Trading Plan and must agree not to enter into any such transaction while the Trading Plan is in effect. |
7
Exhibit B
CERTIFICATE OF COMPLIANCE
By my signature below, I hereby acknowledge and certify that:
| ● | I have received, carefully reviewed and fully understand the attached Policy for the Governance of Material, Non-public Information and Prevention of Insider Trading (the “Policy”). |
| ● | I hereby agree to abide by all of the terms of the Policy both during and after my employment with the Company, and not to engage in the misuse of material non-public information and insider trading in securities. |
| Signature: | /s/ Yuxia Xu | |
| Printed Name: | Yuxia Xu | |
| Date: | April 27, 2026 |
8
Exhibit 12.1
Certification by the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Stewart Lor, certify that:
| 1. | I have reviewed this annual report on Form 20-F of X3 Holdings Co., Ltd. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| 4. | The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
| Date: April 27, 2026 | ||
| By: | /s/ Stewart Lor | |
| Name: | Stewart Lor | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
|
Exhibit 12.2
Certification by the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Yuxia Xu, certify that:
| 1. | I have reviewed this annual report on Form 20-F of X3 Holdings Co., Ltd. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| 4. | The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
| Date: April 27, 2026 | ||
| By: | /s/ Yuxia Xu | |
| Name: | Yuxia Xu | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
Exhibit 13.1
Certification by the Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of X3 Holdings Co., Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stewart Lor, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: April 27, 2026 | ||
| By: | /s/ Stewart Lor | |
| Name: | Stewart Lor | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
|
Exhibit 13.2
Certification by the Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of X3 Holdings Co., Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yuxia Xu, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: April 27, 2026 | ||
| By: | /s/ Yuxia Xu | |
| Name: | Yuxia Xu | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
Exhibit 15.1
 |
Onestop Assurance PAC 10 Anson Road #21-14 International Plaza Singapore 079903 Tel: 9644 9531 Email: [email protected] Website: www.onestop-ca.com |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-269513, 333-266092, 333-263483, 333-253408 and 333-292599) and Form F-3 (No. 333-279954), of our report dated April 27, 2026, relating to the consolidated financial statements of X3 HOLDINGS CO., LTD. (formerly known as Powerbridge Technologies Co., Ltd.), appearing in this Annual Report on Form 20-F for the year ended December 31, 2025.
We also consent to the reference to our firm under the heading “Experts” in such Registration Statements.
/s/ OneStop Assurance PAC
OneStop Assurance PAC
Singapore
April 27, 2026