UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report for the transition period from ____________to ____________

Commission file number: 001-38851

X3 HOLDINGS CO., LTD.

(Exact Name of Registrant as Specified in its Charter)

N/A

(Translation of Registrant’s Name into English)

Cayman Islands

(Jurisdiction of Incorporation or Organization)

Suite 412, Tower A, Tai Seng Exchange

One Tai Seng Avenue

Singapore 536464

(Address of principal executive offices)

Stewart Lor, Chief Executive Officer

Suite 412, Tower A, Tai Seng Exchange

One Tai Seng Avenue

Singapore 536464

Tel: +65.8038.6502

Email: ir@x3holdings.com

(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
ordinary shares, par value $0.40 |  | XTKG |  | NASDAQ Capital Market

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, 2023, the issuer had 259,464,169 Class A ordinary shares and 243,902 Class B ordinary shares outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

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 ☐ No ☒

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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 | ☐
Non-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:

U.S. GAAP ☒ |  | 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 |  | ii
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 |  | 58
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |  | 59
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |  | 79
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |  | 89
ITEM 8. | FINANCIAL INFORMATION |  | 94
ITEM 9. | THE OFFER AND LISTING |  | 94
ITEM 10. | ADDITIONAL INFORMATION |  | 95
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |  | 108
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |  | 108
PART II |  | 109
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |  | 109
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 109
ITEM 15. | CONTROLS AND PROCEDURES |  | 109
ITEM 16 | RESERVED |  | 111
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |  | 111
ITEM 16B. | CODE OF ETHICS |  | 111
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |  | 111
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |  | 112
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |  | 112
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |  | 112
ITEM 16G. | CORPORATE GOVERNANCE |  | 112
ITEM 16H. | MINE SAFETY DISCLOSURE |  | 112
ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |  | 112
ITEM 16J. | INSIDER TRADING POLICIES |  | 112
ITEM 16K. | CYBERSECURITY |  | 113
PART III |  | 114
ITEM 17. | FINANCIAL STATEMENTS |  | 114
ITEM 18. | FINANCIAL STATEMENTS |  | 114
ITEM 19. | EXHIBITS |  | 114

i

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.
| ● | “Controlling Shareholders” refers to Stewart Lor.
| ● | Depending on the context, the terms “we”, “us”, “our company”, “our”, “X3 Holdings”, “Powerbridge” and “Powerbridge Cayman” refer to X3 Holdings Co., Ltd. (formerly known as Powerbridge Technologies Co., Ltd.), a Cayman Islands company, its subsidiaries and affiliated companies.
| ● | “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.
| ● | “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.
| ● | “Powerbridge Zhuhai” refers to Powerbridge Technology Group Co., Ltd., a PRC company.
| ● | “PRC” and “China” refer to the People’s Republic of China, excluding, for the purposes of this Annual Report only, Macau, Taiwan and Hong Kong.
| ● | “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.

ii

| ● | “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, par value $0.4 per share.
| ● | “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, 2023, 2022 and 2021.

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 RMB 7.0999 to USD1.00, the noon buying rate on December 29, 2023, 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 that reflect our current expectations and views of future events. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that 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:

| ● | our goals and strategies;

| ● | our future business development, financial conditions and results of operations;

| ● | our expectations regarding demand for and market acceptance of our products and services;

| ● | our expectations regarding our relationships with customers;

| ● | the expected benefits of our acquisitions or investments;

| ● | competition in our industry; and

| ● | relevant government policies and regulations relating to our industry.

We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements in conjunction with the risk factors disclosed in “Item 3. Key Information—D. Risk Factors.” Those risks are not exhaustive. We operate in an evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law. You should read this Annual Report and the documents that we reference in this Annual Report completely 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

You should carefully consider the following risk factors, together with all of the other information included in this Annual Report. 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. The risks and uncertainties described below represent our known material risks to our business. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, you may lose all or part of your investment.

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.

1

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.

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 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.

| ● | Uncertainties with respect to the interpretation and enforcement of PRC laws, rules and regulations could have a material adverse effect on 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.

2

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 the 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 our 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 a number of 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.

3

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.

The number of our total employees decreased from 210 in December 2021 to 187 in December 2022. As of the date of this Annual Report, we have 178 full-time employees. We have six branches, of which are located in China (Shenzhen, Guangzhou, Changsha, Wuhan, Nanning, Hangzhou) and maintain offices in Guangzhou, Shenzhen, 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 educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to many 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.

4

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, 2023, three customers accounted for 27.1%, 15.5% and 15.1% of the Company’s total revenues. For the year ended December 31, 2022, one customer accounted for 31.8% of the Company’s total revenues. For the year ended December 31, 2021, one customer accounted for 12.8% of the Company’s total revenues.

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.

5

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 period; 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, 2023, 2022 and 2021, our accounts receivable balance, net of allowance, amounted to approximately $21.5 million, $14.8 million and $24.2 million, respectively. As of December 31, 2023, one customer accounted for 15.9% of the Company’s accounts receivable. As of December 31, 2022, no customer accounted for more than 10% of our accounts receivable. The significant outstanding accounts receivable balance was mainly related to certain projects for our 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 government 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.

6

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 is focusing on larger corporate and government 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 at 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 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 government 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.

7

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 increase 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 used correctly or 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 we 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 Chinese 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 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 spend substantial amounts 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 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.

8

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. Concerns about security 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 applying laws or regulations.

We cannot assure 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 we should suffer incidents resulting in 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.

9

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 a 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 assure 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.

10

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 application 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 2023 fiscal year for the anticipated growth and the number of our total employees decreased from 187 in December 2022 to 178 in December 2023. 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.

11

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 produce increased 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 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 relative to competitors and we may lose customers, all of which would adversely affect our business, results of operations and financial condition.

12

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. For instance, we intend to expand our blockchain business by acquiring Smartconn Co., Limited, contribute expansion of our operations in digital trade ecosystem by acquiring DTI Group Limited and develop our metaverse operation by acquiring AIedu. See “Item 4. Information on the Company—C. History and Development of the Company” and “Item 5. Operating and Financial Review and Prospects — Recent developments.” for further information on the acquisition transactions entered into by us.

In addition, it is possible that in the future we may not succeed 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.

13

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 others 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 or financial condition.

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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 depends 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 market 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 procedure 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.

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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.

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Although we currently neither holds bank accounts in nor has 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;

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| ● | 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;

| ● | 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 locals 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 staff 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.

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As we have participated in retail and distribution of cryptocurrency mining machines, we’ve entered into certain customized servers purchase agreement. The demand of our cryptocurrency mining machines is affected by the market of cryptocurrency. Substantial increases in the supply of mining machines connected to the certain cryptocurrency network would lead to an increase in network capacity, which in turn would increase mining difficulty. This development would negatively affect the economic returns of cryptocurrency mining activities, which would decrease the demand for and/or pricing of our products.

The difficulty of cryptocurrency mining, or the amount of computational resources required for a set amount of reward for recording a new block, directly affects the expected economic returns for cryptocurrency miners, which in turn affects the demand for our cryptocurrency mining machines. Cryptocurrency mining difficulty is a measure of how much computing power is required to record a new block and it is affected by the total amount of computing power in the cryptocurrency network. For example, the Bitcoin algorithm is designed so that one block is generated, on average, every ten minutes, no matter how much computing power is in the network. Thus, as more computing power joins the network, and assuming the rate of block creation does not change (remaining at one block generated every ten minutes), the amount of computing power required to generate each block and hence the mining difficulty increases. In other words, based on the current design of the Bitcoin network, Bitcoin mining difficulty would increase together with the total computing power available in the Bitcoin network, which is in turn affected by the number of Bitcoin mining machines in operation. Additionally, the amount of Bitcoin awarded for solving each block is designed to decline approximately every four years, with the most recent halving event occurred in May 2020. As a result, a strong growth in sales of our cryptocurrency mining machines can contribute to further growth in the total computing power in the network, thereby driving up the difficulty of cryptocurrency mining and coupled with the decrease in cryptocurrency reward, resulting in downward pressure on the expected economic return of cryptocurrency mining and the demand for, and pricing of, our products, under the assumption that the price of cryptocurrency does not increase enough.

If the market for cryptocurrency mining machines ceases to exist or diminishes significantly, our business and results of operations would be adversely affected.

we generate our revenues from the sales of our cryptocurrency mining machines. We may continue to generate a portion of our revenue from the sales of our cryptocurrency mining machines in the foreseeable future. If the market for cryptocurrency mining machines ceases to exist or diminishes significantly, we would experience a significant loss of sales, cancelation of orders, or loss of customers for our cryptocurrency mining machines. Adverse factors that may affect the market for cryptocurrency mining machines include that, for example, cryptocurrency fails to gain wide market acceptance and fails to become a generally accepted medium of exchange in the global economy due to certain inherent limitations to cryptocurrencies, thereby causing value loss or become worthless, which could adversely affect the sustainability of our business; or over time, the reward for cryptocurrency mining (in terms of the amount of cryptocurrency awarded) will decline, which may reduce the incentive to mine cryptocurrencies. Specifically, the amount of Bitcoin awarded for solving each block is designed to decline approximately every four years, with the most recent halving event occurred in May 2020, and the next halving event expected to take place in 2024, and Bitcoins are expected to be fully mined out by the year 2140. Therefore, Bitcoin mining machines may become less productive as the available rewards for Bitcoin mining decrease.

If we cannot maintain the scale and profitability of our cryptocurrency mining machines, results of operations and ability to continue to grow will suffer. Furthermore, excess inventories, inventory markdowns, brand image deterioration and margin squeeze caused by declining economic returns for miners or pricing competition for our cryptocurrency mining machines could all have a material adverse impact on our business, financial condition and results of operations.

Cryptocurrency exchanges and wallets, and to a lesser extent, the cryptocurrency network itself, may suffer from hacking and fraud risks, which may adversely erode user confidence in cryptocurrency which would decrease the demand for our cryptocurrency mining machines.

Cryptocurrency transactions are entirely digital and, as with any virtual system, are at risk from hackers, malware and operational glitches. Hackers can target cryptocurrency exchanges and transactions, to gain access to thousands of accounts and digital wallets where cryptocurrency are stored. Cryptocurrency transactions and accounts are not insured by any type of government program and all cryptocurrency transactions are permanent because there is no third party or payment processor. Cryptocurrency has suffered from hacking and cyber-theft as such incidents have been reported by several cryptocurrency exchanges and miners, highlighting concerns about the security of cryptocurrency and therefore affecting its demand and price. Also, the price and exchange of cryptocurrency may be affected due to fraud risk. While cryptocurrency uses private key encryption to verify owners and register transactions, fraudsters and scammers may attempt to sell false cryptocurrency. All of the above may adversely affect the operation of the cryptocurrency network which would erode user confidence in cryptocurrency, which would negatively affect demand for our products.

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We face intense competition and our competitors may employ aggressive pricing strategies, which can lead to a price reduction of our products and material adverse effect on our results of operations.

We may look to enter into markets with very competitive landscapes. Our competitors include many well-known domestic and international players, and we face competitors that are larger than us and have advantages over us in terms of economies of scale and financial and other resources. We expect that competition in our markets will continue to be intense, as we compete not only with existing players that have been focusing on cryptocurrency mining or AI, but also new entrants that include well-established players in the semiconductor industry, or players who have not been predisposed to this industry in the past. Some of these competitors may also have stronger brand names, greater access to capital, longer histories, longer relationships with their suppliers or customers and more resources than we do. Furthermore, these competitors may be able to adapt to changes in the industry more promptly and efficiently. Intense competition from existing and potential competitors could result in material price reductions in the products we sell or a decrease in our market share. Aggressive pricing strategies by our competitors and an abundant supply of cryptocurrency mining machines or AI products in the market may cause us to reduce the prices of our products and also negatively affect the demand for our products or harm our profitability. If we fail to compete effectively and efficiently or fail to adapt to changes in the competitive landscape, our business, financial condition and results of operations may be materially and adversely affected.

Our Cryptocurrency mining machine business depends on supplies from limited numbers of third-party foundry partners, and any failure to obtain sufficient foundry capacity from these third-party foundry partners would significantly delay the shipment of our products.

As we rely on limited numbers of third-party foundry partners, we cannot guarantee that they will be able to meet our manufacturing requirements. The ability of our third-party foundry partners to provide us with foundry services is limited by their technology migration, available capacity, existing obligations and global semiconductor supply. In particular, we have experienced a global shortage in semiconductors beginning 2021, which may have adversely impacted the production activity and capacity of our third-party foundry partners. If these third-party foundry partners fail to succeed in their technology migration or secure enough semiconductors, they will not be able to deliver to us qualified products in a sufficient amount, which will significantly affect our technological advancement and shipment of cryptocurrency mining machines. This could in turn result in lost sales and have a material adverse effect on our relationships with our customers and on our business and financial condition.

In addition, we do not have a guaranteed level of production capacity from our third-party foundry partners. We do not have long-term contracts with them, and we source our supplies on a purchase order basis and prepay the purchase amount. As a result, we depend on our third-party foundry partners to allocate to us a portion of their manufacturing capacity sufficient to meet our needs, to produce products of acceptable quality and at acceptable final test yields and to deliver those products to us on a timely basis and at acceptable prices. If our third-party foundry partners raise their prices or are unable to meet our required capacity for any reason, such as shortages or delays in the shipment of semiconductor equipment, or if our business relationships with them deteriorate, we may not be able to obtain the required capacity and would have to seek alternative foundries, which may not be available on commercially reasonable terms, or at all. Moreover, it is possible that other customers of our third-party foundry partners that are larger and/or better financed than we are, or that have long-term contracts with them, may receive preferential treatment in terms of capacity allocation or pricing. In addition, if we do not accurately forecast our capacity needs, our third-party foundry partners may not have available capacity to meet our immediate needs or we may be required to pay higher costs to fulfill those needs, either of which could materially and adversely affect our business, operating results or financial condition.

Other risks associated with our dependence on a few third-party foundry partners include limited control over delivery schedules and quality assurance, lack of capacity in periods of excess demand, unauthorized use of our intellectual property and limited ability to manage inventory and parts.

Moreover, if any of our third-party foundry partners suffers any damage to its facilities, suspends manufacturing operations, loses benefits under material agreements, experiences power outages or computer virus attacks, lacks sufficient capacity to manufacture our products, encounters financial difficulties, is unable to secure necessary raw materials from its suppliers or suffers any other disruption or reduction in efficiency, we may encounter supply delays or disruptions.

Failure to maintain inventory levels of our cryptocurrency mining machines in line with the approximate level of demand for our products could cause us to lose sales, expose us to increased inventory risks and subject us to increases in holding costs, risk of inventory obsolescence, increases in markdown allowances and write-offs, any of which could have a material adverse effect on our business, financial condition and results of operations.

To operate our business successfully and meet our customers’ demands and expectations, we must maintain a certain level of finished goods inventory to ensure immediate delivery when required. Furthermore, we are required to maintain an appropriate level of inventory of parts and components for our production. However, forecasts are inherently uncertain. If our forecasted demand is lower than actual demand, we may not be able to maintain an adequate inventory level of our finished goods or produce our products in a timely manner, and we may lose sales and market share to our competitors. On the other hand, we may also be exposed to increased inventory risks due to accumulated excess inventory of our products or raw materials, parts and components for our products. Excess inventory levels may lead to increases in inventory holding costs, risks of inventory obsolescence and write-down.

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The average selling prices of our cryptocurrency mining may decrease from time to time due to technological advancement and we may not be able to pass onto our suppliers such decreases, which may in turn adversely affect our profitability.

The cryptocurrency mining industry is characterized by quick launches of new products, continuous technological advancements and changing market trends and customer preferences, all of which translate to a shorter life cycle and a gradual decrease in the average selling prices of products over time. There are no assurances that we will be able to pass on any decrease in average selling prices of our products to our suppliers. In the event that average selling prices of our products unusually or significantly decrease, and such decreases cannot be offset by a corresponding decrease in the prices of the principal components of our products, our gross profit margins may be materially and adversely affected, which in turn, may adversely affect our profitability.

Shortages in, or increases in the prices of, the components of our cryptocurrency mining machines may adversely affect our business.

The components used for cryptocurrency mining machines include printed circuit board, other electronic components, fans and aluminum casings. The use of our Bitcoin mining machines also requires certain ancillary equipment and components such as controllers, power adaptors and connectors. The production of our current cryptocurrency mining machines depends on obtaining adequate supplies of these components on a timely basis and at competitive prices. We do not typically maintain large inventories of components, but rather we purchase them on a just-in-time basis to satisfy our quality standards and meet our volume requirements. Given the long lead times that may be required to manufacture, assemble and deliver certain components and products, problems could arise in planning production and managing inventory levels that could seriously interrupt our operations, including the possibility of defective parts, an increase in component costs, delays in delivery schedules, and shortages of components. Furthermore, we may have to turn to less reputable suppliers if we cannot source adequate components from our regular supplier. Under such circumstances, the quality of the components may suffer and could cause performance issues in our cryptocurrency mining machines.

Shortages of components could result in reduced production or delays in production, as well as an increase in production costs, which may negatively affect our abilities to fulfill orders or make timely shipments to customers, as well as our customer relationships and profitability. Component shortages may also increase our costs of revenue because we may be required to pay higher prices for components in short supply, not being able to pass such costs to customers, and redesign or reconfigure products to accommodate substitute components.

Risks that may be encountered during the transportation of cryptocurrency mining machines

Physical damage during shipping: cryptocurrency mining machines are delicate pieces of equipment that can be easily damaged during shipping. Factors such as rough handling, temperature changes, and vibration can cause damage to the hardware.

Theft or loss during shipping: cryptocurrency mining machines are valuable and can be a target for theft during shipping. In some cases, they can also be misplaced or lost during the shipping process.

Improper packaging: cryptocurrency mining machines require specialized packaging to ensure their safety during shipping. Failure to properly package cryptocurrency mining machines can increase the risk of damage during transport.

Inadequate storage conditions: cryptocurrency mining machines require specific storage conditions, including temperature and humidity control, to maintain their performance and lifespan. Failure to store cryptocurrency mining machines under optimal conditions can lead to hardware failure and increased downtime.

Fire or water damage: Fire or water damage can be catastrophic to cryptocurrency mining machines and result in significant data loss. Proper fire suppression systems and measures to prevent water damage should be in place to minimize these risks.

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Risks like cryptocurrency mining machines storage, overhaul, operation, and maintenance may occur:

Equipment failure: Machines that are not properly stored, overhauled, operated, or maintained can lead to equipment failure, which can be dangerous for operators and other individuals nearby.

Inadequate training: Operators and maintenance personnel who are not properly trained may not know how to properly operate, maintain, or overhaul machines, which can increase the risk of equipment failure or accidents.

Improper storage: Machines that are not stored properly, such as in a location that is too hot, cold, humid, or dusty, can be damaged or degraded over time, leading to equipment failure or decreased performance.

Poor maintenance: Failure to properly maintain machines, such as by not performing regular inspections, cleaning, lubrication, or repairs, can lead to equipment failure, decreased performance, or shortened machines lifespan.

Lack of safety protocols: Inadequate safety protocols, such as not using appropriate personal protective equipment or not following proper lockout/tagout procedures, can increase the risk of accidents and injuries during machine operation or maintenance.

Improper overhaul: Overhauling machines improperly, such as by not replacing worn or damaged parts or not properly reassembling the machines, can lead to equipment failure or decreased performance.

Aging machines: Machines that are not regularly replaced or updated can become outdated or obsolete, increasing the risk of failure or decreased performance.

Environmental factors: Exposure to environmental factors, such as extreme heat or cold, moisture, or corrosive substances, can damage our machines and lead to failure or decreased performance.

Inadequate inspections: Failure to perform regular inspections, such as non-destructive testing or visual inspections, can lead to failure or decreased performance.

Human error: Human error during equipment storage, overhaul, operation, or maintenance, such as misreading instructions, using incorrect tools or materials, or skipping steps in a procedure, can lead to failure or accidents.

We may need additional capital and we may not be able to obtain it, which could adversely affect our liquidity and financial position.

We believe that our current cash and cash equivalents and cash flow from operations will be sufficient to meet our anticipated cash needs including for working capital and capital expenditures, for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments. If these sources 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 convertible debt securities or additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.

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 alternative advertising media companies;

| ● | conditions of the U.S. and other capital markets in which we may seek to raise funds;

| ● | our future results of operations, financial condition and cash flows;

| ● | PRC governmental regulation of foreign investment in advertising services companies in China;

| ● | economic, political and other conditions in China; and

| ● | PRC governmental policies relating to foreign currency borrowings.

We cannot assure you that financing will 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 could have a material adverse effect on our liquidity and financial condition.

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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.

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 January 5, 2023, the Company entered into the Second SmartConn Acquisition share transfer agreement, the consideration of which will be paid in the form of 478,747 newly issued Class A ordinary shares of the Company. On March 24, 2023, the Company entered into an equity transfer agreement with a shareholder of DTI which the Company agrees to prepaid 698,301 Class A ordinary shares to purchase 32% equity of DTI. 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 further acquire 65% equity interest in Boxinrui for a consideration in form of 1,151,869 Class A ordinary shares to the Relevant Shareholders. 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 53,388,709 Class A ordinary shares to the previous shareholders as a compensation due to continuous declining share price. On November 23,2023, the Company fully issued the related compensation shares. 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 69,141,256 Class A ordinary shares to the previous shareholders as a compensation due to continuous declining share price. On November 23, 2023, the Company fully issued the related compensation shares. On November 24, 2023, the Company entered into a series of securities purchase agreements separately with certain individual investors. Pursuant to the agreements, the Company agreed to sell the Purchasers an aggregate of 130,463,140 Class A ordinary shares of the Company for an aggregate purchase price of $40.0 million. The offering was closed on December 29, 2023. We may issue more ordinary shares through the ATM offering 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.”

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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 Sixth 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, 2024. 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.

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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 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.

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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 of meeting 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 regain compliance, and may be eligible for an extension of an additional 180 calendar days, provided that the Company meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq except for Nasdaq Listing Rule 5550(a)(2), and provide a written notice of its intention to cure this Deficiency during the second compliance period, by effecting a reverse stock split, if necessary.

Further, as previously disclosed in the report on form 6-K of the Company filed with the SEC on June 30, 2023, a mandatory panel monitor, for a period of one year from June 27, 2023, of the Company’s ongoing compliance with such requirements as set force in Listing Rule 5815(d)(4)(B), after the Company has regained compliance with Nasdaq Listing Rule 5550(a)(2) as notified by Nasdaq on June 27, 2023. If, within that one-year monitoring period, the Staff finds the Company again out of compliance with the requirement that was the subject of the exception, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide the Staff with a plan of compliance with respect to that deficiency and Staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. The Company will have the opportunity to respond/present to the Hearings Panel as provided by Listing Rule 5815(d)(4)(C). The Company’s securities may be at that time delisted from Nasdaq.

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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.

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 issuance of new shares had a dilutive effect on our existing shareholders and may adversely impact the market price of our Ordinary Shares.

On January 5, 2023, the Company entered into an equity transfer agreement with a shareholder of Smartconn which the Company agrees to purchase 31% equity of Smartconn at 90% of the appraisal price. The consideration of the Acquisition shall be paid in the form of 478,747 newly issued Class A ordinary shares of the Company.

On March 24, 2023, the Company entered into an equity transfer agreement with a shareholder of DTI which the Company agrees to prepaid 698,301 Class A ordinary shares to purchase 32% equity of DTI.

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 further acquire 65% equity interest in Boxinrui for a consideration in form of 1,151,869 Class A ordinary shares to the Relevant Shareholders.

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 53,388,709 Class A ordinary shares to the previous shareholders as a compensation due to continuous declining share price. On November 23,2023, the Company fully issued the related compensation shares.

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 69,141,256 Class A ordinary shares to the previous shareholders as a compensation due to continuous declining share price. On November 23,2023, the Company fully issued the related compensation shares.

On November 24, 2023, the Company entered into a series of securities purchase agreements separately with certain individual investors. Pursuant to the agreements, the Company agreed to sell the Purchasers an aggregate of 130,463,140 Class A ordinary shares of the Company for an aggregate purchase price of $40.0 million.

On December 8, 2023, the Company entered into a consulting agreement with Timo Bernd Strattner. Pursuant to the agreement, the Company shall issue 1,260,504 Class A ordinary shares of the Company, par value $0.40 per share, as consideration for the service rendered by Timo Bernd Strattner under the consulting agreement. On December 22,2023, the Company fully issued the related compensation shares.

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Due to these issuances and any future additional issuances of shares of our Ordinary shares or securities convertible into Ordinary Shares, including pursuant to our shelf registration statement or our ATM facility, our shareholders may experience immediate dilution and, as a result, our stock price may decline. See “Item 3. Key Information—D. Risk Factors— 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.”, “Item 4. Information on the Company—C. History and Development of the Company.” and “Item 5. Operating and Financial Review and Prospects — Recent developments.”

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 243,902 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.

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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, allocation of natural and other resources, production, pricing and management of currency, and 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 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 an information.

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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.

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 to the company fails to fulfill filing procedure as stipulated in Overseas Listing Trial Measures.

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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. 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.

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We may be influenced by changes in the political and economic policies of the PRC government.

A very substantial portion of our assets and operations are currently located in mainland China. Accordingly, we may be influenced to a significant degree by political and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, regulation of foreign exchange and allocation of resources. Before the adoption of its reform and opening up policies in 1978, the PRC was primarily a planned economy. In recent years, the PRC government has been reforming the PRC economic system and government structure. For example, the PRC government has implemented economic reform and measures emphasizing the utilization of market forces in the development of the PRC economy in the past three decades. These reforms have resulted in significant economic growth and social prospects. Economic reform measures, however, may be adjusted, modified or applied to varying degrees between different industries or different regions within the country. While the Chinese economy has experienced significant growth over past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and results of operations, lead to a reduction in demand for our future products and adversely affect our competitive position.

Uncertainties with respect to the interpretation and enforcement of PRC laws, rules and regulations could have a material adverse effect on 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. Prior court decisions may be cited for reference but have limited precedential value.

The laws and regulations of China have significantly enhanced the protections afforded to various forms of foreign investments in China for the past decades. However, because certain laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties.

Furthermore, the legal system of China is based in part on government policies and China is geographically large and divided into various provinces and municipalities. As such, different regulations and policies may have different and varying applications and interpretations in different parts of China, and it is possible that we may not be aware in a timely manner that we have been identified to be in violation of these policies and rules until sometime after the occurrence of the violation. In addition, certain administrative and court proceedings in China may result in substantial costs and diversion of resources and management attention.

PRC government has complex regulatory requirements on the conduct of our business and it has recently promulgated certain regulations and rules to exert more oversight over offerings that are conducted overseas and/ or foreign investment in China-based issuers. 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.

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.

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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. 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.

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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 Unities 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.

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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 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.

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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, and 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.

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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.

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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 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.

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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’ 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.

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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.

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You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in 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.

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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.

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Item 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Corporate History and Background

We are 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, is a provider of software application and technology services to corporate and government customers engaged in global trade.

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), 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. After the reorganization, Powerbridge owns 100% equity interests of Powerbridge HK and Powerbridge Zhuhai. All shareholders have the same ownership interest in Powerbridge 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. Hongding Shenzhen was incorporated on October 21, 2020 under the laws of the People’s Republic of China, as a wholly-owned subsidiary of Hongding Hong Kong and a wholly foreign-owned entity under the PRC laws. As of the date of this Annual Report, Hongding Hong Kong and Hongding Shenzhen have no business operations.

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 Jan 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.

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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, Powerbridge intend to incorporate its blockchain technology and web 3.0 know how application to further elevate Powerbridge’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.

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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 Powerbridge’s metaverse strategy as Powerbridge 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 March 24, 2023, the Company entered into an equity transfer agreement with a shareholder of DTI which the Company agrees to prepaid Class A ordinary shares to purchase 32% equity of DTI.

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.powerbridge.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.

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.

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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.

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.

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B. Business Overview

Overview

X3 Holdings Co., Ltd., 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 agriculture technologies, 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, X3 Holdings capitalizes 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

X3 Holdings engages 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.

We intend to continue leveraging our industry expertise and product knowledge with the best use of emerging and disruptive technologies such as big data, artificial intelligence and Internet of Things to enhance our core technology capabilities and continually increase the scope of our solutions and services to our customers.

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 58.1%, 36.7% and 63.3% of total revenue in fiscal 2023, 2022 and 2021, respectively. Revenue from consulting and technical support services represented 21.5%, 24.2% and 14.2% of total revenue in fiscal 2023, 2022 and 2021, respectively. Revenue from subscription services represented4.1%, 7.2% and 2.9% of total revenue in fiscal 2023, 2022 and 2021, respectively. Revenue from trading represented 15.2%, 31.8% and 19.6% of total revenue in fiscal 2023, 2022 and 2021. Revenue from others represented 1.1%, nil and nil of our revenue for the year ended December 31, 2023, 2022 and 2021, respectively. For the fiscal years ending December 31, 2023, 2022 and 2021, our revenues were $16.8 million, $10.5 million and $32.1 million, respectively.

As of the date of this Annual Report, we had a total of 178 full-time employees, of which 76 are in research and development, 17 are in sales and marketing, 38 are in technical and customer services, and 47 are in general administration.

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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.

| ● | 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 Strategy

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 to a disciplined approach to ensure future earnings growth.

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We adopt differentiated and tailored growth strategies and priorities in the following business developments:

| ● | 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.

Our Solutions

Our Solutions and Services

X3 Holdings is 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 agriculture technologies.

Digital Technologies

With over two decades of technology and industry expertise, X3 Holdings capitalizes 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.

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Cryptomining Operations

X3 Holdings engages 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.

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 of investment on revenue generating assets and minimized capital expenditure. We partner with leading crypto machine manufacturers for stable access to top-tiered 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 intend to 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 intend to 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.

Other Technologies and Applications

Our product applications, industry solutions and platform services are designed and built from our multiple proprietary technology infrastructure platforms which are developed based on industry leading infrastructure technologies.

Our infrastructure technology platforms are designed for high performance reliability, flexibility and scalability, allowing us to expand our solutions and services rapidly and efficiently to consistently address the changing needs of our global customers and partners.

We are developing our own technologies as well as working with other technology and infrastructure partners with the best use of big data, artificial intelligence, blockchain, Internet of Things, and 5G, among other technologies.

We are continuing to leverage our industry expertise and product knowledge, utilizing cutting-edge technologies to enhance our core technology and application capabilities in continually expanding the scope of our solutions and services.

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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 others 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 16 full-time sales and marketing personnel. During fiscal years 2023, 2022 and 2021, our sales and marketing expense were approximately $1.5 million, $2.0 million and $2.8 million, respectively, representing 8.8%, 18.7% and 8.6% of our total revenues for fiscal years 2023, 2022 and 2021, 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.

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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 76 full-time R&D personnel. We incurred expenses of $4.8 million, $3.5 million and $2.6 million in R&D in fiscal year 2023, 2022 and 2021, 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.

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| ● | 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 20 registered patent, 136 registered software copyrights and 46 registered trademarks in the PRC. In addition, we own 13 URL designations and domain names, including x3holdings.com, powerbridgetech.com, powerstreamdigital.com, metafusiondigital.com, powermetadigital.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.

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, 2023. 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 $344,775, $162,799 and $307,497 for the years ended December 31, 2023, 2022 and 2021, respectively.

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Facility |  | Address |  | Space (㎡) |
Wuhan Office |  | Rm F, 25th Fl West, No.562, Construction Avenue (Guomao Xindu), Jianghan, Wuhan, Hubei, China |  |  | 167 |
Changsha Office |  | Rm 1608, 16th Fl, Block C3, Wanda Plaza, No. 589 Zhongshan Road, Kaifu, Changsha, Hunan 410015, China |  |  | 351 |
Nanning Office |  | Suite 2206-2209, 22nd Fl, Block 2, 118 Dongge Road Qingxiu, Nanning, Guangxi 530012, China |  |  | 389 |
Hangzhou Office |  | Rm 616, Jiang Tai Jing 3rd Building, Xihu District, Hangzhou |  |  | 35 |
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 |
Shenzhen Office |  | C705, Baozhong Excellence Times Square, Haitian Road, Xin’an Street, Bao’an District, Shenzhen, China |  |  | 164.77 |
Singapore HQ Office |  | Suite 412, Tower A, Tai Seng Exchange One Tai Seng Avenue, Singapore 536464 |  |  | 210 |

Employees

As of the date of this Annual Report, we had a total of 178 full-time employees, of which 76 are in research and development, 17 are in sales and marketing, 38 are in technical and customer services, and 47 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.

Government Regulation Relating to Our Business

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.

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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.

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.

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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.

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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.

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.

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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.

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.

58

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., 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 58.1%,36.7% and 63.3% of total revenue for the years ended December 31, 2023, 2022 and 2021, respectively. We generate revenue from consulting and technical support services, which represent 21.5%, 24.2% and 14.2% of our revenue for the years ended December 31, 2023, 2022 and 2021, respectively. We also earn subscription service revenue from customers accessing our SaaS, which represent 4.1%, 7.2% and 2.9% of our revenue for the years ended December 31, 2023, 2022 and 2021. We started to generated revenue from trading business, which represent 15.2%, 31.8% and 19.6% of total revenue for the years ended December 31, 2023, 2022 and 2021, respectively. Other revenue represented 1.1%, nil and nil of our revenue for the year ended December 31, 2023, 2022 and 2021, respectively.

Recent Developments

On January 5, 2023, the Company purchased 31% equity of SmartConn at 90% of the appraisal price from a shareholder of SmartConn. Prior to the acquisition, the Company held 19.99% in Smartconn. Together with the newly acquired shares, the Company held 50.99% equity interest of the SmartConn following the closing of the acquisition.

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, X3 intend to incorporate its blockchain technology and web 3.0 know how application to further elevate X3’s product development ability.

On March 19, 2023, the Company entered into an equity transfer agreement with DTI Group Limited (“DTI”), pursuant to which the Company agreed to purchase 32% of the equity interest of DTI. The Company already held 19% equity interest in DTI prior to the acquisition. Hence, after the acquisition, the Company holds in total 51% equity interest in DTI. On March 24, 2023, the Company entered into an equity transfer agreement with a shareholder of DTI which the Company agreed to prepay class A ordinary shares to purchase 32% equity of DTI. DTI’s expertise in digital trade infrastructure contributes to the establishment of a digital trade ecosystem for the Company, thereby expanding the Company’s operations.

On March 28, 2023, the Company entered into an equity transfer agreement with fifteen individual shareholders (the “Relevant Shareholders”) of BOXINRUI INTERNATIONAL HOLDINGS LIMITED (“Boxinrui”), pursuant to which the Company agreed to further acquire 65% equity interest in Boxinrui.The Company held an aggregate of 100% equity interest of the Boxinrui following the closing of the acquisition.

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 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 spanning 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 cryptomining 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.

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A. | Operating Results

For the years ended December 31, 2023 and 2022

The following table summarizes the results of our operations for the years ended December 31, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

|  | For the Years Ended |  |  |  |  |  |  |
|  | December 31, |  |  |  |  |  |  |
|  | 2023 |  |  | 2022 |  |  | Change |  |  | % Change |
REVENUES: |  |  |  |  |  |  |  |  |  |  |  |
Application development services |  | $ | 9,780,115 |  |  | $ | 3,847,199 |  |  | $ | 5,932,916 |  |  |  | 154.2 | %
Consulting and technical support services |  |  | 3,609,158 |  |  |  | 2,538,500 |  |  |  | 1,070,658 |  |  |  | 42.2 | %
Subscription services |  |  | 695,010 |  |  |  | 758,526 |  |  |  | (63,516 | ) |  |  | (8.4 | )%
Trading revenue |  |  | 2,549,808 |  |  |  | 3,338,584 |  |  |  | (788,776 | ) |  |  | (23.6 | )%
Others revenue |  |  | 190,732 |  |  |  | - |  |  |  | 190,732 |  |  |  | - | %
Total revenues |  |  | 16,824,823 |  |  |  | 10,482,809 |  |  |  | 6,342,014 |  |  |  | 60.5 | %
COST OF REVENUES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Application development services |  |  | 9,236,901 |  |  |  | 2,443,460 |  |  |  | 6,793,441 |  |  |  | 278.0 | %
Consulting and technical support services |  |  | 1,404,193 |  |  |  | 983,700 |  |  |  | 420,493 |  |  |  | 42.7 | %
Subscription services |  |  | 102,573 |  |  |  | 104,499 |  |  |  | (1,926 | ) |  |  | (1.8 | )%
Trading |  |  | 2,504,352 |  |  |  | 3,183,729 |  |  |  | (679,377 | ) |  |  | (21.3 | )%
Others |  |  | 156,608 |  |  |  | - |  |  |  | 156,608 |  |  |  | - | %
Total cost of revenues |  |  | 13,404,627 |  |  |  | 6,715,388 |  |  |  | 6,689,239 |  |  |  | 99.6 | %
GROSS PROFIT |  |  | 3,420,196 |  |  |  | 3,767,421 |  |  |  | (347,225 | ) |  |  | (9.2 | )%
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing |  |  | 1,480,732 |  |  |  | 1,956,811 |  |  |  | (476,079 | ) |  |  | (24.3 | )%
General and administrative |  |  | 12,130,707 |  |  |  | 7,732,287 |  |  |  | 4,398,420 |  |  |  | 56.9 | %
Provision for doubtful accounts |  |  | 539,284 |  |  |  | 4,733,183 |  |  |  | (4,193,899 | ) |  |  | (88.6 | )%
Research and development |  |  | 4,814,463 |  |  |  | 3,459,987 |  |  |  | 1,354,476 |  |  |  | 39.1 | %
Share-based compensation |  |  | 6,058,117 |  |  |  | 5,983,907 |  |  |  | 74,210 |  |  |  | 1.2 | %
Impairment for intangible assets |  |  | 2,272,829 |  |  |  | - |  |  |  | 2,272,829 |  |  |  | - | %
Impairment for goodwill |  |  | 29,686,102 |  |  |  | - |  |  |  | 29,686,102 |  |  |  | - | %
Total operating expenses |  |  | 56,982,234 |  |  |  | 23,866,175 |  |  |  | 33,116,059 |  |  |  | 138.8 | %
OPERATING LOSS FROM OPERATIONS |  |  | (53,562,038 | ) |  |  | (20,098,754 | ) |  |  | (33,463,284 | ) |  |  | 166.5 | %
OTHER INCOME (EXPENSES) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss from disposition of a subsidiary |  |  | - |  |  |  | (1,009 | ) |  |  | 1,009 |  |  |  | (100 | )%
Gain from long term investment |  |  | 70,947 |  |  |  | - |  |  |  | 70,947 |  |  |  | - | %
Change in fair value of convertible debt |  |  | (21,166 | ) |  |  | (2,448,936 | ) |  |  | 2,427,770 |  |  |  | (99.1 | )%
Gain from fair value change in equity |  |  | 2,402,943 |  |  |  | - |  |  |  | 2,402,943 |  |  |  | - | %
Fair value loss on financial instrument |  |  | (71,006,115 | ) |  |  | - |  |  |  | (71,006,115 | ) |  |  | - | %
Other (expense) income |  |  | (169,107 | ) |  |  | 608 |  |  |  | (169,715 | ) |  |  | (27,913.7 | )%
Total other expenses |  |  | (68,722,498 | ) |  |  | (2,449,337 | ) |  |  | (66,273,161 | ) |  |  | 2,705.8 | %
LOSS BEFORE INCOME TAXES |  |  | (122,284,536 | ) |  |  | (22,548,091 | ) |  |  | (99,736,445 | ) |  |  | 442.3 | %
INCOME TAX BENEFIT |  |  | (57,341 | ) |  |  | (999,391 | ) |  |  | 942,050 |  |  |  | (94.3 | )%
NET LOSS |  | $ | (122,227,195 | ) |  | $ | (21,548,700 | ) |  | $ | (100,678,495 | ) |  |  | 467.2 | %

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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 years ended December 31, 2023, our total revenue was approximately $16.8 million as compared to approximately $10.5 million for the year ended December 31, 2022. The Company’s total revenue increased by approximately $6.3 million, or 60.5%. The overall increase in total revenue was primarily attributable to approximately $5.9 million increase in revenue from application development services and approximately $1.1 million increase in consulting and technical support services.

Revenue from application development services

The Company’s application development service contracts are primarily on a fixed-price basis, which require the Company 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, 2023, our application development service revenue was approximately $9.8 million as compared to approximately $3.8 million for the year ended December 31, 2022. The increase in application development service revenue was approximately $5.9 million or 154.2% due to resumed works after China announced a relaxation from its stringent COVID-19 pandemic control measures and more new projects in current period. In certain application development service arrangements, the contacts included sales of IT equipment. Such revenue was $2,001,750 for the year ended December 31, 2023, decreased from $2,609,531 of the related revenue for the year ended December 31, 2022.

Revenue from consulting and technical support services

Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require the Company 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, 2023, our consulting and technical support service revenue was approximately $3.6 million as compared to approximately $2.5 million for the year ended December 31, 2022, representing an increase of $1.1 million or 42.2%, which was due to more new projects in current period.

Revenue from subscription services

Revenue from subscription services is comprised of subscription fees from customers accessing the Company’s software-as-a-service applications. The Company’s 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, 2023, our subscription service revenue was approximately $0.7 million as compared to approximately $0.8 million for the year ended December 31, 2022.

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Trading revenue

The Company starts to sell products to its customers for the year ended December 31, 2021. Revenue from trading revenue was approximately $2.5 million and $3.3 million for the year ended December 31, 2023 and 2022, respectively.

Others revenue

The Company started to earn other revenue, such as membership fee for the years ended December 31,2023, which amounted to approximately $0.2 million and represent 1.1% of our revenue for the year ended December 31, 2023.

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 increased by approximately $6.7 million or 99.6% to approximately $13.4 million for the year ended December 31, 2023 from approximately $6.7 million for the year ended December 31, 2022, which was in line with increased revenue, mainly attributable to an increase of $6.8 million in cost of revenue from application development services and an increase of approximately $0.4 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 $9.2 million, $1.4 million, $0.1 million, $2.5 million and 0.2 million for the year ended December 31, 2023, respectively, as compared to approximately $2.4 million, $1.0 million, $0.1 million and $3.2 million and $nil for the year ended December 31, 2022.respectively.

Gross profit

|  | For the Years Ended |
|  | December 31, |
|  | 2023 |  |  | 2022 |
GROSS PROFIT |  | Gross Profit |  |  | Gross Margin |  |  | Gross Profit |  |  | Gross Margin |
Application development services |  | $ | 543,214 |  |  |  | 5.6 | % |  | $ | 1,403,739 |  |  |  | 36.5 | %
Consulting and technical support services |  |  | 2,204,965 |  |  |  | 61.1 | % |  |  | 1,554,800 |  |  |  | 61.2 | %
Subscription services |  |  | 592,437 |  |  |  | 85.2 | % |  |  | 654,027 |  |  |  | 86.2 | %
Trading revenue |  |  | 45,456 |  |  |  | 1.8 | % |  |  | 154,855 |  |  |  | 4.6 | %
Others revenue |  |  | 34,124 |  |  |  | 17.9 |  |  |  | - |  |  |  | - |
Total gross profit |  | $ | 3,420,196 |  |  |  | 20.3 | % |  | $ | 3,767,421 |  |  |  | 35.9 | %

Our gross profit decreased by approximately $0.3 million or 9.2% from approximately $3.8 million for the year ended December 31, 2022 to approximately $3.4 million for the year ended December 31, 2023. Gross margin as a percent of overall revenue for the years ended December 31, 2023 and 2022 was 20.3% and 35.9%, respectively.

Gross profit for application development services decreased by approximately $0.9 million or 61.3% from $1.4 million for the year ended December 31, 2022 to approximately $0.5 million for the year ended December 31, 2023, the decrease was driven by increased cost resulted from the outsourcing of development service in several projects. Gross profit margin for the years ended December 31, 2023 and 2022 was 5.6% and 36.5%, respectively.

Gross profit for consulting and technical support services increased by approximately $0.7 million or 41.8% from approximately $1.6 million for the year ended December 31, 2022 to approximately $2.2 million for the year ended December 31, 2023. Gross profit margin for the years ended December 31, 2023 and 2022 was 61.1% and 61.2%, respectively.

Gross profit for subscription services decreased by $0.1 million or 9.4% from $0.7 million for the year ended December 31, 2022 to $0.6 million for the year ended December 31, 2023. Gross profit margin was 85.2% and 86.2% for the years ended December 31, 2023 and 2022 respectively.

Gross profit for trading revenue was $45,456 and $154,855 for the years ended December 31, 2023 and 2022, respectively; gross profit margin was 1.8% and 4.6% for the years ended December 31, 2023 and 2022, respectively.

Gross profit for other revenue was $34,124 for the years ended December 31, 2023.

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Operating Expenses

|  | For the Years Ended |  |  |  |  |  |  |
|  | December 31, |  |  |  |  |  |  |
|  | 2023 |  |  | 2022 |  |  | Change |  |  | % Change |
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing |  | $ | 1,480,732 |  |  | $ | 1,956,811 |  |  | $ | (476,079 | ) |  |  | (24.3 | )%
General and administrative |  |  | 12,130,707 |  |  |  | 7,732,287 |  |  |  | 4,398,420 |  |  |  | 56.9 | %
Provision for doubtful accounts |  |  | 539,284 |  |  |  | 4,733,183 |  |  |  | (4,193,899 | ) |  |  | (88.6 | )%
Research and development |  |  | 4,814,463 |  |  |  | 3,459,987 |  |  |  | 1,354,476 |  |  |  | 39.1 | %
Share based compensation |  |  | 6,058,117 |  |  |  | 5,983,907 |  |  |  | 74,210 |  |  |  | 1.2 | %
Impairment for intangible assets |  |  | 2,272,829 |  |  |  | - |  |  |  | 2,272,829 |  |  |  | - | %
Impairment for goodwill |  |  | 29,686,102 |  |  |  | - |  |  |  | 29,686,102 |  |  |  | - | %
Total operating expenses |  | $ | 56,982,234 |  |  | $ | 23,866,175 |  |  | $ | 33,116,059 |  |  |  | 138.8 | %

Our operating expenses consist of selling and marketing, general and administrative, research and development (“R&D”) expenses, provision for doubtful accounts, stock-based compensation, impairment for intangible assets and impairment for goodwill. Operating expenses increased by approximately $33.1 million, or 138.8%, from approximately $23.9 million for the year ended December 31, 2022 to approximately $57.0 million for the year ended December 31, 2023. The increase in our operating expenses was primarily due to approximately $29.7 million increase in impairment for goodwill, approximately $4.4 million increase in general and administrative, approximately $2.3 million increase in impairment for intangible assets and approximately $1.4 million increase in research and development, offset by approximately $4.2 million decrease in provision for doubtful accounts.

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 $0.5 million or 24.3% from approximately $2.0 million for the year ended December 31, 2022 to approximately $1.5 million for the year ended December 31, 2023. The decrease was primarily attributable to decreased salary due to personnel optimization for the year ended December 31, 2023.

General and administrative expenses primarily consisted of salary and compensation expenses relating to our accounting, human resources and executive office personnel, and included rental expenses, depreciation and amortization expenses, office overhead, professional service fees and travel and transportation costs. General and administrative expenses increased by approximately $4.4 million or 56.9% from approximately $7.7 million for the year ended December 31, 2022 to approximately $12.1 million for the year ended December 31, 2023, due to higher depreciation and amortization and professional consulting fee. As a percentage of revenues, general and administrative expenses were 72.1% and 73.8% of our total revenue for the years ended December 31, 2023 and 2022, respectively.

Provision for doubtful accounts decreased by approximately $4.2 million from approximately $4.7 million for the year ended December 31, 2022 to approximately $0.5 million for the year ended December 31, 2023

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 increased by approximately $1.4 million from approximately $3.5 million for the year ended December 31, 2022 to approximately $4.8 million for the year ended December 31, 2023, representing 28.6% and 33.0% of our total revenues for the years ended December 31, 2023 and 2022, 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 increased by approximately $0.1 million from approximately $6.0 million for the year ended December 31, 2022 to approximately $6.1 million for the year ended December 31, 2023.

63

For the year ended December 31, 2023, due to slow development of Smartconn, the Company 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, the Company impaired the intangible assets acquired from the acquisition of Smartconn of approximately $2.3 million for the year ended December 31, 2023.

For the year ended December 31, 2023, the Company 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 Company 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.

Other Income (Expense)

Change in fair value of convertible debt

The Company elected the fair value option to account for its convertible loans. For the year ended December 31, 2023 and 2022, we recognized an unrealized loss of $21,166 and approximately $2.4 million, respectively.

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, the Company 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. The company recognized a loss of approximately $0.3 million in fair value change for the previous 19.99% equity interests. On March 28, 2023, the Company 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. The company recognized a gain of approximately $2.7 million in fair value change for the previous 35% equity interests.

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. The Company recorded an unrealized loss of approximately $71.0 million for the year ended December 31, 2023.

Income Tax Benefit

Income tax benefit was approximately $0.1 million for the year ended December 31, 2023, compared to approximately $1.0 million for the year ended December 31, 2022. 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 income tax rate of 25%. As of December 31, 2022, the Company had accrued (before adjustment) total income tax liabilities of $550,602. According to PRC taxation regulation and administrative practice and procedures, the statute of limitation on tax authority’s audit or examination of previously filed tax returns expires three years from the date they were filed. The Company also obtained a written statement from the local tax authority that no additional taxes are due as of December 31, 2022. Based on these facts, the Company reversed the accrued tax liabilities in the total amount of $550,602 (or RMB3,798,484) relating to the tax liabilities accrued for the period from fiscal 2016 to fiscal 2018, resulting in the decrease of accrued income tax liabilities from $550,602 to $nil as of December 31, 2022.

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Net Loss

As a result of the foregoing, our net loss increased by $100.7 million, or 467.2%, from $21.5 million for the year ended December 31, 2022 to $122.2 million for the year ended December 31, 2023. The increased net loss was the result of increased operation expenses, fair value loss on financial instruments and financial assets and fair value loss on financial instruments and financial assets as discussed above.

Other comprehensive (loss) income

Foreign currency translation loss was approximately $1.7 million and approximately $6.0 million for the years ended December 31, 2023 and 2022, respectively. The balance sheet amounts with the exception of equity as of December 31, 2023 were translated at RMB7.0999 to USD1.00 as compared to RMB6.8972 to USD1.00 as of December 31, 2022. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the years ended December 31, 2023 and 2022 were RMB7.0809 to USD1.00 and RMB6.7290 to USD1.00, respectively. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S, dollar terms without giving effect to any underlying change in our business or results of operation.

For the years ended December 31, 2022 and 2021

The following table summarizes the results of our operations for the years ended December 31, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

|  | For the Years Ended |  |  |  |  |  |  |
|  | December 31, |  |  |  |  |  |  |
|  | 2022 |  |  | 2021 |  |  | Change |  |  | % Change |
REVENUES: |  |  |  |  |  |  |  |  |  |  |  |
Application development services |  | $ | 3,847,199 |  |  | $ | 20,323,422 |  |  | $ | (16,476,223 | ) |  |  | (81.1 | )%
Consulting and technical support services |  |  | 2,538,500 |  |  |  | 4,555,352 |  |  |  | (2,016,852 | ) |  |  | (44.3 | )%
Subscription services |  |  | 758,526 |  |  |  | 936,913 |  |  |  | (178,387 | ) |  |  | (19.0 | )%
Trading revenue |  |  | 3,338,584 |  |  |  | 6,277,141 |  |  |  | (2,938,557 | ) |  |  | (46.8 | )%
Total revenues |  |  | 10,482,809 |  |  |  | 32,092,828 |  |  |  | (21,610,019 | ) |  |  | (67.3 | )%
COST OF REVENUES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Application development services |  |  | 2,443,460 |  |  |  | 12,785,491 |  |  |  | (10,342,031 | ) |  |  | (80.9 | )%
Consulting and technical support services |  |  | 983,700 |  |  |  | 2,198,310 |  |  |  | (1,214,610 | ) |  |  | (55.3 | )%
Subscription services |  |  | 104,499 |  |  |  | 156,113 |  |  |  | (51,614 | ) |  |  | (33.1 | )%
Trading |  |  | 3,183,729 |  |  |  | 6,237,601 |  |  |  | (3,053,872 | ) |  |  | (49.0 | )%
Total cost of revenues |  |  | 6,715,388 |  |  |  | 21,377,515 |  |  |  | (14,662,127 | ) |  |  | (68.6 | )%
GROSS PROFIT |  |  | 3,767,421 |  |  |  | 10,715,313 |  |  |  | (6,947,892 | ) |  |  | (64.8 | )%
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing |  |  | 1,956,811 |  |  |  | 2,775,526 |  |  |  | (818,715 | ) |  |  | (29.5 | )%
General and administrative |  |  | 7,732,287 |  |  |  | 6,004,186 |  |  |  | 1,728,101 |  |  |  | 28.8 | %
Provision for doubtful accounts |  |  | 4,733,183 |  |  |  | 1,100,606 |  |  |  | 3,632,577 |  |  |  | 330.1 | %
Research and development |  |  | 3,459,987 |  |  |  | 2,611,742 |  |  |  | 848,245 |  |  |  | 32.5 | %
Share-based compensation |  |  | 5,983,907 |  |  |  | 6,335,246 |  |  |  | (351,339 | ) |  |  | (5.5 | )%
Total operating expenses |  |  | 23,866,175 |  |  |  | 18,827,306 |  |  |  | 5,038,869 |  |  |  | 26.8 | %
OPERATING LOSS FROM OPERATIONS |  |  | (20,098,754 | ) |  |  | (8,111,993 | ) |  |  | (11,986,761 | ) |  |  | 147.8 | %
OTHER INCOME (EXPENSES) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expenses) |  |  | 608 |  |  |  | (36,881 | ) |  |  | 37,489 |  |  |  | 101.6 | %
(Loss) gain from disposition of a subsidiary |  |  | (1,009 | ) |  |  | 714 |  |  |  | (1,723 | ) |  |  | (241.3 | )%
Change in fair value of convertible debt |  |  | (2,448,936 | ) |  |  | (1,508,229 | ) |  |  | (940,707 | ) |  |  | 62.4 | %
Total other expenses |  |  | (2,449,337 | ) |  |  | (1,544,396 | ) |  |  | (904,941 | ) |  |  | 58.6 | %
LOSS BEFORE INCOME TAXES |  |  | (22,548,091 | ) |  |  | (9,656,389 | ) |  |  | (12,891,702 | ) |  |  | 133.5 | %
INCOME TAX BENEFIT |  |  | (999,391 | ) |  |  | (173,941 | ) |  |  | (825,450 | ) |  |  | 474.6 | %
NET LOSS |  | $ | (21,548,700 | ) |  | $ | (9,482,448 | ) |  | $ | (12,066,252 | ) |  |  | 127.2 | %

65

Revenues

We derive revenues from four sources: (1) revenue from application development services, (2) revenue from consulting and technical support services, (3) revenue from subscription services, and (4) trading revenue.

For the years ended December 31, 2022, our total revenue was approximately $10.5 million as compared to $32.1 million for the year ended December 31, 2021. The Company’s total revenue decreased by approximately $21.6 million, or 67.3%. The overall decrease in total revenue was primarily attributable to approximately $16.5 million decrease in revenue from application development services.

Revenue from application development services

The Company’s application development service contracts are primarily on a fixed-price basis, which require the Company 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, 2022, our application development service revenue was approximately $3.8 million as compared to approximately $20.3 million for the year ended December 31, 2021. The decrease in application development service revenue was approximately $16.5 million or 81.1% due to less new projects in current period. In certain application development service arrangements, the contacts included sales of IT equipment. Such revenue was $2,609,531 for the year ended December 31, 2022, decreased from $14,472,010 of the related revenue for the year ended December 31, 2021.

Revenue from consulting and Technical Support Services

Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require the Company 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, 2022, our consulting and technical support service revenue was approximately $2.5 million as compared to approximately $4.6 million for the year ended December 31, 2021, representing a decrease of $2.0 million or 44.3%, which was due to less new projects in current period.

Revenue from subscription services

Revenue from subscription services is comprised of subscription fees from customers accessing the Company’s software-as-a-service applications. The Company’s 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, 2022, our subscription service revenue was approximately $0.8 million as compared to approximately $0.9 million for the year ended December 31, 2021. We introduced our SaaS subscription services in fiscal 2016 and continue to expand the scope of our services and enhance the features and functionalities of our applications and improve our marketing efforts, we expect our subscription service revenue will grow with an expanded offering and increased market awareness.

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Trading revenue

The Company starts to sell consumables to its customers for the year ended December 31, 2021. Revenue from trading revenue was approximately $3.3 million and $6.3 million for the year ended December 31, 2022 and 2021, 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 consumables products.

Our cost of revenues decreased by approximately $14.7 million or 68.6% to approximately $6.7 million for the year ended December 31, 2022 from approximately $21.4 million for the year ended December 31, 2021, which was in line with decreased revenue, mainly attributable to a decrease of $10.4 million in cost of revenue from application development services and a decrease of approximately $3.1 million in cost of revenue from trading business. Our cost of revenue from application development services, consulting and technical support services, and trading was approximately $2.4 million, $1.0 million, $0.1 million and $3.2 million for the year ended December 31, 2022, respectively, as compared to approximately $12.8 million, $2.2 million, $0.2 million and $6.2 million for the year ended December 31, 2021.respectively.

Gross profit

|  | For the Years Ended |
|  | December 31, |
|  | 2022 |  |  | 2021 |
GROSS PROFIT |  | Gross Profit |  |  | Gross Margin |  |  | Gross Profit |  |  | Gross Margin |
Application development services |  | $ | 1,403,739 |  |  |  | 36.5 | % |  | $ | 7,537,931 |  |  |  | 37.1 | %
Consulting and technical support services |  |  | 1,554,800 |  |  |  | 61.2 | % |  |  | 2,357,042 |  |  |  | 51.7 | %
Subscription services |  |  | 654,027 |  |  |  | 86.2 | % |  |  | 780,800 |  |  |  | 83.3 | %
Trading revenue |  |  | 154,855 |  |  |  | 4.6 | % |  |  | 39,540 |  |  |  | 0.6 | %
Total gross profit |  | $ | 3,767,421 |  |  |  | 35.9 | % |  | $ | 10,715,313 |  |  |  | 33.4 | %

Our gross profit decreased by approximately $6.9 million or 64.8% from approximately $10.7 million for the year ended December 31, 2021 to approximately $3.8 million for the year ended December 31,2022. Gross margin as a percent of overall revenue for the years ended December 31, 2022 and 2021 was 35.9% and 33.4%, respectively.

Gross profit for application development services decreased by approximately $6.1 million or 81.4% from $7.5 million for the year ended December 31, 2021 to approximately $1.4 million for the year ended December 31, 2022 mainly due to less new projects for the year ended December 31, 2022. Gross profit margin was steady. Gross profit margin for the years ended December 31, 2022 and 2021 was 36.5% and 37.1%, respectively.

Gross profit for consulting and technical support services decreased by approximately $0.8 million or 34.0% from approximately $2.4 million for the year ended December 31, 2021 to approximately $1.6 million for the year ended December 31, 2022. Gross profit margin for the years ended December 31, 2022 and 2021 was 61.2% and 51.7%, respectively. The increase in gross profit margin was mainly due to our reducing staff and incorporating workforce optimization practices during the COVID-19 pandemic outbreak and spreading.

Gross profit for subscription services decreased by $0.1 million or 16.2% from $0.8 million for the year ended December 31, 2021 to $0.7 million for the year ended December 31, 2022. Gross profit margin was 86.2% and 83.3% for the years ended December 31, 2022 and 2021 respectively. The increase in gross profit margin was mainly due to our reducing staff and incorporating workforce optimization practices during the COVID-19 pandemic outbreak and spreading.

Gross profit for trading revenue was $154,855 and $39,540 for the years ended December 31, 2022 and 2021, respectively; gross profit margin was 4.6% and 0.6% for the years ended December 31, 2022 and 2021, respectively.

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Operating Expenses

|  | For the Years Ended |  |  |  |  |  |  |
|  | December 31, |  |  |  |  |  |  |
|  | 2022 |  |  | 2021 |  |  | Change |  |  | % Change |
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing |  | $ | 1,956,811 |  |  | $ | 2,775,526 |  |  | $ | (818,715 | ) |  |  | (29.5 | )%
General and administrative |  |  | 7,732,287 |  |  |  | 6,004,186 |  |  |  | 1,728,101 |  |  |  | 28.8 | %
Provision for doubtful accounts |  |  | 4,733,183 |  |  |  | 1,100,606 |  |  |  | 3,632,577 |  |  |  | 330.1 | %
Research and development |  |  | 3,459,987 |  |  |  | 2,611,742 |  |  |  | 848,245 |  |  |  | 32.5 | %
Share based compensation |  |  | 5,983,907 |  |  |  | 6,335,246 |  |  |  | (351,339 | ) |  |  | (5.5 | )%
Total operating expenses |  | $ | 23,866,175 |  |  | $ | 18,827,306 |  |  | $ | 5,038,869 |  |  |  | 26.8 | %

Our operating expenses consist of selling and marketing, general and administrative, research and development (“R&D”) expenses, provision for doubtful accounts and stock-based compensation. Operating expenses increased by approximately $5.0 million, or 26.8%, from approximately $18.8 million for the year ended December 31, 2021 to approximately $23.9 million for the year ended December 31, 2022. The increase in our operating expenses was primarily due to approximately $3.6 million increase in provision for doubtful accounts and approximately $1.7 million increase in share-based compensation.

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 $0.8 million or 29.5% from $2.8 million for the year ended December 31, 2021 to approximately $2.0 million for the year ended December 31, 2022. The decrease was primarily attributable to less marketing consulting fees and marketing and promotional activities for the year ended December 31, 2022.

General and administrative expenses primarily consisted of salary and compensation expenses relating to our accounting, human resources and executive office personnel, and included rental expenses, depreciation and amortization expenses, office overhead, professional service fees and travel and transportation costs. General and administrative expenses increased by $1.7 million or 28.8% from approximately $6.0 million for the year ended December 31, 2021 to approximately $7.7 million for the year ended December 31, 2022, due to higher management bonus. As a percentage of revenues, general and administrative expenses were 73.8% and 18.7% of our total revenue for the years ended December 31, 2022 and 2021, respectively.

Provision for doubtful accounts increased by approximately $3.6 million from approximately $1.1 million for the year ended December 31, 2021 to approximately $4.7 million for the year ended December 31, 2022 due to slow collection impacted by COVID-19.

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 increased by approximately $0.8 million from approximately $2.6 million for the year ended December 31, 2021 to approximately $3.5 million for the year ended December 31, 2022, representing 33.0% and 8.1% of our total revenues for the years ended December 31, 2022 and 2021, 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 $0.4 million from approximately $6.3 million for the year ended December 31, 2021 to approximately $6.0 million for the year ended December 31, 2022.

Other Income (Expense)

Other income (expense) primarily consists of government subsidy income, interest income net of interest expense and other expenses. Our net other expense was approximately $2.4 million for the year ended December 31, 2022, compared with approximately $1.5 million for the year ended December 31, 2021. The increase in net other expense is substantially attributable to a decrease of approximately $0.9 million loss from change in the fair value of the convertible loan. The Company elected the fair value option to account for its convertible loans. The Group engaged an independent valuation firm to assess the fair value of the convertible loan 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 the Company’s 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.

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The following is a reconciliation of the beginning and ending balances for convertible loans measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2022 and 2021:

|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
Opening balance |  | $ | 2,251,832 |  |  | $ | - |
Issuance of convertible loans |  |  | 7,979,983 |  |  |  | 6,860,000 |
Loss on change in fair value of convertible loan |  |  | 2,448,936 |  |  |  | 1,508,229 |
Accrued interest |  |  | 195,139 |  |  |  | 226,775 |
Conversion of convertible loan |  |  | (3,795,924 | ) |  |  | (6,343,172 | )
Total |  | $ | 9,079,966 |  |  | $ | 2,251,832 |

Income Tax Benefit

Income tax benefit was approximately $1.0 million for the year ended December 31, 2022, compared to approximately $0.2 million for the year ended December 31, 2021. 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 income tax rate of 25%. As of December 31, 2022 and 2021, the Company had accrued (before adjustment) total income tax liabilities of $550,602 and $594,026, respectively. According to PRC taxation regulation and administrative practice and procedures, the statute of limitation on tax authority’s audit or examination of previously filed tax returns expires three years from the date they were filed. The Company also obtained a written statement from the local tax authority that no additional taxes are due as of December 31, 2022. Based on these facts, the Company reversed the accrued tax liabilities in the total amount of $550,602 (or RMB3,798,484) relating to the tax liabilities accrued for the period from fiscal 2016 to fiscal 2018, resulting in the decrease of accrued income tax liabilities from $550,602 to $nil as of December 31, 2022.

Net Loss

As a result of the foregoing, our net loss increased by $12.1 million, or 127.2%, from $9.5 million for the year ended December 31, 2021 to $21.5 million for the year ended December 31, 2022. The increased net loss was the result of decreased gross profit and increased operation expenses as discussed above.

Other comprehensive (loss) income

Foreign currency translation loss was approximately $6.0 million, compared to an income of approximately $1.9 million for the years ended December 31, 2022 and 2021, respectively. The balance sheet amounts with the exception of equity as of December 31, 2022 were translated at RMB6.8972 to USD1.00 as compared to RMB6.3726 to USD1.00 as of December 31, 2021. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the years ended December 31, 2022 and 2021 were RMB6.7290 to USD1.00 and RMB6.4508 to USD1.00, respectively. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S, dollar terms without giving effect to any underlying change in our business or results of operation.

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Non-GAAP Financial Measures

The Company uses non-GAAP measures, such as adjusted net loss in evaluating its operating results and for financial and operational decision-making purposes. The Company believes 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. The Company believes that the non-GAAP financial measures provide useful information about the Company’s results of operations, enhance the overall understanding of the Company’s past performance and future prospects and allow for greater visibility with respect to key metrics used by the Company’s 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 the Company’s 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.

The Company mitigates 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 the Company’s performance.

The following table sets forth unaudited reconciliation of GAAP and non-GAAP results for the periods indicated.

|  | For the Years Ended |
|  | December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Net loss: |  | $ | (122,227,195 | ) |  | $ | (21,548,700 | ) |  | $ | (9,482,448 | )
Add: |  |  |  |  |  |  |  |  |  |  |  |
Share-based compensation expenses |  |  | 6,058,117 |  |  |  | 5,983,907 |  |  |  | 6,335,246 |
Change in fair value of convertible debt |  |  | 21,166 |  |  |  | 2,448,936 |  |  |  | 1,508,229 |
Fair value loss on financial instrument |  |  | 71,006,115 |  |  |  | - |  |  |  | - |
Adjusted net loss |  | $ | (45,141,797 | ) |  | $ | (13,115,857 | ) |  | $ | (1,638,973 | )

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.

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, 2023, cash of approximately $2.3 million were fully held by the Company and its subsidiary 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, the Company’s 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 meet the requirements for statutory reserve funds. In addition, we would need to accrue and pay withholding taxes if we were to distribute funds from 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.

70

For the year ended December 31, 2023, the Company had negative working capital of $760,201 and incurred a net loss of approximately $122.2 million. For fiscal 2023, the Company had negative operation cash flow of approximately $11.2 million. The Company 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.

In assessing its liquidity, the Company monitors and analyzes its cash on hand, its ability to generate sufficient revenue sources in the future and its operating and capital expenditure commitments. As of December 31, 2023, the Company had cash of approximately $3.0 million.

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 $15 million of the Company’s ordinary shares at the market price by 96%, and the company shall issue to Yorkville 933 ordinary shares as a commitment fee. The Company issued 933 ordinary shares for commitment fee on December 15, 2022. In 2023, the Company issued 49,319 ordinary shares, the remaining gross balance of $500,000 was collected by March 22, 2024, subsequently.

The Company 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 Company may need additional cash resources in the future if the Company experiences changed business conditions or other developments, and may also need additional cash resources in the future if the Company wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Company’s amounts of cash on hand, the Company may seek to issue debt or equity securities or obtain a credit facility.

The following summarizes the key components of our cash flows for the years ended December 31, 2023, 2023,2022 and 2021.

|  | For the Years Ended |
|  | December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Net cash used in operating activities |  | $ | (11,152,805 | ) |  | $ | (9,656,725 | ) |  | $ | (9,761,386 | )
Net cash used in investing activities |  |  | (2,430,858 | ) |  |  | (815,220 | ) |  |  | (4,066,435 | )
Net cash provided by financing activities |  |  | 9,289,034 |  |  |  | 12,984,391 |  |  |  | 12,289,296 |
Effect of exchange rate change on cash and restricted cash |  |  | (370,193 | ) |  |  | (188,372 | ) |  |  | 205,069 |
Net (decrease) increase in cash, cash equivalent and restricted cash |  | $ | (4,664,822 | ) |  | $ | 2,324,074 |  |  | $ | (1,333,456 | )

Operating Activities

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.

Net cash used in operating activities was approximately $9.7 million for the year ended December 31, 2022. Cash used in operating activities for the year ended December 31, 2022 mainly consisted of approximately $21.5 million of net loss, adjustment of $15.2 million non-cash items, a decrease of approximately $6.8 million in account payable (including related parties) due to less purchase, offset by an increase of approximately $3.0 million in account receivable due to slowly collection.

Net cash used in operating activities was approximately $9.8 million for the year ended December 31, 2021. Cash used in operating activities for the year ended December 31, 2021 mainly consisted of approximately $9.5 million of net loss, adjustment of $11.0 million non-cash items, an increase of approximately $10.5 million in account receivable due to slowly collection, a decrease of approximately$3.7 million in accounts payable due to more purchase in 2021, offset by a decrease of approximately $4.1 million in contract costs incurred for fulfillment of contracts.

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Investing Activities

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 repayment of $1.4 million from related parties.

Net cash used in investing activities was approximately $0.8 million for the year ended December 31, 2022. Cash used in investing activities for the year ended December 31, 2022 was mainly due to $3.9 million spending on purchases of intangible assets and property and equipment, payment to related parties of approximately $0.6 million, and paid to long term investments of approximately$0.4 million, offset by approximately $4.0 million collected from working capital support provided to Kezhi Technology Co., Ltd.(“Kezhi”).

Net cash used in investing activities was approximately $4.1 million for fiscal 2021. Cash used in investing activities for fiscal 2021 was mainly due to $4.9 million spending on purchases of intangible assets and property and equipment and payment to related parties of approximately $0.8 million, offset by approximately $1.7 million collected from working capital support provided to Kezhi Technology Co., Ltd. (“Kezhi”).

Financing Activities

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.

Net cash provided by financing activities was approximately $13.0 million for the year ended December 31, 2022. Net cash provided by financing activities for the year ended December 31, 2022 was mainly net proceeds of approximately $8.0 million from issuance of convertible note and approximately $7.0 million from the market offering, offset by net repayment of $1.5 million on bank loan.

Net cash provided by financing activities was approximately $12.3 million for fiscal 2021. Net cash provided by financing activities for the year ended December 31, 2021 was mainly net proceeds of approximately $6.9 million from issuance of convertible note and approximately $5.1 million from the market offering, offset by net repayment of $0.3 million on bank loan.

Capital Expenditures

The Company made capital expenditures of $1.9 million, $3.9 million and $4.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. In these periods, our capital expenditures were mainly used for purchases of office equipment, furniture and payments for capitalized development cost. The Company 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.”

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, 2023 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.

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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 the Company’s consolidated financial statements include but not limited to the useful lives of property and equipment and capitalized development cost, impairment of long-lived assets, valuation of accounts receivables, loans to third parties, 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 the Company’s 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.

The Company elected the fair value option to account for its convertible loan. The Company 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 the Company’s 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.

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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. The Company 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 are 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. The Company 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 Company 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.

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 Company 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 Company 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, 2023, due to slow development of Smartconn, the Company 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, the Company impaired the intangible assets acquired from the acquisition of Smartconn of $2,272,829 for the year ended December 31, 2023. For the years ended December 31, 2022 and 2021 the Company recognized $nil impairment for the long-lived assets.

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 Company 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. For the year ended December 31, 2023, the Company 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 Company impaired the goodwill acquired from the acquisition of Boxinrui and Smartconn of $8,580,543 and $21,105,559 for the year ended December 31, 2023.

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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 Company adopted ASU 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. According to the guidance, the Company started to record equity investments at fair value, with gains and losses recorded through net earnings. And the Company 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 Company 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 Company 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 Company 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 Company 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.

Revenue recognition

The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2019 using the modified retrospective approach. Revenues for the years ended December 31, 2022, 2021 and 2020 were presented under ASC 606. There is no adjustment to the opening balance of retained earnings at January 1, 2019 since there was no change to the timing and pattern of revenue recognition upon adoption of ASC 606. Under ASC 606, revenue is recognized when control of promised goods or services is transferred to the Company’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

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The Company derives its 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 the Company’s contracts with customer do not contain cancelable and refund-type provisions.

(1) Revenue from application development service

The Company’s application development service contracts are primarily on a fixed-price basis, which require the Company 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 Company 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 Company’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 (30% - 50%) of contract amount usually is billed upon the completion of the related projects. Pursuant to the contract terms, the Company has enforceable right on payments for the work performed.

The Company 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 Company believes the warranty provision in the contracts generally represents service-type warranty, which is a distinct performance obligation and the Company 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 company 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.

The Company assesses 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. The Company 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 Company’s performance creates or enhances the project controlled by the customer and the control is transferred continuously to our customers. The Company uses an input method based on cost incurred as the Company believes that this method most accurately reflects the Company’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 Company 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 Company’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 Company 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 Company 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 Company 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 Company 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.

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In certain application development service arrangements, the Company sells and delivers IT equipment on standalone basis prior to the delivery of the services. In these cases, the Company controls the IT equipment before they are transferred to the customer. The Company has the right to direct the suppliers and control the goods or assets transferred to its customers. Thus, the Company 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 Company 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.

(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 Company 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 Company’s software-as-a-service applications for a subscribed period. The Company’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 Company 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.

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(5) Others revenue

In April 2023, the Company started 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 Company’s services under regional cooperation agreements include marketing support to advertise as well as utilization of the Company’s trademark and copyrights for business promotion purpose. The term of cooperation agreements is typically one to two years. The Company charges a fixed amount authorization fee which is non-refundable and to be paid upon execution of an authorization agreement. For all the Company’s cooperation agreements, the amount of fee is fixed or determinable and no right of return provision indicated in the agreement. Since the Company provides no financing to authorized distributors and offers no guarantees on their behalf, the services provided by the Company 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. Other revenues accounted for 1.1% of the Company’s revenue for the year ended December 31, 2023.

Revenue includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenue. The Company reports revenues net of value added tax (“VAT”). The Company’s 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

The Company 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 Company 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 Company’s right to consideration in exchange for the service that the Company has performed to the customer before payment is due and the unbilled account receivable will be reclassified into billed accounts receivable when the Company 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, 2023 and 2022 the balance of deferred revenue amounted to $2,175,896and $1,376,998, respectively.

Income taxes

The Company 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 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, 2023 and 2022. All of the tax returns of the Company’s subsidiary in China remain subject to examination by the tax authorities for five years from the date of filing.

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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 |  | 60 |  | CEO, President, and Chairman of the Board
Yuxia Xu |  | 50 |  | Chief Financial Officer and Chief Operating Officer
Charles Tingru Ou |  | 48 |  | Chief Product Officer
Wei Jiang(1)(4) |  | 51 |  | Independent Director
Ruizhong Jiang(2) |  | 60 |  | Independent Director
Phillip Tao Qiu(3) |  | 41 |  | 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 co-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 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 cofounder.

Yuxia Xu is appointed as Chief Financial Officer and Chief Operating Officer of the Company, with effect from May 1, 2022, and appointed as an executive director of the Company on October 28, 2022. 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.

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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 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.

Phillip Tao Qiu is an independent director of the Company and serves the Chairman of the Compensation Committee and a member of the Nominating Committee and the Audit Committee of the Board of the Company. As a seasoned professional, Mr. Qiu has an extensive background in finance, mergers and acquisitions, and corporate branding. He has been pivotal in advising several global enterprises during their successful initial public offerings and has provided strategic insights to prominent investment funds. Mr. Qiu obtained his bachelor’s degree from Design Factory International’s College of Communication Art and New Media and his master’s degree from Brand University of Applied Sciences in Germany. He is currently pursuing a PhD degree in Economics at Imperial College London in the United Kingdom.

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 PhD 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.

Limitation on Liability and Other Indemnification Matters

The Companies Act does not limit the extent to which the Sixth 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 Sixth 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.

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B. Compensation of Directors and Executive Officers

Executive Compensation

Summary Compensation Table

For the fiscal year ended December 31, 2023, we paid an aggregate of approximately US$1,115,972 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, in fiscal 2023, 2022 and 2021 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) |  |  | 2021 |  |  |  | 200,111 |  |  |  | 100,822 |  |  |  | - |  |  |  | 300,933 |
|  |  | 2022 |  |  |  | 116,400 |  |  |  | - |  |  |  | 1,000,000 |  |  |  | 1,116,400 |
|  |  | 2023 |  |  |  | 192,674 |  |  |  | - |  |  |  | 436,093 |  |  |  | 628,767 |
Yuxia Xu/CFO and Chief Operating Officer (2) |  |  | 2021 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  |  | 2022 |  |  |  | - |  |  |  | - |  |  |  | 600,000 |  |  |  | 600,000 |
|  |  | 2023 |  |  |  | 84,735 |  |  |  | - |  |  |  | 14,130 |  |  |  | 98,865 |
Wei Jiang /Independent Director |  |  | 2021 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  |  | 2022 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  |  | 2023 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Tao Qiu /Independent Director |  |  | 2021 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  |  | 2022 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  |  | 2023 |  |  |  | - |  |  |  | - |  |  |  | 320,000 |  |  |  | 320,000 |
Tingru Ou/ Chief Product Officer |  |  | 2021 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  |  | 2022 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  |  | 2023 |  |  |  | 27,440 |  |  |  | - |  |  |  | 40,900 |  |  |  | 68,340 |

(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 CFO and Chief Operating Officer, with effect from May 1, 2022.
(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.

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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 applicable law, 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 or her duties as a director. Employee directors are entitled to receive $4,500 payable quarterly 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.

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On April 4, 2019, the Board approved several restricted stock options grants to the members of executive management and the Board of the Company pursuant to the terms of the Plan. Specifically, the Company granted an aggregate of 4,377 stock options to key employees and directors under the Plan. Stock options granted to key employees and directors generally have a term of three years, but are subject to earlier termination in connection with termination of continuous service to the Company.

On February 23, 2020, the Board approved to register all the shares issuable under the Company’s 2018 Amended Option Plan in a registration statement on a Form S-8 (File No. 333-253408), representing 38,148 Class A ordinary shares issuable under our Amended 2018 Stock Option Plan (the “First Amendment”). The Company has issued certain options to the employees, advisors, and consultants (collectively the “Participants”) of the Company under the Amended Plan to purchase in an aggregate amount of 38,148 Class A ordinary shares the grants have been made under the plan as of the date hereof. The following is a summary of the Plan and is qualified by the full text of the Plan.

On June 16. 2022, the Board approved to the proposal to modify the Company’s Amended 2018 Stock Option Plan (the “Second Amendment”, and collectively with the 2018 Plan and the First Amendment, the “Amended 2018 Plan”) by supplementing various clauses in relation to the grant of Restricted Shares and Restricted Shares Units to the employees, directors and consultants.

On July 8, 2022, the Board approved to register all the shares issuable under the Company’s Amended 2018 Stock Option Plan in a registration statement on a Form S-8 (File No. 333-266092), representing 83,211 Class A ordinary shares issuable under our Amended 2018 Plan. The Company has granted certain Restricted Shares and Restricted Shares Units to the Participants of the Company under the Amended Plan to purchase in an aggregate amount of 50,000 Class A ordinary shares and the grants have been made under such plan as of the date hereof.

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 259,473 Class A ordinary shares of the Company reserved for issuance under the Amended 2018 Plan, which are in addition to the 83,211 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 342,684 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”).

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.

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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.

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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 31,687 Class A ordinary shares to be 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 Sixth 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 Sixth 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 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).

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Under our Sixth 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 Sixth 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.

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 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;

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| ● | 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 meets the definition of “independent director” for purposes of serving on an Audit Committee under Rule 10A-3 of the Exchange Act and NASDAQ rules. 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.

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 chair of Compensation Committee. Our Board has affirmatively determined that each of the members of the Compensation Committee meets the definition of “independent director” for purposes of serving on Compensation Committee under NASDAQ rules.

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 chair of the Nominating Committee. Our Board has affirmatively determined that each of the members of the Nominating Committee meets the definition of “independent director” for purposes of serving on a Nominating Committee under NASDAQ rules.

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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 Sixth 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.

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 or she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or 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 in the amount of USD$1,500 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 or 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 178 full-time employees, of which 76 are in research and development, 17 are in sales and marketing, 38 are in technical and customer services, and 47 are in general administration.

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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 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.

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 259,464,169 Class A ordinary shares and 243,902 Class B ordinary shares outstanding as of December 31, 2023. 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.

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|  | 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) |  |  | 1,549 |  |  |  | * |  |  |  | 243,902 |  |  |  | 100 | % |  |  | 2.74 | %
Ruizhong Jiang (2) |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |
Wei Jiang (3) |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |
Yuxia Xu (4) |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |
Charles Tingru Ou |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |
Phillip Tao Qiu |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |  |  |  | * |
All directors and executive officers as a group |  |  | 1,618 |  |  |  | * |  |  |  | 243,902 |  |  |  | 100 | % |  |  | 2.74 | %
HOGSTREAM INTERNATIONAL LTD.(1) |  |  | 1,549 |  |  |  | * |  |  |  | 243,902 |  |  |  | 100 | % |  |  | 2.74 | %
5% or greater beneficial owners as a group |  |  | 1,549 |  |  |  | * |  |  |  | 243,902 |  |  |  | 100 | % |  |  | 2.74 | %

* | Less than 1%.

(1) | Includes (i) 40,197 Class B Ordinary Shares held by Hogstream International Ltd., a British Virgin Islands company wholly-owned by Stewart Lor (“Hogstream”). Mr. Lor maintains sole voting control over the shares held by Hogstream, the principal office address of which is at Sertus Incorporation (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastsky Building, Road Town, Tortola, British Virgin Islands. (ii) Argo Advisory entered into a share purchase agreement dated April 14, 2022 with Hogstream pursuant to which Argo Advisory agreed to transfer 41,667 Class B Ordinary Shares to Hogstream at a unit price calculated pursuant to the previous day’s closing price per share after a discount of 20%, for a total consideration of USD$2,536,000. Argo Advisory subsequently transferred the above-mentioned 41,667 Class B Ordinary Shares to Hogstream on April 20, 2022. (iii) On December 8, 2022, two shareholders entered into separate security purchase agreements with Hogstream, pursuant to which each of the two shareholders agreed to sell 38,546 Class B Ordinary Shares to Hogstream at a price of $20.88 per share for an aggregate total consideration of $1,614,876. Upon the closing of the transactions on December 16, 2022, the two shareholders transferred an aggregate 77,092 Class B Ordinary Shares to Hogstream. (iv) An aggregate of 86,495 Class A Ordinary Shares held by Hogstream, of which (iv.i) 2,108 Class B Ordinary Shares were acquired in the open market in December 2022; and (iv.ii) 58,194 Class B Ordinary Shares were acquired pursuant to the security purchase agreement dated March 10, 2023, entered between Hogstream and an existing shareholder of the Issuer; (iv.iii) 64,013 Class B Ordinary Shares were acquired pursuant to the security purchase agreement dated March 10, 2023, entered between Hogstream and an existing shareholder of the Issuer. Reference is made to the Company’s report on Amendment No.4 to the Schedule 13D jointly filed by Stewart Lor and Hogstream with the Securities and Exchange Commission on March 22, 2023 for more details on the transaction; and .(iv.iv) 37,820 Class B shares were sold in the open market from June 8, 2023 to September 7, 2023. The ordinary shares beneficially owned by Mr. Lor were re-designated as Class B ordinary shares according to the resolutions passed at the annual general meeting of the Company held on September 5, 2023.

(2) | Includes (i) 24,229 Class A ordinary shares was acquired by Mr. Su pursuant to the security purchase agreement dated December 16, 2022, entered between Mr.Su, other Boxinrui’s shareholders and Powerbridge Cayman; (ii) 104,501 Class A ordinary shares was acquired by Mr. Su pursuant to the security purchase agreement dated March 28, 2023, entered between Mr.Su, other Boxinrui’s shareholders and Powerbridge Cayman.

(3) | Includes 3,450 Ordinary Shares underlying share options held by Wei Jiang that is exercisable within 60 days after the date of this Annual Report.

(4) | Includes 3,104 Ordinary Shares underlying share options held by Yuxia Xu that is exercisable within 60 days after the date of this Annual Report.

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As of the date of this Annual Report, there were 76 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.

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 at 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.

Due from related party.

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Shanghai Stamp Technology Co., Ltd. (1) |  | $ | - |  |  | $ | 172,811 |
Ban Lor (2) |  |  | 17,155 |  |  |  | 37,638 |
Stewart Lor (2) |  |  | 452,598 |  |  |  | 1,566,478 |
Yuxia Xu (2) |  |  | 207,236 |  |  |  | 363,666 |
Phillip Tao Qiu (2) |  |  | 600,000 |  |  |  | - |
Xiaoyan Liu (2) |  |  | 87,990 |  |  |  | - |
Subtotal |  | $ | 1,364,979 |  |  | $ | 2,140,593 |

(1) | In connection with the acquisition of Smartconn, the balance was effectively settled.
(2) | From time to time, the Company advances funds to senior management for business purpose.

Due to related party.

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Hong Yu (1) |  | $ | - |  |  | $ | 118,114 |
Shanghai Yue See cultural development Co., LTD (1) |  |  | 39,985 |  |  |  | - |
Zhongchuan Dadi (Beijing) Technology Co., LTD (1) |  |  | 223 |  |  |  | - |
Subtotal |  | $ | 40,208 |  |  | $ | 118,114 |

(1) | The above balances represent unpaid loan and expenses to these related parties.

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Related party transactions

|  |  |  | For the years ended |
|  |  |  | 2023 |  |  | 2022 |  |  | 2021 |
Guangzhou Guangrui(1) |  | Service fees |  | $ | - |  |  | $ | - |  |  | $ | 725,362 |
Guangzhou Jiatu Culture Media Co., Ltd. (2) |  | Service fees |  | $ | - |  |  | $ | 62,667 |  |  | $ | - |
Stewart Lor |  | Interest income |  | $ | 50,663 |  |  | $ | 117,569 |  |  | $ | - |
Yuxia Xu |  | Interest income |  | $ | 16,778 |  |  | $ | 22,802 |  |  | $ | - |
Shanghai Stamp Technology Co., Ltd. |  | Interest income |  | $ | - |  |  | $ | 1,771 |  |  | $ | - |
Shanghai Yue See cultural development Co., LTD |  | Service revenue |  | $ | 4,195 |  |  | $ | - |  |  | $ | - |

(1) | As the disposal of Shantou Hongrui in February 2022, Guangzhou Guangrui was no longer considered as a related party.

Short term bank loan

Loan from Bank of Communication

On January 27, 2022, Powerbridge Zhuhai entered into a loan agreement with Bank of Communication to obtain a loan of $1,449,864 (RMB10.0 million) for a term of one year and at a fixed annual interest rate of 4.70%. The bank loan was guaranteed by the representative of Zhuhai Powerbridge and pledged approximately $2.4 million fixed assets as the collateral to secure the loan. The loan was fully repaid upon maturity.

On December 14, 2022, Powerbridge Zhuhai entered into facility agreement with Bank of Communication, pursuant to which a total facility of up to $724,932 (RMB5.0 million) was made available to the Company. The loan facility is available for the Company to withdraw from December 12, 2022 to December 12, 2025. The bank loan was guaranteed by the Company’s CEO and CEO’s spouse.

On December 16, 2022, drew down $724,932 (RMB5.0 million) for a term of one year and at a fixed annual interest rate of 4.10%. On December 5, 2023, the loan was fully repaid subsequently.

On December 14, 2023, Powerbridge Zhuhai drew down $454,751 (RMB3,228,684) for a term of one year and at a fixed annual interest rate of 3.90%.

On December 25, 2023, Powerbridge Zhuhai drew down $249,485 (RMB1,771,316) for a term of one year and at a fixed annual interest rate of 3.90%.

On January 18, 2023, Powerbridge Zhuhai entered into facility agreement with Bank of Communication, pursuant to which a total facility of up to $1,408,471 (RMB10.0 million) was made available to the Company. The loan facility is available for the Company to withdraw from January18, 2023 to December 12, 2025. The bank loan was guaranteed by the representative of Zhuhai Powerbridge and pledged approximately $2.3 million fixed assets as the collateral to secure the loan.

On January 19, 2023, Powerbridge Zhuhai drew down $1,408,471 (RMB10.0 million) for a term of one year and at a fixed annual interest rate of 4.20%. On January 17, 2024, the loan was fully repaid subsequently.

On January 17, 2024, Powerbridge Zhuhai drew down $1,408,471 (RMB10.0 million) for a term of one year and at a fixed annual interest rate of 3.9%.

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On January 11, 2023, Powerbridge Zhuhai entered into facility agreement with Bank of Communication, pursuant to which a total facility of up to $704,235 (RMB5.0 million) was made available to the Company. The loan facility is available for the Company to withdraw from January 11, 2023 to December 12,2025. The bank loan was guaranteed by the Company’s CEO and a third party.

On January 16, 2023, Powerbridge Zhuhai drew down $505,323 (RMB3,587,746) for a term of one year and at a fixed annual interest rate of 4.20%. On January 16, 2024, the loan was fully repaid subsequently.

On March 14, 2023, Powerbridge Zhuhai drew down $198,912 (RMB1,412,254) for a term of one year and at a fixed annual interest rate of 4.20%.

On January 31, 2024, Powerbridge Zhuhai drew down $492,965 (RMB3,500,000) for a term of one year and at a fixed annual interest rate of 3.9%, subsequently

Loan from Bank of China

On July 15, 2022, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $724,932 for a term of one year and at a fixed annual interest rate of 4.50%. The bank loan was guaranteed by the representative of Zhuhai Powerbridge and pledged approximately $1.8 million fixed assets as the collateral to secure the loan. On December 30, 2022, the Company fully repaid the loan in advance.

On June 10, 2022, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $724,932 for a term of one year and at a fixed annual interest rate of 4.50%. The bank loan was guaranteed by the representative of Zhuhai Powerbridge and pledged approximately $1.8 million fixed assets as the collateral to secure the loan. On December 30, 2022, the Company partially repaid $289,973 in advance. the remaining balance was fully repaid on April 3, 2023.

Loan from SPD Bank

On June 20, 2023, Powerbridge Zhuhai entered into a facility agreement with Shanghai Pudong Development Bank obtain a total facility of up to $1,126,776 (RMB8.0 million) The loan facility is available for the Company to withdraw from June 20, 2023 to May, 24, 2024. The bank loan was guaranteed by the Company’s CEO and pledged approximately $1.7 million fixed assets as the collateral to secure the loan. On June 28, 2023, Powerbridge Zhuhai drew down $1,126,776 (RMB8.0 million) for a term of one year and at a fixed annual interest rate of 4.1%.

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—2018 Stock Option Plan.”

C. Interests of Experts and Counsel

Not applicable.

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Item 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

See Item 18 for our audited consolidated financial statements.

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. 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.

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.

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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 Sixth Amended and Restated Memorandum and Articles of Association (the “Memorandum” and the “Articles”) were filed as Exhibit 10.1 of Form 6-K filed on October 27, 2023 and are hereby incorporated by reference into this Annual Report. The following description of our memorandum and articles of association, 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$2,000,000,000 divided into 5,000,000,000 shares of a par value of US$0.40 each, 4,980,000,000 of which are designated Class A ordinary shares and 20,000,000 of which are designated Class B ordinary shares. 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.

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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 Memorandum and Articles of Association. 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 Sixth 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 Sixth 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 Sixth 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”.

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Issuance of Additional Shares. Our memorandum of association 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 memorandum of association 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 Sixth 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.

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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 Sixth 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.

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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.

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 Sixth 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 Third Amended and Restated Memorandum and Articles of Association. 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 Sixth 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 Sixth 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 Sixth 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.

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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. 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 Sixth 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 Sixth 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.

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 Sixth 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 Sixth 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 Sixth 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.

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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.

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 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.

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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.

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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.

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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.

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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.

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.

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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 the 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.

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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

Not applicable.

G. Statement by Experts

Not applicable.

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.

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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 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 assessed 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, we have not been exposed, nor do we anticipate being exposed, to material risks due to changes in market interest rates.

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 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 appreciated by 2.3% in fiscal year 2021, depreciated by 8.2% in fiscal year 2022 and further depreciated by 2.9% in fiscal year 2023. 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 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.

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 2021, 2022 and 2023 increased 1.5%, 2.0% and 0.2%, 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

With the exception of Items 12.D.3 and 12.D.4, this Item 12 is not applicable for annual reports on Form 20-F. As to Items 12.D.3 and 12.D.4, this Item 12 is not applicable, as the Company does not have any American Depositary Shares.

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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 chief executive officer and our chief financial officer, 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, 2023. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of December 31, 2023 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, 2023, 2022 and 2021, 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.

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(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, 2023 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, 2023. 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 in 2024. 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.

110

(c) Attestation Report on Internal Control over Financial Reporting of the Registered Public Accounting Firm

This Annual Report on Form 20-F does not include an attestation report on Internal Control over Financial Reporting of our independent registered public accounting firm because we qualified as an “emerging growth company” as defined under the JOBS Act as of December 31, 2023.

(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

Our Board has determined that Wei Jiang is an audit committee financial expert as that term is defined in Item 16A(b) of Form 20-F, and “independent” as that term is defined in the NASDAQ listing standards.

Item 16B. CODE OF ETHICS

Our Board has adopted a code of business conduct and ethics that applies to our directors, officers and employees. A copy of this code is available on our website: www.powerbridge.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, 2023 |  |  | December 31, 2022 |
Audit Fees |  |  |  |  |  |  |  |
- Onestop Assurance PAC |  | $ | 201,600 |  |  | $ | 213,100 |
Total Fees |  | $ | 201,600 |  |  | $ | 213,100 |

“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.

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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

Not applicable.

112

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 (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents;

| ● | 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

| ● | a third-party risk management process for service providers, suppliers, and vendors who access our system and information.

We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations, or financial condition. We face risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition. See “Item 3. Key Information—D. Risk Factors — Risks Relating to Our Business — Cybersecurity incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging our reputation or exposing us to liability.”

Cybersecurity Governance

Our board of directors 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 of directors receives quarterly reports from management on our cybersecurity risks. In addition, management updates our board of directors, as necessary, regarding any significant cybersecurity incidents. Our board of directors also receives briefings from management on our cyber risk management program.

Our management has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. Our management and the security team, including our chief financial officer and network administrator, is responsible for assessing and managing our material risks from cybersecurity threats. Our team’s experience includes Risk Assessment and Analysis, Security Controls Implementation, Security Awareness and Training, Security Governance and Policies, Security Incident Analysis, Threat Intelligence and Monitoring, Business Continuity and Disaster Recovery.

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, including external consultants engaged by us; and alerts and reports produced by security tools deployed in our IT Systems environment.

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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

Exhibit |  | Exhibit title
1.1 |  | Sixth Amended and Restated Memorandum and Articles of Association(5)
2.1 |  | Specimen Ordinary Share Certificate(16)
2.2 |  | Form of Underwriter Warrant(4)
4.1 |  | 2018 Stock Option Plan(14)
4.2 |  | 2018 Amended Stock Option Plan(15)
4.3 |  | Form of Employment Agreement(2)
4.4 |  | Unofficial English Translation of Technical Development (Commission) Contract between Zhuhai Powerbridge Technology Co., Ltd and Wuhan New Port Management Committee dated as of July 21, 2017(2)
4.5 |  | Unofficial English Translation of Contract for the Public Tender Procurement Project for the Information Platform of Comprehensive Bonded Logistics Industry Construction Management Office of Wuhan Airport Economic Development Zone between Zhuhai Powerbridge Technology Co., Ltd and Comprehensive Bonded Logistics Industry Construction Management Office of Wuhan Airport Economic Development Zone dated as of December 13, 2016(2)
4.6 |  | Unofficial English Translation of Government Procurement Contract between Zhuhai Powerbridge Technology Co., Ltd and Chenzhou High-tech Investment Holding Co., Ltd dated as of September 22, 2017(2)
4.7 |  | Unofficial English Translation of Wuhan New Port Airport Comprehensive Bonded Zone (Yangluogang Park) Information Software and Integration Contract between Zhuhai Powerbridge Technology Co., Ltd and Wuhan New Port Yangluo Bonded Park Development Management Co., Ltd dated as of November 23, 2016(2)

114

4.8 |  | Unofficial English Translation of Technical Development (Commission) Contract between Zhuhai Powerbridge Technology Co., Ltd and Guangxi Nanning Dangdai Fengyun Investment Management Co., Ltd dated as of July 27, 2016(2)
4.9 |  | Unofficial English Translation of Government Procurement Contract among Department of Commerce of Guangxi Zhuang Autonomous Region, Zhuhai Powerbridge Technology Co., Ltd, and Beijing Xinchengtong Digital Technology Co., Ltd dated as of November 15, 2016(2)
4.10 |  | Unofficial English Translation of Government Procurement Contract between Department of Commerce of Guangxi Zhuang Autonomous Region and Zhuhai Powerbridge Technology Co., Ltd dated as of November 28, 2016(2)
4.11 |  | Unofficial English Translation of Government Procurement Contract of Guangxi Zhuang Autonomous Region between Department of Commerce of Guangxi Zhuang Autonomous Region and Zhuhai Powerbridge Technology Co., Ltd dated as of September 25, 2015(2)
4.12 |  | Unofficial English Translation of Purchasing Contract between Zhuhai Powerbridge Technology Co., Ltd and Cyberspace Great Wall Internet System Application (Wuhan) Co., Ltd dated as of August 16, 2017(2)
4.13 |  | Unofficial English Translation of Purchasing Contract between Zhuhai Powerbridge Technology Co., Ltd and Cyberspace Great Wall Internet System Application Co., Ltd dated as of December 18, 2016(2)
4.14 |  | Unofficial English Translation of Purchasing Contract between Zhuhai Powerbridge Technology Co., Ltd and Guangdong Aotong Technology Co., Ltd dated as of May 7, 2015(2)
4.15 |  | Unofficial English Translation of Purchasing Contract between Zhuhai Powerbridge Technology Co., Ltd and Hunan Jintong Technology Co., Ltd dated as of June 11, 2014(2)
4.16 |  | Independent Director Offer Letter between Powerbridge Technologies Co., Ltd. and Yuping Ouyang dated as of October 23, 2018(2)
4.17 |  | Independent Director Offer Letter between Powerbridge Technologies Co., Ltd. and Guoguan Wang dated as of October 22, 2018(2)
4.18 |  | Independent Director Offer Letter between Powerbridge Technologies Co., Ltd. and Bo Wu dated as of October 22, 2018(2)
4.19 |  | Director Offer Letter between Powerbridge Technologies Co., Ltd. and Stewart Lor dated as of October 23, 2018(2)
4.21 |  | Employment Agreement between Powerbridge Technologies Co., Ltd. and Stewart Lor dated as of August 18, 2018(2)

115

4.22 |  | Unofficial English Translation of Technology Development Agreement between Zhuhai Powerbridge Technologies Co., Ltd. and Project Department of Guiyang Gaimao Railway Port Construction (Phase I project) of No.3 Engineering Company of China Railway No.8 Engineering Group Co., Ltd. dated as of September 1, 2019(6)
4.23 |  | Unofficial English Translation of Sales Agreement between Zhuhai Powerbridge Technologies Co., Ltd. and Wuhan Borui Int Technology Co., LTD. dated as of June 28, 2019(6)
4.24 |  | Form of Securities Purchase Agreement(7)
4.25 |  | Form of Securities Purchase Agreement(8)
4.26 |  | Form of Unsecured Convertible Promissory Note(8)
4.29 |  | Sales Agreement, dated February 23, 2021, by and between Powerbridge Technologies Co., Ltd. and A.G.P./Alliance Global Partners(11)
4.30 |  | Unofficial English Translation of Equity Transfer Agreement, dated January 6, 2022, by and between Powerbridge Technologies Co., Ltd. and the shareholder of SmartConn., Limited
4.31 |  | Unofficial English Translation of Equity Transfer Agreement, dated January 5, 2023, by and between Powerbridge Technologies Co., Ltd. and a shareholder of SmartConn., Limited
4.32 |  | Unofficial English Translation of Equity Transfer Agreement, dated June 24, 2022, by and between Powerbridge Technologies Co., Ltd. and Boxinrui International Holdings Limited
4.33 |  | Securities Purchase Agreement, dated September 1, 2022, by and between Powerbridge Technologies Co., Ltd. and Streeterville Capital, LLC(18)
4.34 |  | Convertible Promissory Note issued by Powerbridge Technologies Co., Ltd to Streeterville Capital, LLC on September 1, 2022(17)
4.35 |  | Ordinary Share Purchase Agreement, dated September 1, 2022, by and between Powerbridge Technologies Co., Ltd. and White Lion Capital LLC(19)
4.36 |  | Standby Equity Purchase Agreement, dated September 9, 2022, by and between Powerbridge Technologies Co., Ltd. and YA II PN, Ltd.(20)
4.37 |  | Securities Purchase Agreement by and between Powerbridge Technologies Co., Ltd. and Uptown Capital, LLC dated as of January 8, 2021(12)
4.38 |  | Convertible Promissory Note dated January 8, 2021(12)
4.39 |  | Securities Purchase Agreement dated April 9, 2021 by and between the Company and the Investor(13)
4.40 |  | Form of Convertible Note(13)
4.41 |  | Form of Warrant(13)
8.1* |  | List of Subsidiaries of the Registrant

116

11.1 |  | Code of Conduct and Ethics(2)
12.1* |  | Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
12.2* |  | Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
13.1* |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2* |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1* |  | Consent of Audit Onestop Assurance PAC
97.1* |  | Recovery Policy
101.INS* |  | Inline XBRL Instance Document
101.SCH* |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL* |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(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.

(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.

* | Filed herewith

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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
| Dated: | April 30, 2024

119

X3 HOLDINGS CO., LTD.

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

Consolidated Financial Statements |
Reports of Independent Registered Public Accounting Firms | F-2
Consolidated Balance Sheets at December 31, 2023 and 2022 | F-3
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2023, 2022 and 2021 | F-4
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2023, 2022 and 2021 | F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021 | F-6
Notes to Consolidated Financial Statements | F-7 – F-48

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, 2023 and 2022, 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, 2023, and the related notes to the consolidated financial statements and schedule (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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

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

OneStop Assurance PAC

Singapore

April 30, 2024

PCAOB Id#: 6732

We have served as the Company’s auditor since 2021

F-2

X3 HOLDINGS CO., LTD.

CONSOLIDATED BALANCE SHEETS

|  | December 31, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
ASSETS |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |
Cash and cash equivalent |  | $ | 2,991,563 |  |  | $ | 9,380,322 |
Restricted cash |  |  | 1,723,937 |  |  |  | - |
Accounts receivable, net |  |  | 21,487,053 |  |  |  | 14,814,583 |
Notes receivable |  |  | 28,169 |  |  |  | 13,049 |
Due from related parties, net |  |  | 1,364,979 |  |  |  | 2,140,593 |
Loan receivable, net |  |  | 1,037,304 |  |  |  | 59,612,192 |
Prepayments, deposits and other current assets, net |  |  | 2,434,714 |  |  |  | 1,447,752 |
Total Current Assets |  |  | 31,067,719 |  |  |  | 87,408,491 |
Property and equipment, net |  |  | 5,902,949 |  |  |  | 5,833,918 |
Intangible assets, net |  |  | 35,032,450 |  |  |  | 5,162,724 |
Prepayments, deposits and other assets |  |  | 76,274,752 |  |  |  | 226,544 |
Long term investments |  |  | 11,272,965 |  |  |  | 30,764,195 |
Goodwill |  |  | 15,031,608 |  |  |  | - |
Right-of-use assets-operating lease |  |  | 357,007 |  |  |  | 211,585 |
Deferred tax assets |  |  | 1,019,173 |  |  |  | 980,653 |
Total Assets |  | $ | 175,958,623 |  |  | $ | 130,588,110 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Bank loans |  | $ | 3,943,718 |  |  | $ | 2,609,755 |
Accounts payable |  |  | 18,567,993 |  |  |  | 12,815,532 |
Convertible notes |  |  | 5,020,633 |  |  |  | 9,079,966 |
Deferred revenue |  |  | 2,175,896 |  |  |  | 1,376,998 |
Loan from third parties |  |  | 552,108 |  |  |  | - |
Accrued expenses and other current liabilities |  |  | 1,086,194 |  |  |  | 1,733,181 |
Due to related party |  |  | 40,208 |  |  |  | 118,114 |
Taxes payable |  |  | 180,442 |  |  |  | 110,843 |
Operating lease liabilities -current |  |  | 260,728 |  |  |  | 91,587 |
Total Current Liabilities |  |  | 31,827,920 |  |  |  | 27,935,976 |
Operating lease liabilities -non-current |  |  | 109,956 |  |  |  | 101,992 |
Total Liabilities |  |  | 31,937,876 |  |  |  | 28,037,968 |
COMMITMENTS AND CONTINGENCIES |  |  |  |  |  |  |  |
EQUITY: |  |  |  |  |  |  |  |
Class A Common shares, $0.4 par value, 4,980,000,000 shares authorized; 259,464,169 and 1,187,498 issued and outstanding as of December 31, 2023 and 2022, respectively* |  |  | 103,785,668 |  |  |  | 474,999 |
Class B Common shares, $0.4 par value, 20,000,000 shares authorized; 243,902 and nil issued and outstanding as of December 31, 2023 and 2022, respectively* |  |  | 97,561 |  |  |  | - |
Additional Paid-in Capital |  |  | 243,197,192 |  |  |  | 164,753,623 |
Subscription receivable |  |  | (40,500,000 | ) |  |  | - |
Accumulated deficit |  |  | (168,679,873 | ) |  |  | (59,081,432 | )
Accumulated other comprehensive loss |  |  | (5,062,516 | ) |  |  | (3,333,541 | )
Total X3 Holdings Co., Ltd.’s Shareholders’ Equity |  |  | 132,838,032 |  |  |  | 102,813,649 |
Non-controlling interest |  |  | 11,182,715 |  |  |  | (263,507 | )
Total Equity |  |  | 144,020,747 |  |  |  | 102,550,142 |
Total Liabilities and Equity |  | $ | 175,958,623 |  |  | $ | 130,588,110 |

* | Retroactively restated for one-for-eight reverse split with effective date of September 22, 2023.

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, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
REVENUES: |  |  |  |  |  |  |  |  |
Application development services |  | $ | 9,780,115 |  |  | $ | 3,847,199 |  |  | $ | 20,323,422 |
Consulting and technical support services |  |  | 3,609,158 |  |  |  | 2,538,500 |  |  |  | 4,555,352 |
Subscription services |  |  | 695,010 |  |  |  | 758,526 |  |  |  | 936,913 |
Trading revenue |  |  | 2,549,808 |  |  |  | 3,338,584 |  |  |  | 6,277,141 |
Others revenue |  |  | 190,732 |  |  |  | - |  |  |  | - |
Total revenues |  |  | 16,824,823 |  |  |  | 10,482,809 |  |  |  | 32,092,828 |
COST OF REVENUES |  |  |  |  |  |  |  |  |  |  |  |
Cost of application development services |  |  | 9,236,901 |  |  |  | 2,443,460 |  |  |  | 12,785,491 |
Cost of consulting and technical support services |  |  | 1,404,193 |  |  |  | 983,700 |  |  |  | 2,198,310 |
Cost of subscription services |  |  | 102,573 |  |  |  | 104,499 |  |  |  | 156,113 |
Cost of trading revenue |  |  | 2,504,352 |  |  |  | 3,183,729 |  |  |  | 6,237,601 |
Cost of others revenue |  |  | 156,608 |  |  |  | - |  |  |  | - |
Total cost of revenues |  |  | 13,404,627 |  |  |  | 6,715,388 |  |  |  | 21,377,515 |
GROSS PROFIT |  |  | 3,420,196 |  |  |  | 3,767,421 |  |  |  | 10,715,313 |
OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 1,480,732 |  |  |  | 1,956,811 |  |  |  | 2,775,526 |
General and administrative |  |  | 12,130,707 |  |  |  | 7,732,287 |  |  |  | 6,004,186 |
Provision for doubtful accounts |  |  | 539,284 |  |  |  | 4,733,183 |  |  |  | 1,100,606 |
Research and development |  |  | 4,814,463 |  |  |  | 3,459,987 |  |  |  | 2,611,742 |
Share based compensation |  |  | 6,058,117 |  |  |  | 5,983,907 |  |  |  | 6,335,246 |
Impairment for intangible assets |  |  | 2,272,829 |  |  |  | - |  |  |  | - |
Impairment for goodwill |  |  | 29,686,102 |  |  |  | - |  |  |  | - |
Total operating expenses |  |  | 56,982,234 |  |  |  | 23,866,175 |  |  |  | 18,827,306 |
OPERATING LOSS |  |  | (53,562,038 | ) |  |  | (20,098,754 | ) |  |  | (8,111,993 | )
OTHER INCOME (EXPENSE) |  |  |  |  |  |  |  |  |  |  |  |
(Loss) gain from disposition of subsidiaries |  |  | - |  |  |  | (1,009 | ) |  |  | 714 |
Gain from equity investment |  |  | 70,947 |  |  |  | - |  |  |  | - |
Change in fair value of convertible notes |  |  | (21,166 | ) |  |  | (2,448,936 | ) |  |  | (1,508,229 | )
Gain from fair value change in equity investments |  |  | 2,402,943 |  |  |  | - |  |  |  | - |
Fair value loss on financial instruments |  |  | (71,006,115 | ) |  |  | - |  |  |  | - |
Other (expense) income |  |  | (169,107 | ) |  |  | 608 |  |  |  | (36,881 | )
Total other expense |  |  | (68,722,498 | ) |  |  | (2,449,337 | ) |  |  | (1,544,396 | )
LOSS BEFORE INCOME TAXES |  |  | (122,284,536 | ) |  |  | (22,548,091 | ) |  |  | (9,656,389 | )
INCOME TAX BENEFIT |  |  | (57,341 | ) |  |  | (999,391 | ) |  |  | (173,941 | )
NET LOSS |  |  | (122,227,195 | ) |  |  | (21,548,700 | ) |  |  | (9,482,448 | )
Less: loss attributable to non-controlling interests |  |  | (12,628,754 | ) |  |  | (43,102 | ) |  |  | (141,106 | )
NET LOSS ATTRIBUTABLE TO X3 HOLDINGS CO., LTD. |  |  | (109,598,441 | ) |  |  | (21,505,598 | ) |  |  | (9,341,342 | )
OTHER COMPREHENSIVE (LOSS) INCOME |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment |  |  | (1,715,719 | ) |  |  | (6,012,211 | ) |  |  | 1,880,131 |
COMPREHENSIVE LOSS |  |  | (123,942,914 | ) |  |  | (27,560,911 | ) |  |  | (7,602,317 | )
Less: comprehensive loss attributable to non-controlling interest |  |  | (12,615,498 | ) |  |  | (22,888 | ) |  |  | (145,516 | )
COMPREHENSIVE LOSS ATTRIBUTABLE TO X3 HOLDINGS CO., LTD. |  | $ | (111,327,416 | ) |  | $ | (27,538,023 | ) |  | $ | (7,456,801 | )
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES * |  |  |  |  |  |  |  |  |  |  |  |
Basic and diluted |  |  | 30,743,188 |  |  |  | 454,434 |  |  |  | 205,268 |
LOSS PER SHARE |  |  |  |  |  |  |  |  |  |  |  |
Basic and diluted |  | $ | (3.56 | ) |  | $ | (47.32 | ) |  | $ | (45.51 | )

* | Retroactively restated for one-for-eight reverse split with effective date of September 22, 2023.

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 |  |  | Non- controlling |  |  | Accumulated Other Comprehensive |  |  | Total |
|  | Class A |  |  | Amount |  |  | Class B |  |  | Amount |  |  | Capital |  |  | Receivable |  |  | Deficit |  |  | Interest |  |  | Loss |  |  | equity |
Balance at December 31, 2020 |  |  | 190,714 |  |  | $ | 76,277 |  |  |  | - |  |  | $ | - |  |  | $ | 100,149,416 |  |  | $ | - |  |  | $ | (28,234,492 | ) |  | $ | (112,027 | ) |  | $ | 814,343 |  |  | $ | 72,693,517 |
Issuance shares at the market offering |  |  | 6,776 |  |  |  | 2,711 |  |  |  | - |  |  |  | - |  |  |  | 5,125,766 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,128,477 |
Conversion of convertible loans |  |  | 19,712 |  |  |  | 7,886 |  |  |  | - |  |  |  | - |  |  |  | 6,335,286 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,343,172 |
Issuance of shares for services |  |  | 2,588 |  |  |  | 1,035 |  |  |  | - |  |  |  | - |  |  |  | 460,645 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 461,680 |
Options granted |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,873,566 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,873,566 |
Issuance of shares for options exercised |  |  | 100 |  |  |  | 40 |  |  |  | - |  |  |  | - |  |  |  | (40 | ) |  |  | - |  |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |
Issuance of reserve shares |  |  | 16729 |  |  |  | 6,692 |  |  |  | - |  |  |  | - |  |  |  | (6,692 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Capital contribution by non-controlling shareholder |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 247 |  |  |  | - |  |  |  | 247 |
Net loss for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (9,341,342 | ) |  |  | (141,106 | ) |  |  | - |  |  |  | (9,482,448 | )
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (4,410 | ) |  |  | 1,884,541 |  |  |  | 1,880,131 |
Balance at December 31, 2021 |  |  | 236,619 |  |  | $ | 94,641 |  |  |  | - |  |  | $ | - |  |  | $ | 117,937,947 |  |  | $ | - |  |  | $ | (37,575,834 | ) |  | $ | (257,296 | ) |  | $ | 2,698,884 |  |  | $ | 82,898,342 |
Issuance shares at the market offering |  |  | 237 |  |  |  | 95 |  |  |  | - |  |  |  | - |  |  |  | 56,354 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 56,449 |
Conversion of convertible loans |  |  | 82,965 |  |  |  | 33,186 |  |  |  | - |  |  |  | - |  |  |  | 3,762,738 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,795,924 |
Issuance of shares for services |  |  | 50,197 |  |  |  | 20,079 |  |  |  | - |  |  |  | - |  |  |  | 2,627,376 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,647,455 |
Options granted |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,336,452 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,336,452 |
Issuance of reserve shares |  |  | 10,069 |  |  |  | 4,028 |  |  |  | - |  |  |  | - |  |  |  | (4,028 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Issuance of shares for private placement |  |  | 167,225 |  |  |  | 66,891 |  |  |  | - |  |  |  | - |  |  |  | 6,963,628 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7,030,519 |
Issuance shares for investments |  |  | 640,186 |  |  |  | 256,079 |  |  |  | - |  |  |  | - |  |  |  | 30,073,156 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 30,329,235 |
Disposition of a subsidiary |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 16,677 |  |  |  | - |  |  |  | 16,677 |
Net loss for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (21,505,598 | ) |  |  | (43,102 | ) |  |  | - |  |  |  | (21,548,700 | )
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 20,214 |  |  |  | (6,032,425 | ) |  |  | (6,012,211 | )
Balance, December 31, 2022 |  |  | 1,187,498 |  |  | $ | 474,999 |  |  |  | - |  |  | $ | - |  |  | $ | 164,753,623 |  |  |  | - |  |  | $ | (59,081,432 | ) |  | $ | (263,507 | ) |  | $ | (3,333,541 | ) |  | $ | 102,550,142 |
Conversion of convertible loans |  |  | 111,875 |  |  |  | 44,751 |  |  |  | - |  |  |  | - |  |  |  | 3,083,702 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,128,453 |
Issuance shares for acquisitions |  |  | 1,630,616 |  |  |  | 652,247 |  |  |  | - |  |  |  | - |  |  |  | 36,066,490 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 36,718,737 |
Issuance shares as prepayment for potential acquisition |  |  | 698,301 |  |  |  | 279,320 |  |  |  | - |  |  |  | - |  |  |  | 15,626,866 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 15,906,186 |
Issuance of shares for private placement |  |  | 132,044,426 |  |  |  | 52,817,771 |  |  |  | - |  |  |  | - |  |  |  | (3,780,052 | ) |  |  | (40,500,000 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8,537,719 |
Issuance of shares for services |  |  | 1,506,245 |  |  |  | 602,498 |  |  |  | - |  |  |  | - |  |  |  | 5,455,619 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,058,117 |
Split shares |  |  | (855 | ) |  |  | (342 | ) |  |  |  |  |  |  |  |  |  |  | (3,185 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (3,527 | )
Capital contribution by non-controlling shareholder |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 115,050 |  |  |  | - |  |  |  | 115,050 |
Net loss for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (109,598,441 | ) |  |  | (12,628,754 | ) |  |  | - |  |  |  | (122,227,195 | )
Non-controlling interests recognized from step acquisitions |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 23,946,670 |  |  |  | - |  |  |  | 23,946,670 |
Put options compensations |  |  | 122,529,965 |  |  |  | 49,011,985 |  |  |  | - |  |  |  | - |  |  |  | 21,994,129 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 71,006,114 |
Transfer Class A to Class B |  |  | (243,902 | ) |  |  | (97,561 | ) |  |  | 243,902 |  |  |  | 97,561 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 13,256 |  |  |  | (1,728,975 | ) |  |  | (1,715,719 | )
Balance, December 31, 2023 |  |  | 259,464,169 |  |  | $ | 103,785,668 |  |  |  | 243,902 |  |  | $ | 97,561 |  |  |  | 243,197,192 |  |  | $ | (40,500,000 | ) |  | $ | (168,679,873 | ) |  | $ | 11,182,715 |  |  | $ | (5,062,516 | ) |  | $ | 144,020,747 |

* | Retroactively restated for one-for-eight reverse split with effective date of September 22, 2023.

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, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |  |
Net loss |  | $ | (122,227,195 | ) |  | $ | (21,548,700 | ) |  | $ | (9,482,448 | )
Adjustments to reconcile net loss from operations to net cash used in operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 5,458,596 |  |  |  | 2,163,197 |  |  |  | 2,016,719 |
Provision for credit losses |  |  | 539,284 |  |  |  | 4,733,183 |  |  |  | 1,100,606 |
Share based compensation |  |  | 6,058,117 |  |  |  | 5,983,907 |  |  |  | 6,335,246 |
Loss from disposal of property and equipment |  |  | 188 |  |  |  | 104,091 |  |  |  | 4,661 |
Deferred tax benefit |  |  | (66,695 | ) |  |  | (435,741 | ) |  |  | (174,076 | )
Gain from fair value change in equity investments |  |  | (2,402,943 | ) |  |  | - |  |  |  | - |
Fair value loss on financial instruments |  |  | 71,006,115 |  |  |  | - |  |  |  | - |
Gain from long term investment |  |  | (70,947 | ) |  |  | - |  |  |  | - |
Impairment for goodwill |  |  | 29,686,102 |  |  |  | - |  |  |  | - |
Impairment for intangible assets |  |  | 2,272,829 |  |  |  | - |  |  |  | - |
Change in fair value of convertible debt |  |  | 21,166 |  |  |  | 2,448,936 |  |  |  | 1,508,229 |
Accrued interest of convertible debt |  |  | 297,954 |  |  |  | 195,139 |  |  |  | 226,775 |
Loss (gain) from disposition of a subsidiary |  |  | - |  |  |  | 1,009 |  |  |  | (714 | )
Amortization of right-of-use assets-operating lease |  |  | 172,435 |  |  |  | 45,381 |  |  |  | - |
Changes in assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Notes receivable |  |  | (15,535 | ) |  |  | (13,375 | ) |  |  | - |
Accounts receivable |  |  | (6,409,095 | ) |  |  | 2,980,772 |  |  |  | (10,459,509 | )
Contract costs |  |  | - |  |  |  | - |  |  |  | 4,088,073 |
Prepayments, deposits and other assets |  |  | (1,513,880 | ) |  |  | 581,031 |  |  |  | (70,480 | )
Accounts payable |  |  | 6,076,903 |  |  |  | (6,150,415 | ) |  |  | (4,444,198 | )
Accounts payable-related party |  |  | - |  |  |  | (695,373 | ) |  |  | 725,362 |
Accrued expenses and other current liabilities |  |  | (783,861 | ) |  |  | 999,500 |  |  |  | (1,359,673 | )
Taxes payable |  |  | 58,266 |  |  |  | (578,597 | ) |  |  | 15,089 |
Deferred revenue |  |  | 830,574 |  |  |  | (406,833 | ) |  |  | 208,952 |
Operating lease liabilities |  |  | (141,183 | ) |  |  | (63,837 | ) |  |  | - |
NET CASH USED IN OPERATING ACTIVITIES |  |  | (11,152,805 | ) |  |  | (9,656,725 | ) |  |  | (9,761,386 | )
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |  |  |  |  |
(Loans to) repayment from third parties |  |  | (1,320,203 | ) |  |  | 4,039,454 |  |  |  | 1,653,246 |
Purchases of property and equipment |  |  | (679,146 | ) |  |  | (2,625,731 | ) |  |  | (2,097,163 | )
Purchases of intangible assets |  |  | (1,240,041 | ) |  |  | (1,247,824 | ) |  |  | (2,797,400 | )
Proceeds from disposal of property and equipment |  |  | 59 |  |  |  | 45,670 |  |  |  | 1,907 |
Payment for long-term investment |  |  | - |  |  |  | (445,831 | ) |  |  | - |
Payments to related parties |  |  | (600,000 | ) |  |  | (580,958 | ) |  |  | (827,025 | )
Proceeds from related parties |  |  | 1,350,425 |  |  |  | - |  |  |  | - |
Net cash arising from business combination |  |  | 58,048 |  |  |  | - |  |  |  | - |
NET CASH USED IN INVESTING ACTIVITIES |  |  | (2,430,858 | ) |  |  | (815,220 | ) |  |  | (4,066,435 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |  |  |  |  |
Proceeds from bank loans |  |  | 3,954,300 |  |  |  | 3,715,262 |  |  |  | 4,340,547 |
Repayments of bank loans |  |  | (2,542,050 | ) |  |  | (5,201,367 | ) |  |  | (4,650,586 | )
Proceeds from private placement and market offering |  |  | 8,537,719 |  |  |  | 7,027,254 |  |  |  | 5,128,477 |
Split shares |  |  | (3,527 | ) |  |  | - |  |  |  | - |
(Payment to) proceeds from issuance of convertible note |  |  | (1,250,000 | ) |  |  | 7,979,983 |  |  |  | 6,860,000 |
Proceeds from (payments to) related parties |  |  | 40,484 |  |  |  | (90,910 | ) |  |  | 145,552 |
Loan from (repayment to) third party |  |  | 552,108 |  |  |  | (445,831 | ) |  |  | 465,059 |
Capital contribution by non-controlling shareholder |  |  | - |  |  |  | - |  |  |  | 247 |
NET CASH PROVIDE BY FINANCING ACTIVITIES |  |  | 9,289,034 |  |  |  | 12,984,391 |  |  |  | 12,289,296 |
EFFECT OF EXCHANGE RATE CHANGES |  |  | (370,193 | ) |  |  | (188,372 | ) |  |  | 205,069 |
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENT AND RESTRICTED CASH |  |  | (4,664,822 | ) |  |  | 2,324,074 |  |  |  | (1,333,456 | )
CASH, CASH EQUIVALENT AND RESTRICTED CASH - beginning of year |  |  | 9,380,322 |  |  |  | 7,056,248 |  |  |  | 8,389,704 |
CASH, CASH EQUIVALENT AND RESTRICTED CASH - end of year |  | $ | 4,715,500 |  |  | $ | 9,380,322 |  |  | $ | 7,056,248 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |  |  |  |  |  |  |  |  |  |  |  |
Cash paid for: |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | 144,080 |  |  | $ | 203,380 |  |  | $ | 211,197 |
Income taxes |  | $ | 14,138 |  |  | $ | 718 |  |  | $ | 3,836 |
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES |  |  |  |  |  |  |  |  |  |  |  |
Right of use assets obtained in exchange of lease liabilities |  | $ | 324,304 |  |  | $ | 262,255 |  |  | $ | - |
Conversion of convertible loans |  | $ | 3,128,453 |  |  | $ | 3,795,924 |  |  | $ | 6,343,172 |
Issuance shares for third party receivable |  | $ | - |  |  | $ | 59,714 |  |  | $ | - |
Issuance shares as prepayment for potential acquisition |  | $ | 15,906,186 |  |  | $ | - |  |  | $ | - |
Issuance shares for acquisitions |  | $ | 36,718,737 |  |  | $ | - |  |  | $ | - |
Non-controlling interests recognized from step acquisitions |  | $ | 23,946,670 |  |  | $ | - |  |  | $ | - |
Due to related party transferred to non-controlling interests |  | $ | 115,050 |  |  | $ | - |  |  | $ | - |
Prepayments, deposits and other assets transferred from loan receivable |  | $ | 59,651,975 |  |  | $ | - |  |  | $ | - |
RECONCILIATION TO AMOUNTS ON CONSOLIDATED BALANCE SHEETS: |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 2,991,563 |  |  | $ | 9,380,322 |  |  | $ | 6,960,996 |
Restricted cash |  |  | 1,723,937 |  |  |  | - |  |  |  | 95,252 |
Total cash and restricted cash |  | $ | 4,715,500 |  |  | $ | 9,380,322 |  |  | $ | 7,056,248 |

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 “Company”), 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 Company’s evolving global expansion strategy and its commitment to broader technological and business horizons.

As of December 31, 2023, 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”) |  | 100% by X3 |  | July 27, 2018 |  | Hong Kong, PRC |  | Investment holding
Boxinrui International Holdings Limited (“Boxinrui”) |  | 100% by X3 |  | August 5, 2021 |  | BVI |  | Investment holding
Hongding Technology Co., Ltd (“Hongding”) |  | 100% by X3 |  | July 28, 2020 |  | Hong Kong, PRC |  | Investment holding
Powercrypto Holding Pte. Ltd. (“Powercrypto”) |  | 100% by X3 |  | October 1, 2021 |  | Singapore |  | Management consultancy services
Powercrypto Inc (1) |  | 100% by X3 |  | April 5, 2022 |  | USA |  | Management consultancy services
X3 HOLDINGS PTE. LTD. |  | 100% by X3 |  | November 8, 2023 |  | Singapore |  | Investment holding
Powerbridge High Technologies Holding Co., Ltd |  | 100% by X3 |  | January 11, 2023 |  | Macau |  | Investment holding
Powerbridge Technology Group Co., Ltd. (“Powerbridge Zhuhai”) |  | 100% by Powerbridge HK |  | October 30, 1997 |  | the PRC |  | Software application and technology services
Powerstream Supply Chain Co., Ltd. (“Powerstream”) |  | 100% by Powerbridge HK |  | August 17, 2021 |  | the PRC |  | Supply chain business
Powermeta Digital Co., Ltd. (“Powermeta”) |  | 100% by Powerbridge HK |  | January 21, 2022 |  | the PRC |  | Software application and technology services
Powerstream Capital Co., Ltd. (“Powerstream Capital”) (2) |  | 100% by Powerbridge HK |  | August 11, 2022 |  | the PRC |  | Investment, software application and technology services
Powerbridge Digital Trade (HK) Co., Limited |  | 51% by Powerbridge HK |  | June 26, 2023 |  | Hong Kong, PRC |  | Investment holding
SmartConn Co.Limited(“SmartConn”) |  | 50.99% by Powerbridge HK |  | December 14, 2020 |  | Hong Kong, PRC |  | Investment holding
Hong Kong Anxin Jieda Co., Limited (“Anxin Jieda”) |  | 100% by Boxinrui |  | November 30, 2021 |  | Hong Kong, PRC |  | Investment holding

F-7

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Nature of business and organization (continued)

Shenzhen Hongding Interconnect Technology Co., Ltd. (3) |  | 100% by Hongding |  | October 21, 2020 |  | the PRC |  | Software application and technology services
Shenzhen Honghao Internet Technology Co., Ltd (“Honghao”) |  | 100% by Hongding |  | July 28, 2020 |  | the PRC |  | Software application and technology services
Wuhan Honggang Technology Co., Ltd (“Honggang”) |  | 60% by Powerbridge Zhuhai |  | June 21, 2019 |  | the PRC |  | Software application and technology services
Chongqing Powerbridge Zhixin Technology Co., Ltd (“Zhixin”) (4) |  | 45% by Powerbridge Zhuhai |  | September 2, 2019 |  | the PRC |  | software application and technology services
Hongxi Data Technology Co., Ltd. |  | 70% by Powerbridge Zhuhai |  | February 8, 2021 |  | Macau |  | Software application and technology services
Zhuhai Hongyang Supply Chain Co., Ltd. (“Zhuhai Hongyang”) |  | 60% by Powerbridge Zhuhai |  | July 21, 2021 |  | the PRC |  | Supply chain business
Ningbo Zhijing Tongfu Technology Co., Ltd. (“Ningbo Zhijing”) |  | 51% by Powerbridge Zhuhai |  | April 25, 2021 |  | the PRC |  | software application and technology services
Hunan Powerverse Digital Co., Ltd. |  | 51% by Powerbridge Zhuhai |  | March 9, 2023 |  | the PRC |  | Software application and technology services
Metafusion Digital Co., Ltd (“Metafusion”) |  | 66% by Powermeta Digital |  | February 15, 2022 |  | the PRC |  | Software application and technology services
Shanghai Stamp Technolog Co., Ltd. |  | 100% by SmartConn |  | December 9, 2018 |  | the PRC |  | Software application and technology services
Ascendent Insight Education Co., Ltd. (“Ascendent”) |  | 90% by Anxin Jieda |  | January 7, 2020 |  | the PRC |  | Software application and technology services
Xingtai Ningyao Technology Co., Ltd. |  | 100% by Ascendent |  | December 17, 2022 |  | the PRC |  | Software application and technology services
Agro Digital Fintech Co., Ltd.(5) |  | 51% by Powerbridge Zhuhai |  | July 6, 2023 |  | the PRC |  | Digital finance business
Guangdong Hongqiao Digital Technology Co ., Ltd. |  | 51% by Powerbridge Zhuhai |  | November 28, 2023 |  | the PRC |  | Software application and technology services

(1) | On August 25, 2023, the name was changed to Powercrypto Inc.
(2) | Powerstream Capital was deregistered on April 12, 2024 subsequently.
(3) | Shenzhen Hongding Interconnect Technology Co., Ltd was deregistered on August 8, 2023.
(4) | Certain third-party shareholders of Zhixin signed consents with the Company for the year ended December 31, 2022, which stated that the Company has the power and control to direct the activities that most significantly impact Zhixin and they unconditionally vote by consensus with the Company in all the board decisions. As such, the Company consolidates the financial results of Zhixin based on the voting power. Zhixin was deregistered on June 13, 2023.
(5) | Agro Digital Fintech Co., Ltd. was deregistered on March 14, 2024, subsequently.

F-8

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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”).

Principles of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances are eliminated upon consolidation. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.

Subsidiaries are those entities in which the Company, 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 for the year between non-controlling shareholders and the shareholders of the Company.

Liquidity

For the year ended December 31, 2023, the Company had working capital of negative $760,201 and incurred a net loss of approximately $122.2 million. For fiscal 2023, the Company had negative operation cash flow of approximately $11.2 million. The Company 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.

In assessing its liquidity, the Company monitors and analyzes its cash on hand, its ability to generate sufficient revenue sources in the future and its operating and capital expenditure commitments. As of December 31, 2023, the Company had cash of approximately $3.0 million.

On November 24, 2023, the Company entered into purchase agreements with twelve investors. The investors agreed to purchase an aggregate of $40,000,000 of the Company’s Class A ordinary shares at a share price of $0.3 per share. The Company issued 130,463,140 Class A ordinary shares on November 24, 2023.

The Company 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 Company may need additional cash resources in the future if the Company experiences changed business conditions or other developments, and may also need additional cash resources in the future if the Company wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Company’s amounts of cash on hand, the Company may seek to issue debt or equity securities or obtain a credit facility.

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 Company’s consolidated financial statements include but not limited to the useful lives of property and equipment and capitalized development cost, impairment of long-lived assets, valuation of accounts receivables, valuation of convertible loans, loans to third parties, 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 Company are the local currency of the county in which the subsidiaries operate. The Company’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 income (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 income (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 Company’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)

Assets and Liabilities Measured or Disclosed at Fair Value on a recurring basis

The following tables represent the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023:

|  | As of December 31, 2023 |
|  | Fair Value Measurement at the Reporting Date using |
|  | Quoted price in active markets for identical assets Level 1 |  |  | Significant other observable inputs Level 2 |  |  | Significant unobservable inputs Level 3 |  |  | Total |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Put option liability from Smartconn acquisition |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Put option liability from Boxinrui acquisition |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Convertible loan |  |  | - |  |  |  | - |  |  |  | 5,020,633 |  |  |  | 5,020,633 |
Total |  | $ | - |  |  | $ | - |  |  | $ | 5,020,633 |  |  | $ | 5,020,633 |

Financial instrument -put option liabilities

(i) Put option liability from Smartconn acquisition

In connection with the Smartconn acquisition, the previous shareholder of Smartconn may be entitled to receive put option shares as follow: Within two years after the Company acquired, if the consideration shares’ price is lower than the payment date price, the previous shareholder will be entitled to receive compensation shares. On November 22, 2023, both parties entered into a compensation agreement. Pursuant to the agreement, the Company shall issue 53,388,709 to the previous shareholders as a compensation due to continuous declining share price. On November 23, 2023, the Company fully issued the related compensation shares.

Upon the closing of the Smartconn acquisition, the Company recorded the fair value of the financial instrument resulted from put option liability and recorded the changes in fair value in earnings. The Company determined the fair value of the financial instrument using binomial model, which includes significant unobservable inputs that are classified as level 3 in the fair value hierarchy. A binomial model uses random numbers, together with the assumption of volatility, risk-free rate, expected dividend rate, to generate individual stock price paths. The major assumptions used in the binomial model are as follows:

|  | January 5, 2023 |  |  | December 31, 2023 |
Risk-free interest rate |  |  | 4.4 | % |  |  | - | %
Underlying share price |  | $ | 26.40 |  |  | $ | - |
Volatility |  |  | 74.49 | % |  |  | - |
Exercise Price |  |  | $25.68~120.00 |  |  | $ | - |
Option life (years) |  |  | 2 |  |  |  | - |

F-11

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

(ii) Put option liability from Boxinrui acquisition

In connection with the Boxinrui acquisition, the previous shareholder of Boxinrui may be entitled to receive put option shares as follow: Within two years after the Company acquired, if the consideration shares’ price is lower than the payment date price, the previous shareholder will be entitled to receive compensation shares. On November 22, 2023, both parties entered into a compensation agreement. Pursuant to the agreement, the Company shall issue 69,141,256 to the previous shareholders as a compensation due to continuous declining share price. On November 23, 2023, the Company fully issued the related compensation shares.

Upon the closing of the Boxinrui acquisition, the Company recorded the fair value of the financial instrument resulted from put option liability and recorded the changes in fair value from in earnings. The Company determined the fair value of the financial instrument using binomial model, which includes significant unobservable inputs that are classified as level 3 in the fair value hierarchy. A binomial model uses random numbers, together with the assumption of volatility, risk-free rate, expected dividend rate, to generate individual stock price paths. The major assumptions used in the binomial model are as follows:

|  | March 28, 2023 |  |  | December 31, 2023 |
Risk-free interest rate |  |  | 3.98 | % |  |  | - | %
Underlying share price |  | $ | 20.90 |  |  | $ | - |
Volatility |  |  | 73.53 | % |  |  | - |
Exercise Price |  | $ | 22.38~72.00 |  |  | $ | - |
Option life (years) |  |  | 2 |  |  |  | - |

The following is a reconciliation of the beginning and ending balances for put options measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2023 and 2022:

|  | December 31, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Opening balance |  | $ | - |  |  | $ | - |
Loss on change in fair value of put options from Smartconn acquisition |  |  | 30,938,757 |  |  |  | - |
Loss on change in fair value of put options from Boxinrui acquisition |  |  | 40,067,358 |  |  |  |  |
Shares issued |  |  | (71,006,115 | ) |  |  | - |
Total |  | $ | - |  |  | $ | - |

Convertible loan

The Company elected the fair value option to account for its convertible loan. The Company 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 the Company’s 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 13 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.

F-12

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

The following is a reconciliation of the beginning and ending balances for convertible notes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2023 and 2022:

|  | December 31, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Opening balance |  | $ | 9,079,966 |  |  | $ | 2,251,832 |
Issuance of convertible note |  |  | - |  |  |  | 7,979,983 |
Loss on change in fair value of convertible notes |  |  | 21,166 |  |  |  | 2,448,936 |
Accrued interest |  |  | 297,954 |  |  |  | 195,139 |
Cash repaid |  |  | (1,250,000 | ) |  |  | - |
Conversion of convertible notes |  |  | (3,128,453 | ) |  |  | (3,795,924 | )
Total |  | $ | 5,020,633 |  |  | $ | 9,079,966 |

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, 2023 and 2022, cash balances were $2,991,563 and $9,380,322, respectively.

Restricted cash

Restricted cash represents cash that cannot be withdrawn without the permission of third parties. The Company’s restricted cash is substantially cash balance in designated bank accounts as security for payment processing and lawsuit. As of December 31, 2023 and 2022, restricted cash consists of cash equivalents of $1,723,937 and $nil, respectively

Accounts receivable, net

Accounts receivable represents the amounts that the Company 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 Company 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 are 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.

F-13

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

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 prepayment for potential acquisition 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.

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 |  | 3-10 years
Automobiles |  | 5-8 years
Computer equipment |  | 5 years
Buildings |  | 28 years

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and 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 Company’s intangible assets mainly include capitalized development costs, purchased software and acquired software from business acquisitions. The Company 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 Company 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 |  | 5 years
Purchased software |  | 5 years
Software from business combinations |  | 10 years

F-14

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

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 Company 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 Company 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, 2023, due to slow development of Smartconn, the Company 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, the Company impaired the intangible assets acquired from the acquisition of Smartconn of $2,272,829 for the year ended December 31, 2023. For the years ended December 31, 2022 and 2021 the Company recognized $nil impairment for the long-lived assets.

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 Company adopted ASU 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. According to the guidance, the Company started to record equity investments at fair value, with gains and losses recorded through net earnings. And the Company 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 Company 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 Company 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 Company 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 Company 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.

F-15

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

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 Company determines discount rates to be used based on the risk inherent in the acquiree’s current business model and industry comparisons. Although the Company 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.

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 Company 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 Company may perform either a qualitative or a quantitative assessment. The Company’s qualitative assessment of potential impairment may result in the determination that a quantitative impairment analysis is not necessary. Under this elective process, the Company assesses qualitative factors to determine whether the existence of events or circumstances leads the Company 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 Company 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 Company concludes otherwise, then the Company performs a quantitative impairment analysis.

If the Company either chooses not to perform a qualitative assessment, or the Company chooses to perform a qualitative assessment but is unable to qualitatively conclude that no impairment has occurred, then the Company performs a quantitative evaluation. In the case of a quantitative assessment, the Company 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, 2023, the Company 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 Company impaired the goodwill acquired from the acquisition of Boxinrui and Smartconn of $8,580,543 and $21,105,559 for the year ended December 31, 2023.

F-16

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

Revenue recognition

The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2019 using the modified retrospective approach. Revenues for the years ended December 31, 2023, 2022 and 2021 were presented under ASC 606. There is no adjustment to the opening balance of retained earnings at January 1, 2019 since there was no change to the timing and pattern of revenue recognition upon adoption of ASC 606. Under ASC 606, revenue is recognized when control of promised goods or services is transferred to the Company’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 Company 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 Company’s contracts with customer do not contain cancelable and refund-type provisions.

(1) Revenue from application development service

The Company’s application development service contracts are primarily on a fixed-price basis, which require the Company 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 Company 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 Company’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 (30% - 50%) of contract amount usually is billed upon the completion of the related projects. Pursuant to the contract terms, the Company has enforceable right on payments for the work performed.

The Company 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 Company believes the warranty provision in the contracts generally represents service-type warranty, which is a distinct performance obligation and the Company 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 company 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-17

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

The Company 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 Company 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 Company’s performance creates or enhances the project controlled by the customer and the control is transferred continuously to our customers. The Company uses an input method based on cost incurred as the Company believes that this method most accurately reflects the Company’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 Company 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 Company’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 Company 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 Company 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 Company 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 Company 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 Company sells and delivers IT equipment on standalone basis prior to the delivery of the services. In these cases, the Company controls the IT equipment before they are transferred to the customer. The Company has the right to direct the suppliers and control the goods or assets transferred to its customers. Thus, the Company 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 Company 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-18

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 Company 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 Company’s software-as-a-service applications for a subscribed period. The Company’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 Company 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 Company started 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 Company’s services under regional cooperation agreements include marketing support to advertise as well as utilization of the Company’s trademark and copyrights for business promotion purpose. The term of cooperation agreements is typically one to two years. The Company charges a fixed amount authorization fee which is non-refundable and to be paid upon execution of an authorization agreement. For all the Company’s cooperation agreements, the amount of fee is fixed or determinable and no right of return provision indicated in the agreement. Since the Company provides no financing to authorized distributors and offers no guarantees on their behalf, the services provided by the Company 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. Other revenues accounted for 1.1% of the Company’s revenue for the year ended December 31, 2023.

Revenue includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenue. The Company reports revenues net of value added tax (“VAT”). The Company’s subsidiaries in PRC are subject to a 3% to 13% value added tax (“VAT”) and related surcharges on the revenues earned from providing services or products.

F-19

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

Practical Expedient and Exemptions

The Company 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 Company 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 Company’s right to consideration in exchange for the service that the Company has performed to the customer before payment is due and the unbilled account receivable will be reclassified into billed accounts receivable when the Company 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, 2023 and 2022 the balance of deferred revenue amounted to $2,175,896 and $1,376,998, respectively.

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 Company receives government subsidies related to government sponsored projects, and records such government subsidies as a liability when it is received. The Company 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, 2023, 2022 and 2021, the advertising expense amounted to $44,120, $25,373 and $279,979, respectively.

Operating leases

The Company adopted Topic 842 on January 1, 2022 using the modified retrospective transition approach. The Company has lease contracts for factory and office space under operating leases. The Company determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at lease commencement. The Company measures its lease liabilities based on the present value of the total lease payments not yet paid discounted based on the more readily determinable of the rate implicit in the lease or its incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The Company estimates its incremental borrowing rate based on an analysis of weighted average interest rate of its own bank loans. The Company measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Company begins recognizing lease expense when the lessor makes the underlying asset available to the Company.

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

F-20

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

Income taxes

The Company 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 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, 2023, 2022 and 2021. All of the tax returns of the Company’s subsidiary in China remain subject to examination by the tax authorities for five years from the date of filing.

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 13%, depending on the type of service provided. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in taxes payable. All of the VAT returns filed by the Company’s subsidiary in China, have been and remain subject to examination by the tax authorities for five years from the date of filing.

Employee defined contribution plan

Full time employees of the Company 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 Company make contributions to the government for these benefits based on a certain percentage of the employee’s salaries. The Company has no legal obligation for the benefits beyond the contributions. The total amount was expensed as incurred.

Loss per share

The Company computes (loss) earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential Ordinary Shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential Ordinary Shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the years ended December 31, 2023, 2022 and 2021, since the company had a loss, basic and dilutive loss per share is the same.

F-21

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Summary of significant accounting policies (continued)

Share-Based compensation

The Company 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, for employee stock-based awards, 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. For the non-employee stock-based awards, the fair value of the awards to non-employees are measured every reporting period based on the value of the Company’s common stock.

Comprehensive income (loss)

Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment resulting from the Company 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 Company’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 Company 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 Company 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 Company may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter.

Segment reporting

The Company’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 Company as a whole and hence, the Company has only one reportable segment. The Company does not distinguish between markets or segments for the purpose of internal reporting. The Company’s long-lived assets are substantially all located in the PRC and all of the Company’s revenues are derived from the PRC. Therefore, no geographical segments are presented.

F-22

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 Company 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, 2023 and 2022, the aggregate amount of cash and restricted cash of $4,056,150 and $5,418,450, respectively, were held at major financial institutions in PRC mainland, which the management believes are of high credit quality. On May 1, 2015, China’s new Deposit Insurance Regulation came into effect, pursuant to which banking financial institutions, such as commercial banks, established in China are required to purchase deposit insurance for deposits in RMB and in foreign currency placed with them. Such Deposit Insurance Regulation would not be effective in providing complete protection for the Group’s accounts, as its aggregate deposits are much higher than the compensation limit. However, the Group believes that the risk of failure of any of these Chinese banks is remote. Bank failure is uncommon in China and the Group believes that those Chinese banks are financially sound based on public available information. The Company conducts credit evaluations of its customers and suppliers, and generally does not require collateral or other security from them. The Company establishes an accounting policy for allowance for doubtful accounts on the individual customer’s and supplier’s financial condition, credit history, and the current economic conditions.

| (b) | 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 law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.

The Company’s functional currency is the RMB, and the Company’s financial statements are presented in U.S. dollars. The RMB deprecation by 8.2% in fiscal year 2022 and further deprecation by 2.9% in fiscal year 2023. 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 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 acquisition 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.

| (c) | Significant customers

For the year ended December 31, 2023, three customers accounted for 27.1%, 15.5% and 15.1% of the Company’s total revenues. For the year ended December 31, 2022, one customer accounted for 31.8% of the Company’s total revenues. For the year ended December 31, 2021, one customer accounted for 12.8% of the Company’s total revenues. As of December 31, 2023, one customer accounted for 15.9% of the Company’s accounts receivable. As of December 31, 2022, no customer accounted for more than 10% of the Company’s accounts receivable.

F-23

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, 2023, three suppliers accounted for 36.8%, 21.0% and 20.2% of the Company’s total purchases, respectively. For the year ended December 31, 2022, three suppliers accounted for 38.1%, 14.8% and 12.1% of the Company’s total purchases, respectively. For the year ended December 31, 2021, one supplier accounted for 15.8% of the Company’s total purchases. As of December 31, 2023, one supplier accounted for 24.5% of the Company’s total accounts payable. As of December 31, 2022, one supplier accounted for 10.9% of the Company’s total accounts payable.

Reclassifications

Intangible asset was separated from property and equipment as of December 31, 2023 and retroactively reclassified as of December 31, 2022.

Customer deposits was combined to deferred revenue as of December 31, 2023 and retroactively reclassified as of December 31, 2022.

Recently issued accounting pronouncements

The Company 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 Company 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 October 2021, the FASB issued ASU No. 2021-08, “‘Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments are effective for the Company beginning after December 15, 2023, and are applied prospectively to business combinations that occur after the effective date. The Company does not expect the adoption of ASU 2021-04 will have a material effect on the financial statements.

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-24

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 — Acquisition

The Company accounted the following acquisitions as business combinations in accordance with ASC 805. Acquisition-related costs incurred for the acquisitions are not material.

Smartconn Acquisition

On January 5, 2023, the Company completed an equity acquisition with a shareholder of Smartconn. Prior to the acquisition, the Company held 19.99% in Smartconn. The Company further purchased 31% equity of Smartconn at 90% of the appraisal price. The consideration of the acquisition was paid in the form of 478,747 newly issued Class A ordinary shares of the Company with fair value of $12,640,062. Also, there was $173,243 due from Smartconn was effective settled because of the acquisition and became part of consideration. Together with the newly acquired shares, the Company holds in total 50.99% in Smartconn. The consolidated operating results of Smartconn for the years ended December 31, 2022 were not significant to the Company.

The objective of the acquisition is to support the Company’s software application and technology service. The acquisition was closed on January 5, 2023.

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 Company. The valuation report considered generally accepted valuation methodologies such as the income, market and cost approaches. The fair value of the non-controlling interest was calculated after determination of an overall enterprise value for Smartconn under the market approach. Upon the acquisition, the Company recognized a loss of approximately $0.3 million in fair value change for the previous 19.99% equity interests in Smartconn.

|  | Amount |
Total consideration for step acquisition |  | $ | 12,813,305 |
Assets acquired and liabilities assumed: |  |  |  |
Cash acquired |  |  | 49,496 |
Property and equipment, net |  |  | 305 |
Intangible assets, net |  |  | 19,226,106 |
Current liabilities |  |  | (83,496 | )
Total net assets acquired |  |  | 19,192,411 |
Previous held 19.99% Equity Value |  |  | (7,962,586 | )
31% Equity Value with noncontrolling interest |  |  | (19,522,079 | )
Goodwill |  | $ | 21,105,559 |

The intangible assets are mainly attributable to software acquired through the acquisition, which are amortized over 5-10 years.

Due to sluggish business operations subsequent to the acquisition, the Company engaged a third-party valuation firm and performed fair value assessment using income approach, according to the valuation report, the Company recorded an impairment of intangible asset and goodwill of $2,272,829 and $21,105,559, respectively, for the year ended December 31, 2023.

F-25

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 — Acquisition (continued)

Boxinrui Acquisition

On March 28, 2023, the Company completed an equity acquisition with fifteen individual shareholders (the “Relevant Shareholders”) of Boxinrui, pursuant to which the Company further acquired 65% equity interest in Boxinrui for a consideration in form of 1,151,869 Class A ordinary shares with fair value of $24,078,675 to the Relevant Shareholders. Prior to the acquisition, the Company held 35% in Boxinrui, which together with the newly acquired shares, the Company holds in total 100% in Boxinrui. The consolidated operating results of Boxinrui for the years ended December 31, 2022 were not significant to the Company.

The objective of the acquisition is to expand the Company’s business scope. The acquisition was closed on March 28, 2023.

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 Company. The valuation report considered generally accepted valuation methodologies such as the income, market and cost approaches. The fair value of the non-controlling interest was calculated after determination of an overall enterprise value for Boxinrui under the market approach. Upon the acquisition, the Company recognized a gain of approximately $2.7 million in fair value change for the previous 35% equity interests in Boxinrui.

|  | Amount |
Total consideration for step acquisition |  | $ | 24,078,675 |
Assets acquired and liabilities assumed: |  |  |  |
Cash acquired |  |  | 10,258 |
Other current assets |  |  | 1,034,968 |
Property and equipment, net |  |  | 10,975 |
Intangible assets, net |  |  | 17,984,093 |
Current liabilities |  |  | (211,718 | )
Total net assets acquired |  |  | 18,828,576 |
Previous held 31.5% Equity Value |  |  | (13,937,461 | )
10% Equity Value with non-controlling interests |  |  | (4,424,591 | )
Goodwill |  | $ | 23,612,151 |

The intangible assets are mainly attributable to software acquired through the acquisition, which are amortized over 10 years.

Due to sluggish business operations subsequent to the acquisition, the Company engaged a third-party valuation firm and performed fair value assessment using income approach, according to the valuation report, the Company recorded an impairment of goodwill of $8,580,543 for the year ended December 31, 2023.

F-26

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Accounts receivable, net

Accounts receivable, net, consists of the following:

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Accounts receivable |  | $ | 28,620,423 |  |  | $ | 21,895,260 |
Less: Allowance for credit losses |  |  | (7,133,370 | ) |  |  | (7,080,677 | )
Total accounts receivable, net |  | $ | 21,487,053 |  |  | $ | 14,814,583 |

Unbilled accounts receivable included in accounts receivable above amounted to $10,030,721 and $10,027,584 as of December 31, 2023 and 2022, respectively. The unbilled accounts receivables as of December 31, 2023 are expected to be billed within one year and collected over one year. The billed accounts receivable is expected to be collected within one year.

As of April 24, 2024, approximately $1.6 million (or 5.6%) of total accounts receivable as of December 31, 2023 was collected. It represented 7.6% of billed accounts receivable balance and 2.0% of unbilled accounts receivable balance as of December 31, 2023 were subsequently collected, respectively.

Movement of allowance for credit losses is as follows:

|  | As of December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Beginning balance |  | $ | 7,080,677 |  |  | $ | 2,607,600 |  |  | $ | 1,581,142 |
Provision for credit losses |  |  | 256,834 |  |  |  | 4,783,518 |  |  |  | 1,011,760 |
Written-off |  |  | (6,214 | ) |  |  | - |  |  |  | (34,879 | )
Foreign currency translation adjustments |  |  | (197,927 | ) |  |  | (310,441 | ) |  |  | 49,577 |
Ending balance |  | $ | 7,133,370 |  |  | $ | 7,080,677 |  |  | $ | 2,607,600 |

F-27

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Prepayments, deposits and other assets, net

Prepayments, deposits and other assets, net consisted of the following:

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Security deposits (1) |  | $ | 248,146 |  |  | $ | 216,446 |
Advances to suppliers |  |  | 2,032,099 |  |  |  | 564,810 |
Advances to employees |  |  | 46,293 |  |  |  | 141,249 |
Prepaid expense |  |  | 1,099,950 |  |  |  | 976,788 |
Prepayment for potential acquisition (2) |  |  | 15,906,186 |  |  |  | - |
Antique art pieces (3) |  |  | 59,651,975 |  |  |  | - |
Others |  |  | 6,511 |  |  |  | 139,976 |
|  |  | 78,991,160 |  |  |  | 2,039,269 |
Less: Long term portion |  |  | (76,274,752 | ) |  |  | (226,544 | )
Allowance for credit losses |  |  | (281,694 | ) |  |  | (364,973 | )
Prepayments, deposits and other assets – current portion |  | $ | 2,434,714 |  |  | $ | 1,447,752 |

(1) | Security deposits mainly represent contract fulfillment deposits required by customer for specific projects, rent deposits and etc.
(2) | On March 24, 2023, the Company entered into an equity transfer agreement with a shareholder of DTI Group Limited (“DTI”), pursuant to which the Company agreed to prepay 698,301 shares (equivalent to $15,906,186) to purchase 32% equity of DTI.
(3) | Details refer to Note 6

Movement of allowance for credit losses is as follows:

|  | As of December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Beginning balance |  | $ | 364,973 |  |  | $ | 313,844 |  |  | $ | 306,513 |
Provision for credit losses |  |  | - |  |  |  | 75,000 |  |  |  | 88,846 |
Written-off |  |  | (75,000 | ) |  |  | - |  |  |  | (88,846 | )
Foreign currency translation adjustments |  |  | (8,279 | ) |  |  | (23,871 | ) |  |  | 7,331 |
Ending balance |  | $ | 281,694 |  |  | $ | 364,973 |  |  | $ | 313,844 |

F-28

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Loan receivable

Loan receivable consisted of the following:

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Unsecured loan receivable from third parties (1) |  | $ | 1,318,998 |  |  | $ | - |
Guaranteed loan receivable from media business (2) |  |  | - |  |  |  | 59,612,192 |
|  |  | 1,318,998 |  |  |  | 59,612,192 |
Allowance for doubtful accounts |  |  | (281,694 | ) |  |  | - |
Loan receivable, net |  | $ | 1,037,304 |  |  | $ | 59,612,192 |

(1) | As of December 31, 2023, loans to third parties represent the balance the company lend to various third-parties for their working capital needs at rate of 0%-5% per annum.

(2) | Pursuant to the agreement with Shenzhen Kezhi Technology Co., Ltd.(“Kezhi”) on September 25, 2020 and a series of amendments entered during the period from September 25, 2020 to May 16, 2021, the Company intends to expand to media business through Kezhi. The Company originally planned to acquire certain media business assets from Kezhi, however, due to uncertainties in COVID-19, the Company and Kezhi ultimately reached into a final agreement (“Final agreement”) on May 16, 2021. Pursuant to the Final agreement, the Company agreed to extend a working capital support loan to Kezhi in aggregated of $62,581,163 (RMB444,320,000) with expected annual returns over two years and coupon interest rate of 5%. The company collected $4,670,881 (RMB33,162,788) in fiscal year 2022. On January 5, 2023, the Company, Kezhi, the guarantor and the guarantor’s senior management Mr. Su Haoqing, entered into a debt extinguish agreement. Pursuant to the agreement, Mr. Su Haoqing settled the remaining $59,651,975 (RMB411,157,212) debt by rendering 20 antique art pieces. The company have performed a valuation for accounting recognition purposes by a third-party valuation company.

F-29

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 — Long term investment

|  | Equity investments accounted for using the equity method(ii) |  |  | Cost method investments without readily determinable fair value(i) |  |  | Total |
Balance as of January 1, 2022 |  | $ | - |  |  | $ | - |  |  | $ | - |
Additions |  |  | 11,120,935 |  |  |  | 19,643,260 |  |  |  | 30,764,195 |
Balance as of December 31, 2022 |  |  | 11,120,935 |  |  |  | 19,643,260 |  |  |  | 30,764,195 |
Share of gain in equity method investee |  |  | 70,947 |  |  |  | - |  |  |  | 70,947 |
Decrease due to acquired |  |  | (11,191,882 | ) |  |  | (8,305,222 | ) |  |  | (19,497,104 | )
Foreign currency translation adjustments |  |  | - |  |  |  | (65,073 | ) |  |  | (65,073 | )
Balance as of December 31, 2023 |  | $ | - |  |  | $ | 11,272,965 |  |  | $ | 11,272,965 |

(i) | During the year ended December 31, 2022, the Company invested $434,960 (RMB3.0 million) cash and issued 23,985 Class A ordinary shares (equivalent to $1,844,377) for 5.0% equity interest in Shenzhen Chenbao Information service Co., Ltd. (“Chenbao”) in which the Company does not have significant influence and such investment does not have readily determinable fair values. On January 20, 2022, the Company invested issued 71,410 Class A ordinary shares (equivalent to $8,305,222) for 19.99% equity interest in SamartConn CO., Limited (“SamartConn”) in which the Company does not have significant influence and such investment does not have readily determinable fair values. On January 18, 2023, the Company purchased additional 31% equity of Smartconn (See note 3). On November 1, 2022, the Company invested issued 231,278 Class A ordinary shares (equivalent to $9,058,701) for 19% equity interest in DTI Group Limited (“DTI”) in which the Company does not have significant influence and such investment does not have readily determinable fair values. On March 24, 2023, the Company entered into an equity transfer agreement with a shareholder of DTI which the Company agrees to prepay 698,301 Class A ordinary shares (equivalent to $15,906,186) to purchase 32% equity of DTI. On January 1, 2022, the Company gained 5% equity interest in Guangzhou Xingsheng Information Technology Limited for $0 consideration, in which the Company does not have significant influence and such investment does not have readily determinable fair values.
(ii) | On June 28, 2022, the Company invested issued 83,094 Class A ordinary shares (split-adjusted, equivalent to $6,674,772) for 15% equity interest in Boxinrui International Holdings Limited (“Boxinrui”) in which the Company does not have significant influence and such investment do not have readily determinable fair values. On December 28, 2022, the Company further issued 230,419 Class A ordinary shares (equivalent to $4,446,163) for 20% equity interest in Boxinrui International Holdings Limited. As a result, the Company considers it has significant influence on this investment based on its voting power. During the year ended December 31, 2023, the Company recorded shares of gain of $70,947. 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 further acquire 65% equity interest in Boxinrui (See note 3).

F-30

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Property and equipment, net

Property and equipment, net, consist of the following:

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Computer equipment |  | $ | 414,230 |  |  | $ | 380,055 |
Office equipment, fixtures and furniture |  |  | 1,997,452 |  |  |  | 2,033,617 |
Automobiles |  |  | 184,308 |  |  |  | 189,325 |
Buildings |  |  | 4,580,571 |  |  |  | 4,715,189 |
Construction in Progress |  |  | 618,661 |  |  |  | - |
Subtotal |  |  | 7,795,222 |  |  |  | 7,318,186 |
Less: accumulated depreciation |  |  | (1,892,273 | ) |  |  | (1,484,268 | )
Property and equipment, net |  | $ | 5,902,949 |  |  | $ | 5,833,918 |

Depreciation expense for the years ended December 31, 2023, 2022 and 2021 amounted to $453,628, $359,344 and $324,367, respectively. As of December 31, 2023, buildings with net book value amounted to $3,932,666 were pledged for obtaining various of loans (See Note 11).

The Company capitalized development costs related to its core supporting modules of the global trade applications and solutions incurred during the application development stage.

Note 9 — Intangible assets, net

Intangible assets, net, consist of the following:

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Capitalized development costs (1) |  | $ | 11,416,518 |  |  | $ | 10,478,966 |
Purchased software |  |  | 395,446 |  |  |  | 407,067 |
Software from business combinations |  |  | 36,101,237 |  |  |  | - |
Subtotal |  |  | 47,913,201 |  |  |  | 10,886,033 |
Less: accumulated amortization |  |  | (10,614,005 | ) |  |  | (5,723,309 | )
Impairment of capitalized development cost and software acquired |  |  | (2,266,746 | ) |  |  |  |
Intangible assets, net |  | $ | 35,032,450 |  |  | $ | 5,162,724 |

(1) | The Company capitalized development costs related to its core supporting modules of the global trade applications and solutions incurred during the application development stage.

Amortization expense for the years ended December 31, 2023, 2022 and 2021 amounted to $5,004,968, $1,803,853 and $1,692,352, respectively.

Note 10 — Related party balances and transactions

The relationship of related parties

Name of Related Party |  | Relationship to the Company
Guangzhou Jiatu Culture Media Co., Ltd. (formerly as Guangzhou Powerbridge Blockchain Co., Ltd.) (1) |  | Company has significant influence over with this entity
Ban Lor |  | Co-founder, CEO’s brother
Stewart Lor |  | CEO
Yuxia Xu |  | CFO
Hong Yu |  | shareholder of Zhixin
Shanghai Stamp Technology Co., Ltd. |  | The Company owns equity interest
Phillip Tao Qiu |  | Independent Director
Guangodong Guangrui Network Technology Co., Ltd. (Guangdong Guangrui) |  | Company has significant influence over with this entity.
Xiaoyan Liu |  | Shareholder of Ascendent
Zhongchuan Dadi (Beijing) Technology Co., LTD |  | Shareholder of Ascendent
Shanghai Yue See cultural development Co., LTD |  | Shareholder of Metafusion

(1) | On June 2, 2022, the Company’s CFO sold the equity interest in Jiatu Culture Media Co., Ltd., so Jiatu Culture Media Co., Ltd. no longer considered as a related party.

F-31

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Related party balances and transactions (continued)

Due from related parties

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Shanghai Stamp Technology Co., Ltd. (1) |  | $ | - |  |  | $ | 172,811 |
Ban Lor (2) |  |  | 17,155 |  |  |  | 37,638 |
Stewart Lor (2) |  |  | 452,598 |  |  |  | 1,566,478 |
Yuxia Xu |  |  | 207,236 |  |  |  | 363,666 |
Phillip Tao Qiu(2) |  |  | 600,000 |  |  |  | - |
Xiaoyan Liu (2) |  |  | 87,990 |  |  |  | - |
Subtotal |  | $ | 1,364,979 |  |  | $ | 2,140,593 |

(1) | In connection with the acquisition of Smartconn, the balance was effectively settled.
(2) | From time to time, the Company advances funds to senior management for business purpose.

Due to related parties

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Hong Yu (1) |  | $ | - |  |  | $ | 118,114 |
Shanghai Yue See cultural development Co., LTD (1) |  |  | 39,985 |  |  |  | - |
Zhongchuan Dadi (Beijing) Technology Co., LTD (1) |  |  | 223 |  |  |  | - |
Subtotal |  | $ | 40,208 |  |  | $ | 118,114 |

(1) | The above balances represent unpaid loan and expenses to these related parties.

Related party transactions

|  |  |  | For the years ended |
|  |  |  | 2023 |  |  | 2022 |  |  | 2021 |
Guangzhou Guangrui(1) |  | Service fees |  | $ | - |  |  | $ | - |  |  | $ | 725,362 |
Guangzhou Jiatu Culture Media Co., Ltd. |  | Service fees |  | $ | - |  |  | $ | 62,667 |  |  | $ | - |
Stewart Lor |  | Interest income |  | $ | 50,663 |  |  | $ | 117,569 |  |  | $ | - |
Yuxia Xu |  | Interest income |  | $ | 16,778 |  |  | $ | 22,802 |  |  | $ | - |
Shanghai Stamp Technology Co., Ltd. |  | Interest income |  | $ | - |  |  | $ | 1,771 |  |  | $ | - |
Shanghai Yue See cultural development Co., LTD |  | Service revenue |  | $ | 4,195 |  |  | $ | - |  |  | $ | - |

(1) | As the disposal of Shantou Hongrui in February 2022, Guangzhou Guangrui was no longer considered as a related party.

F-32

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Bank loans

Outstanding balance of short-term bank loans consisted of the following:

|  | December 31, 2023 |  |  | December 31, 2022 |
Loan from Bank of Communication |  | $ | 2,816,942 |  |  | $ | 2,174,796 |
Loan from Bank of China |  |  | - |  |  |  | 434,959 |
Loan from SPD Bank |  |  | 1,126,776 |  |  |  | - |
|  | $ | 3,943,718 |  |  | $ | 2,609,755 |

Loan from Bank of Communication

On January 27, 2022, Powerbridge Zhuhai entered into a loan agreement with Bank of Communication to obtain a loan of $1,449,864 (RMB10.0 million) for a term of one year and at a fixed annual interest rate of 4.70%. The bank loan was guaranteed by the representative of Zhuhai Powerbridge and pledged approximately $2.4 million fixed assets as the collateral to secure the loan. The loan was fully repaid upon maturity.

On December 14, 2022, Powerbridge Zhuhai entered into facility agreement with Bank of Communication, pursuant to which a total facility of up to $724,932 (RMB5.0 million) was made available to the Company. The loan facility is available for the Company to withdraw from December 12, 2022 to December 12, 2025. The bank loan was guaranteed by the Company’s CEO and CEO’s spouse.

On December 16, 2022, drew down $724,932 (RMB5.0 million) for a term of one year and at a fixed annual interest rate of 4.10%. On December 5, 2023, the loan was fully repaid subsequently.

On December 14, 2023, Powerbridge Zhuhai drew down $454,751 (RMB3,228,684) for a term of one year and at a fixed annual interest rate of 3.90%.

On December 25, 2023, Powerbridge Zhuhai drew down $249,485 (RMB1,771,316) for a term of one year and at a fixed annual interest rate of 3.90%.

On January 18, 2023, Powerbridge Zhuhai entered into facility agreement with Bank of Communication, pursuant to which a total facility of up to $1,408,471 (RMB10.0 million) was made available to the Company. The loan facility is available for the Company to withdraw from January18, 2023 to December 12,2025. The bank loan was guaranteed by the representative of Zhuhai Powerbridge and pledged approximately $2.3 million fixed assets as the collateral to secure the loan.

On January 19, 2023, Powerbridge Zhuhai drew down $1,408,471 (RMB10.0 million) for a term of one year and at a fixed annual interest rate of 4.20%. On January 17, 2024, the loan was fully repaid subsequently.

On January 17, 2024, Powerbridge Zhuhai drew down $1,408,471 (RMB10.0 million) for a term of one year and at a fixed annual interest rate of 3.9%.

On January 11, 2023, Powerbridge Zhuhai entered into facility agreement with Bank of Communication, pursuant to which a total facility of up to $704,235 (RMB5.0 million) was made available to the Company. The loan facility is available for the Company to withdraw from January 11, 2023 to December 12,2025. The bank loan was guaranteed by the Company’s CEO and a third party.

On January 16, 2023, Powerbridge Zhuhai drew down $505,323 (RMB3,587,746) for a term of one year and at a fixed annual interest rate of 4.20%. On January 16, 2024, the loan was fully repaid subsequently.

F-33

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Bank loans (continued)

On March 14, 2023, Powerbridge Zhuhai drew down $198,912 (RMB1,412,254) for a term of one year and at a fixed annual interest rate of 4.20%.

On January 31, 2024, Powerbridge Zhuhai drew down $492,965 (RMB3,500,000) for a term of one year and at a fixed annual interest rate of 3.9%, subsequently

Loan from Bank of China

On July 15, 2022, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $724,932 for a term of one year and at a fixed annual interest rate of 4.50%. The bank loan was guaranteed by the representative of Zhuhai Powerbridge and pledged approximately $1.8 million fixed assets as the collateral to secure the loan. On December 30, 2022, the Company fully repaid the loan in advance.

On June 10, 2022, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $724,932 for a term of one year and at a fixed annual interest rate of 4.50%. The bank loan was guaranteed by the representative of Zhuhai Powerbridge and pledged approximately $1.8 million fixed assets as the collateral to secure the loan. On December 30, 2022, the Company partially repaid $289,973 in advance. the remaining balance was fully repaid on April 3, 2023.

Loan from SPD Bank

On June 20, 2023, Powerbridge Zhuhai entered into a facility agreement with Shanghai Pudong Development Bank obtain a total facility of up to $1,126,776 (RMB8.0 million) The loan facility is available for the Company to withdraw from June 20, 2023 to May, 24, 2024. The bank loan was guaranteed by the Company’s CEO and pledged approximately $1.7 million fixed assets as the collateral to secure the loan. On June 28, 2023, Powerbridge Zhuhai drew down $1,126,776 (RMB8.0 million) for a term of one year and at a fixed annual interest rate of 4.1%.

For the years ended December 31, 2023, 2022 and 2021, interest expense was $144,080, $203,380 and $211,197, respectively, with the weighted average interest rate of 4.1%, 5.1% and 5.0%, respectively.

Note 12 — Lease

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

Effective January 1, 2022, the Company adopted the new lease accounting standard using a modified retrospective transition method which allowed the Company not to recast comparative periods presented in its consolidated financial statements. In addition, the Company elected the package of practical expedients, which allowed the Company to not reassess whether any existing contracts contain a lease, to not reassess historical lease classification as operating or finance leases, and to not reassess initial direct costs. The Company has not elected the practical expedient to use hindsight to determine the lease term for its leases at transition. The Company combines the lease and non-lease components in determining the ROU assets and related lease obligation. Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities as disclosed below and had no impact on accumulated deficit as of January 1, 2022. ROU assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term.

Total lease expense for the years ended December 31, 2023, 2022 and 2021 amounted to $344,775, $162,799 and $307,497, respectively. Cash paid for amounts included in the measurement of lease liabilities amounted to $141,183 and $63,837 for the years ended December 31, 2023 and 2022, respectively.

F-34

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 — Lease (continued)

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

|  | December 31, 2023 |  |  | December 31, 2022 |
Right-of-use assets, net |  | $ | 357,007 |  |  | $ | 211,585 |
Operating lease liabilities - current |  |  | 260,728 |  |  |  | 91,587 |
Operating lease liabilities - non-current |  |  | 109,956 |  |  |  | 101,992 |
Total operating lease liabilities |  | $ | 370,684 |  |  | $ | 193,579 |

The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2023:

Remaining lease term and discount rate: |  |  |
Weighted average remaining lease term (years) |  |  | 1.5 years |
Weighted average discount rate |  |  | 5.0 | %

The following is a schedule of maturities of lease liabilities as of December 31, 2023:

Twelve months ending December 31, |  | Amount |
2024 |  | $ | 271,791 |
2025 |  |  | 111,009 |
Total future minimum lease payments |  |  | 382,800 |
Less: imputed interest |  |  | (12,116 | )
Present value of lease liabilities |  | $ | 370,684 |

Note 13 — Convertible Notes

On August 7, 2021, the Company entered into an amendment (the “Closing Statement”) to the securities purchase agreement initially entered into with YA on April 9, 2021 (the “Purchase Agreement”). Pursuant to the Purchase Agreement, YA agreed to purchase convertible notes (the “Notes”) in the aggregate principal amount of US$7,000,000 (the “Principal”), which shall be convertible into the Company’s Class A ordinary shares, and a warrant (the “Warrant”) to purchase 2,381 Class A ordinary shares, for gross proceeds of approximately US$6,790,000. The first closing of the offer and sale of the first Note (the “First Note”) in the principal amount of $4,000,000 was completed on April 9, 2021. Pursuant to the Closing Statement, the Company and YA agreed that, among other thing, (i) the Principal shall be increased to US$8,000,000; (ii) the principal amount of the second Note (the “Second Note”) is reduced from $3,000,000 to $2,000,000; the closing of the second Note in the principal amount of $2,000,000 was completed on August 9, 2021. (iii) the number of Class A ordinary shares to be issued pursuant to the Warrant shall be increased from 2,381 to 2,721; and (iv) promptly after the Securities and Exchange Commission (the “SEC”) declares effective a registration statement to be filed by the Company pursuant to a registration rights agreement (the “Registration Rights Agreement”), YA agrees to purchase the third Note (the “Third Note”) in the principal amount of $2,000,000, which shall have identical terms as those of the Second Note. Except as expressly amended by the Closing Statement, the Second Note has essentially identical terms to the First Note.

F-35

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 — Convertible Notes (continued)

On September 1, 2022, the Company entered into a securities purchase agreement with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company issued the Investor an unsecured promissory note on September 1, 2022 in the original principal amount of $8,640,000 (the “Note”), convertible into Class A ordinary shares of the Company, for $8,000,000 in gross proceeds. The transaction contemplated by the Purchase Agreement closed on September 1, 2022. The Note bears interest at a rate of 6% per annum compounding daily. All outstanding principal and accrued interest on the Note will become due and payable twelve months after the purchase price of the Note is delivered by Purchaser to the Company (the “Purchase Price Date”). The Note includes an original issue discount of $640,000 along with $20,000 for Streeterville’s fees, costs and other transaction expenses incurred in connection with the purchase and sale of the Note. The Company may prepay all or a portion of the Note at any time by paying 120% of the outstanding balance elected for pre-payment.

Conversion of convertible notes

For the year ended December 31, 2022, YA delivered conversion notice for convertible notes in an aggregate of principle of $2,000,000 to the Company and the Company issued an aggregate of 24,708 Class A ordinary shares of the Company to YA. The fair value of the conversion note was assessed at $2,261,270 upon conversion based on the binomial model assessed by the independent valuation firm.

The Company has elected to recognize the convertible note at fair value and therefore there was no further evaluation of embedded features for bifurcation. The Company engaged third party valuation firm to perform the valuation of convertible note. The fair value of the convertible note is calculated using the binomial tree model based on probability of remaining as straight debt using discounted cash flow with the following assumptions

|  | February 9, 2022-May 25, 2022 |
Risk-free interest rate |  |  | 0.53-0.91 | %
Expected life |  |  | 0.20-0.48 year |
Discount rate |  |  | 9.33-11.22 | %
Expected volatility |  |  | 80.48-143.72 | %
Expected dividend yield |  |  | 0 | %
Fair value |  | $ | 2,261,270 |

For the year ended December 31, 2022, Streeterville delivered conversion notice for convertible notes in an aggregate of principle of $1,250,310 to the Company and the Company issued an aggregate of 58,257 Class A ordinary shares of the Company to Streeterville. The fair value of the conversion note was assessed at $1,534,654 upon conversion based on the binomial model assessed by the independent valuation firm.

|  | November 8, 2022- December 24, 2022 |
Risk-free interest rate |  |  | 4.66-4.72 | %
Expected life |  |  | 0.70-0.83 year |
Discount rate |  |  | 1137-11.72 | %
Expected volatility |  |  | 99.91-103.93 | %
Expected dividend yield |  |  | 0 | %
Fair value |  | $ | 1,534,654 |

F-36

X3 HOLDINGS CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 — Convertible Notes (continued)

For the year ended December 31, 2023, the Company repaid principle of $1,047,054 and interest of $202,946 to Streeterville by cash. For the year ended December 31, 2023, Streeterville delivered conversion notice for convertible notes in an aggregate of principle of $2,427,582 to the Company and the Company issued an aggregate of 111,875 Class A ordinary shares of the Company to Streeterville. The fair value of the conversion note was assessed at $3,128,453 upon conversion based on the binomial model assessed by the independent valuation firm.

|  | January 10, 2023-February 3, 2023 |
Risk-free interest rate |  |  | 4.75-4.81 | %
Expected life |  |  | 0.59-0.65 year |
Discount rate |  |  | 10.96-11.37 | %
Expected volatility |  |  | 109.85-113.95 | %
Expected dividend yield |  |  | 0 | %
Fair value |  | $ | 3,128,453 |

The convertible notes 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 the Group’s own assumptions in measuring fair value. Significant inputs used in developing the fair value of the convertible notes include time to maturity, risk-free interest rate, straight debt discount rate, probability to convert and expected timing of conversion.

The fair value of the remaining conversion note was assessed at $5,020,633 as of December 31, 2023 based on the binomial model assessed by the independent valuation firm.

|  | December 31, 2023 |
Risk-free interest rate |  |  | 5.25 | %
Expected life |  |  | - year |
Discount rate |  |  | 10.66 | %
Expected volatility |  |  | 89.66 | %
Expected dividend yield |  |  | 0 | %
Fair value |  | $ | 5,020,633 |

For the years ended December 31, 2023, 2022 and 2021, the Company recognized a loss of change in fair value of convertible note of $ 21,166, $2,448,936 and $1,508,229, respectively. Interest expense recognized for these convertible notes for the years ended December 31, 2023, 2022 and 2021 were$297,954, $195,139 and $226,775, respectively.

Note 14 — 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.

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.

F-37

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Taxes (continued)

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 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on case-by-case basis. EIT grants preferential tax treatment to certain High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. Powerbridge Zhuhai, the Company’s operating subsidiary in PRC, has been approved as HNTEs in 2014 and successfully renewed it in 2023, which reduced its statutory income tax rate to 15%. The rest of the Company’s subsidiaries in PRC are subject to income tax rate of 25%.

The impact of the preferred tax treatment noted above decreased income taxes by $477,154, $662,675 and $89,850 for the fiscal years 2023, 2022 and 2021, respectively. The benefit of the preferred tax treatment on net loss per share (basic and diluted) was $0.02, $1.46 and $0.44 for the years ended December 31, 2022, 2021 and 2020, respectively.

Significant components of the provision for income taxes are as follows:

|  | For the years ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Current |  | $ | 9,354 |  |  | $ | (563,650 | ) |  | $ | 135 |
Deferred |  |  | (66,695 | ) |  |  | (435,741 | ) |  |  | (174,076 | )
Total income tax benefit |  | $ | (57,341 | ) |  | $ | (999,391 | ) |  | $ | (173,941 | )

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

|  | For the years ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
PRC statutory rates |  |  | 25.0 | % |  |  | 25.0 | % |  |  | 25.0 | %
Preferential tax rates |  |  | (0.4 | )% |  |  | (2.9 | )% |  |  | (25.8 | )%
R&D credits |  |  | 0.2 | % |  |  | 1.5 | % |  |  | 3.0 | %
Change in valuation allowance and others |  |  | (24.8 | )% |  |  | (19.2 | )% |  |  | (0.4 | )%
Effective tax rate |  |  | 0.0 | % |  |  | 4.4 | % |  |  | 1.8 | %

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. The significant components of the deferred tax assets are as follows:

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Deferred tax assets: |  |  |  |  |  |
Provision for credit losses |  | $ | 1,268,962 |  |  | $ | 1,260,557 |
Depreciation and amortization |  |  | 185,676 |  |  |  | 162,980 |
Net operating loss carryforward |  |  | 2,496,584 |  |  |  | 1,388,155 |
Valuation allowance |  |  | (2,932,049 | ) |  |  | (1,831,039 | )
Total deferred tax assets |  | $ | 1,019,173 |  |  | $ | 980,653 |

F-38

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Taxes (continued)

As of December 31, 2023, the Company has approximately $13.7 million net operating loss (“NOL”) carryforwards with expirations by 2028. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the cumulative earnings and projected future taxable income in making this assessment. Recovery of substantially all of the group’s deferred tax assets is dependent upon the generation of future income, exclusive of reversing taxable temporary differences. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are recoverable, management provided $2,932,049 and $1,831,039 valuation allowance against the deferred tax assets that the Company does not expect to realize at December 31, 2023 and 2022, respectively.

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 3% to 13% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on sales of the finished products and services. Powerbridge Zhuhai obtained a VAT preferential status for its technology development business, accordingly, the certain Company’s technology development business is exempted from VAT.

Tax payable

Taxes payable consists of the following:

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Income taxes payable |  | $ | 5,889 |  |  | $ | - |
VAT and other tax payable |  |  | 174,553 |  |  |  | 110,843 |
Totals |  | $ | 180,442 |  |  | $ | 110,843 |

Uncertain tax positions

The Company may be subject to challenges from various PRC taxing authorities regarding the amounts of taxes due, although the Company’s management believes the Company has paid or accrued for all taxes owed by the Company. As of December 31, 2022 the Company had accrued (before adjustment) total income tax liabilities of $550,602. According to PRC taxation regulation and administrative practice and procedures, the statute of limitation on tax authority’s audit or examination of previously filed tax returns expires three years from the date they were filed. The Company also obtained a written statement from the local tax authority that no additional taxes are due as of December 31, 2022. Based on these facts, the Company reversed the accrued tax liabilities in the total amount of $550,602 (or RMB3,798,484) relating to the tax liabilities accrued for the period from fiscal 2016 to fiscal 2018, resulting in the decrease of accrued income tax liabilities from $550,602 to $nil as of December 31, 2022.

The Company 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, 2023 and 2022, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the years ended December 31, 2023, 2022 and 2021. The Company also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December 31, 2023.

F-39

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Equity

Ordinary Shares

On December 5, 2022, the Company held its 2022 special general meeting of shareholders. At the Meeting, the Company’s shareholders approved an amendment to the Company’s amended and restated Memorandum and Articles of Association (“A&R M&A”) to increase the authorized share capital. As a result, the Company’s authorized share capital is $16,666,700 divided into 10,000,000,000 shares of a par value of $0.00166667 each, with an increase of an additional 9,700,000,000 shares of a par value of $0.00166667 each.

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 $0.00166667 each in the Company’s issued and unissued share capital into one (1) share with par value of US$ 0.050 (the “Share Consolidation”) and (ii) an increase in the authorized share capital of the Company from $16,666,700 (divided in to 333,333,333 shares) to $50,000,000 (divided in to 1,000,000,000 shares), all of which will rank pari passu in all respects with all existing shares of the Company.

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 $0.050 each in the Company’s issued and unissued share capital be consolidated into one (1) share with par value of $0.40 (the “Share Consolidation”); (ii) an increase in the authorized share capital of the Company from $50,000,000 divided into 125,000,000 shares of a nominal or par value of $0.40 each, to $200,000,000 divided into 500,000,000 shares of a nominal or par value of $0.40 each (the “Share Capital Increase”); (iii) a dual-class share structure of Class A and Class B ordinary shares of the Company, with each Class A and Class B ordinary share ranking pari passu and having the same rights, preferences, privileges and restrictions, except that, voting as the same class, each Class B ordinary share is entitled to thirty (30) votes and each Class A ordinary is entitled one (1) vote (the “Dual-class Share Structure”); (iv) a re-designation of 2,000,000 shares of the 500,000,000 authorized shares as Class B ordinary shares and 498,000,000 shares of the 500,000,000 authorized shares as Class A ordinary shares; (v) a re-designation of the 243,903 shares (after giving effect to the Share Consolidation) held by Mr. Stewart Lor, CEO and Chairman of the Board of the Company, as Class B ordinary shares (together with item (iv), the “Share Re-designation”).

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 $200,000,000 divided into 500,000,000 shares of a nominal or par value of $0.40 each to $2,000,000,000 divided into 5,000,000,000 ordinary shares of a nominal or par value of $0.40 each by creation of an additional 4,500,000,000 ordinary shares of a nominal or par value of US$0.40 each (the “Share Capital Increase”). (c) 18,000,000 ordinary shares of the additional 4,500,000,000 authorized ordinary shares be re-designated as Class B ordinary shares and 4,482,000,000 ordinary shares of the additional 4,500,000,000 authorized ordinary shares as Class A ordinary shares (together, the “Share Re-designation”), such the authorized share capital of the Company shall be changed to “$2,000,000,000 divided into (i) 4,980,000,000 Class A ordinary shares of a par value of US$0.40 each, and (ii) 20,000,000 Class B ordinary shares of a par value of $0.40 each.”

On June 21, 2023, the Company paid cash to certain minor shareholders and cancelled 220 shares due to share consolidation reconciliation.

On October 2, 2023, the Company paid cash to certain minor shareholders and cancelled 635 shares due to share consolidation reconciliation.

The Company had 259,464,169 and 1,187,498 Class A ordinary shares issued and outstanding as of December 31, 2023 and 2022, respectively. The Company had 243,902 and nil Class B ordinary shares issued and outstanding as of December 31, 2023 and 2022, respectively.

F-40

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Equity (continued)

Public Offering Warrants

In connection with the initial public offering (“IPO”) on April 4, 2019, the Company issued warrants totaling 510 units to the placement agents (the “Public Offering Warrants”). The warrants carry a term of five years and shall be exercisable at $1,320 per share. Management determined that these warrants are equity instruments because the warrants are both a) indexed to its own stock; and b) classified in shareholders’ equity. The warrants were recorded at their fair value on the date of grant as a component of shareholders’ equity. As of December 31, 2023 and 2022, no warrants were exercised. weighted average remaining life of 0.26 years and 1.24 years, respectively. The fair value of this Public Offering Warrants was $356,200, which was considered a direct cost of IPO and included in additional paid-in capital. The fair value has been estimated using the Black-Scholes pricing model with the following weighted-average assumptions: market value of underlying share of $1,200, risk free rate of 2.2%; expected term of 5 years; exercise price of the warrants of $1,320, volatility of 71.9%; and expected future dividends of nil.

Shares issued for consulting services

On September 30, 2019, the Company entered into a marketing development service agreement with an external consultant for service term of three years and agreed to 208 restricted Class A ordinary shares as compensation. The fair value of those restricted shares was assessed at $164,000 based on the stock price of contract dates. On November 28, 2019, the Company entered into a marketing development service agreement with another external consultants for service term of three years and agreed to 240 restricted Class A ordinary shares as compensation. The fair value of those restricted shares was assessed at $171,469 based on the stock price of contract dates.

On March 15, 2020, the Company signed a consulting agreement with an independent marketing professional with term of one year. Pursuant to the agreement, the Company agreed to pay total of 625 restricted Class A ordinary shares as compensation for the services after signing of the agreement. The Company issued 625 restricted Class A ordinary shares on April 14, 2020. The fair value of those restricted shares was assessed at approximately $358,500 based on the stock price of contract date. On July 30, 2020, the Company issued 101 Class A ordinary shares as compensation to an advisory firm for the related investor relations advisory service during the period ended from January 2020 to July 2020. The fair value of those shares was assessed at approximately $65,001 based on the stock price of contract date On September 26, 2020, the Company signed a consulting agreement with a third-party consultant. Pursuant to the agreement, the Company agreed to pay a total of 417 restricted Class A ordinary shares for service term of three years as compensation. The Company has issued the above 417 restricted Class A ordinary shares on June 1, 2021. The fair value of those restricted shares was assessed at $209,000 based on the stock price of contract dates. On August 17, 2020, the Company signed a consulting agreement with a third-party consultant. Pursuant to the agreement, the Company agreed to pay a total of 42 restricted Class A ordinary shares for service term of two years as compensation. The Company has issued the above 42 restricted Class A ordinary shares on March 1, 2022. The fair value of those restricted shares was assessed at $27,900 based on the stock price of contract date.

On September 23, 2021, the Company signed a consulting agreement with a third-party consultant. Pursuant to the agreement, the Company agreed to pay a total of 1,042 restricted Class A ordinary shares for service term of one year as compensation. The fair value of those restricted shares was assessed at $320,000 based on the stock price of contract dates. On September 23, 2021, the Company signed a consulting agreement with a third-party consultant. Pursuant to the agreement, the Company agreed to pay a total of 1,042 restricted Class A ordinary shares for service term of one year as compensation. The fair value of those restricted shares was assessed at $320,000 based on the stock price of contract dates.

On October 19, 2021, the Company issued 88 Class A ordinary shares as compensation to an advisory firm for the related investor relations advisory service. The fair value of those shares was assessed at $21,394 based on the stock price of contract dates.

F-41

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Equity (continued)

On May 18, 2022, the Company issued 155 Class A ordinary shares as compensation to an advisory firm for the related investor relations advisory service. The fair value of those shares was assessed at $11,564 based on the stock price of contract dates.

On January 4, 2023, March 14, 2023, March 27, 2023, April 23, 2023, June 26, 2023 and August 4, 2023, the Company issued 3,788, 12,500, 9,470, 12,626, 43,706 and 79,618 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 $1,520,867 based on the stock price of contract dates.

On November 29, 2023, the Company signed a consulting agreement with an advisory firm with term of six months. The Company agreed to pay $1,000,000 worth restricted shares as compensation to the advisory firm for the related investor relations advisory service. On December 18, 2023, the Company issued 84,033 restricted Class A ordinary shares to the advisory firm based on the fair market value.

On December 8, 2023, the Company signed a consulting agreement with an advisory firm with term of six months. The Company agreed to pay $1,500,000 worth restricted shares as compensation to the advisory firm for the related investor relations advisory service. On December 18, 2023, the Company issued 1,260,504 restricted Class A ordinary shares to the advisory firm based on the fair market value.

For the year ended December 31, 2023, 2022 and 2021, the Company recorded a consulting fee expense of $1,698,117, $649,122 and $461,680 included in the share-based compensation expense. As of December 31, 2023 and 2022, there were unrecognized share-based compensation expense related to the shares issued for consulting services amounted to $1,474,999 and $52,249.

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 50,000 RSUs (representing 1 ordinary shares of the Company) as compensation for the services after signing of the agreements. The Company issued 50,000 RSUs on July 22, 2022. The fair value of those shares was assessed at $13,080,000 based on the stock price of contract date.

For the year ended December 31, 2023 and 2022, the Company recorded a consulting fee expense of $4,360,000 and $1,998,333 included in the share-based compensation expense. As of December 31, 2023 and 2022, there were unrecognized share-based compensation expense related to RSUs issued for consulting services amounted to $6,721,667 and $11,081,667.

F-42

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Equity (continued)

2018 Stock option plan

On August 18, 2018 and further amended on February 10, 2019, the Board of Directors (“Board”) approved an amended the 2018 Stock Option Plan (the “2018 Plan”). The Plan provides for discretionary grants of stock options to key employees, directors and consultants of the Company. The purpose of the Plan is to attract and retain the best available personnel and to promote the success of the Company’s business. The Board authorized that the maximum aggregate number of ordinary shares reserved and available pursuant to this Plan shall be the aggregate of (i) 4,316 shares, and (ii) on each January 1, starting with January 1, 2019, an additional number of shares equal to the lesser of (A) 2% of the outstanding number of ordinary shares (on a fully-diluted basis) on the immediately preceding December 31, and (B) such lower number of ordinary shares as may be determined by the Committee. The Plan shall become effective on the effective date of the Company’s contemplated initial public offering is completed, which was on April 4, 2019. The grants under the Plan generally have a maximum contractual term of ten years from the date of grant. Stock option awards granted under the plan at the determination of the Board shall be effective and exercisable after the Company’ completion of IPO of its securities. The terms of individual agreements for various grants under the Plan will be determined by the Board (or its Compensation Committee) and might contain both service and performance conditions. The Company believes the options contain an explicit service condition and a performance condition. On July 2, 2020, the Board approved to amend the 2018 Plan to adjust that the maximum aggregate number of ordinary shares reserved and available pursuant to the 2018 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. Such amendment was approved during shareholders’ annual meeting on July 27, 2020.

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 259,473 Class A ordinary shares of the Company reserved for issuance under the Amended 2018 Plan, which are in addition to the 83,211 Class A ordinary shares s 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 342,684 Class A ordinary shares.

On April 4, 2019, the Board approved to issue 4,377 stock options to its employees under 2018 stock option plan with exercise price of $ 1,200 per share. These options generally have vesting periods of 1-3 years and will expire no later than April 3, 2024. On January 29, 2022, the Board cancelled this plan.

On April 4, 2019, the Board approved to issue 1,250 stock options to an external consultant under 2018 stock option plan with exercise price of $900 per share. These options were fully vested upon grant and will expire no later than April 3, 2029. On February 18, 2021, the consultant excised 242 shares options on a cashless basis. On February 6, 2021, the Company issued 100 Class A ordinary shares to the consultant.

On May 26, 2021, the Board approved to issue 31,687 stock options to its employees under 2018 stock option plan with exercise price of $292.8 per share. 16,729 of these stock options were fully vested upon grant; 14,958 of these stock options generally have vesting periods of 1-3 years. The options will expire no later than May 26, 2026. On January 26, 2022, the Board approved to amend the exercise price from $292.8 to $ 81.6 per share, 24,208 of these stock options were fully vested upon grant; 7,479 of these stock options was vested in one year after grant. The Company recorded modification expense of $2,139,555. On May 16, 2022, the Board further approved to amend the exercise price from $81.6 to $ 63.6 per share. The Company recorded modification expense of $137,641. On December 20, 2022, the Board further approved to amend the exercise price from $63.6 to $20.16 per share. The Company recorded modification expense of $206,461.

F-43

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Equity (continued)

The fair value of stock options was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instruments. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends. For the year ended December 31, 2022, assumptions used to estimate the fair value of stock options on the grant dates are as follows:

|  | Options granted in May 2021 |  |  | Options Amended in January, 2022 |  |  | Options Amended in May, 2022 |  |  | Options Amended in December, 2022 |
Risk-free interest rate |  |  | 0.81 | % |  |  | 1.66 | % |  |  | 0.81 | % |  |  | 4.44 | %
Expected life of the options |  |  | 5 years |  |  |  | 4.33 years |  |  |  | 4.03 years |  |  |  | 3.43 years |
Expected volatility |  |  | 96.0 | % |  |  | 96.0 | % |  |  | 96.0 | % |  |  | 96.0 | %
Expected dividend yield |  |  | - | % |  |  | - | % |  |  | - | % |  |  | - | %
Fair value |  | $ | 7,232,526 |  |  | $ | 2,106,163 |  |  | $ | 1,652,811 |  |  | $ | 689,971 |

A summary of activities of the stock options for the years ended December 31, 2023, 2022 and 2021 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, 2020 |  |  | 5,627 |  |  |  | 1,133.36 |  |  |  | 4.37 |  |  |  | - |
Granted |  |  | 31,687 |  |  |  | 292.80 |  |  |  | - |  |  |  |  |
Exercised |  |  | (242 | ) |  |  |  |  |  |  |  |  |  |  |  |
Outstanding as of December 31, 2021 |  |  | 37,072 |  |  |  | 416.42 |  |  |  | 4.23 |  |  |  | - |
Granted |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Cancelled |  |  | (4,377 | ) |  |  | 1,133.36 |  |  |  | - |  |  |  | - |
Outstanding as of December 31, 2022 |  |  | 32,695 |  |  |  | 48.00 |  |  |  | 3.49 |  |  |  |  |
Granted |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Cancelled |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Outstanding as of December 31, 2023 |  |  | 32,695 |  |  |  | 47.29 |  |  |  | 2.49 |  |  |  | - |
Exercisable as of December 31, 2023 |  |  | 32,695 |  |  |  | 47.29 |  |  |  | 2.49 |  |  |  | - |

For the year ended December 31, 2023, 2022 and 2021, total share-based compensation expenses recognized for the share options granted were $nil, $3,336,452 and $5,873,566, respectively. As of December 31, 2023 and 2022, there was no unrecognized share-based compensation expenses related to the share options granted, respectively.

F-44

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Equity (continued)

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 $15 million of the Company’s Class A ordinary shares at the lowest daily VWAP of the Class A ordinary shares during the Valuation Period by 97%. As of December 31, 2022, the Company issued 95,313 Class A ordinary shares and net proceeds was $3,519,202. In 2023, the Company issued 58,333 Class A ordinary shares and net proceeds was $596,504.

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 $30 million of the Company’s Class A ordinary shares at the market price by 96%, and the company shall issue to YA II PN, LTD. 933 Class A ordinary shares as a commitment fee. As of December 31, 2022, the Company issued 70,979 Class A ordinary shares and net proceeds was $3,511,317. The Company issued 933 Class A ordinary shares for commitment fee on January 1, 2023. In 2023, the Company issued 1,473,634 Class A ordinary shares and net proceeds was $6,864,652.

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 $15 million of the Company’s Class A ordinary shares at the market price by 96%, and the company shall issue to Yorkville 933 Class A ordinary shares as a commitment fee. The Company issued 933 Class A ordinary shares for commitment fee on December 15, 2022. In 2023, the Company issued 49,319 Class A ordinary shares and net proceeds was $476,563, the remaining gross balance of $500,000 was collected by March 22, 2024, subsequently.

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 $600,000 of the Company’s Class A ordinary shares at a higher price of (i)80% of the closing bid price at May 17, 2023; or (ii) a price further negotiated and agreed by both parties upon closing; or (iii) $0.05. Net proceeds of $600,000 was received on May 18, 2023.

On November 24, 2023, the Company entered into purchase agreements with twelve investors. The investors agreed to purchase an aggregate of $40,000,000 of the Company’s Class A ordinary shares at a share price of $0.3 per share. The Company issued 130,463,140 Class A ordinary shares on November 24, 2023.

Conversion of convertible notes

On August 13, 2021, The Company issued an aggregate of 12,727 Class A ordinary shares of the Company YA. The fair value of the conversion note was assessed at $4,445,433 upon conversion based on the binomial model assessed by the independent valuation firm.

On September 8 2021, Uptown delivered conversion notice for all convertible notes in an aggregate of principle of $1,650,000. The Company issued an aggregate of 6,985 Class A ordinary shares of the Company to Uptown. The fair value of the conversion note was assessed at $1,897,739 upon conversion based on the binomial model assessed by the independent valuation firm.

On May 25, 2022, The Company issued an aggregate of 24,708 Class A ordinary shares of the Company YA (Note 13). The fair value of the conversion note was assessed at $2,261,270 upon conversion based on the binomial model assessed by the independent valuation firm.

On December 12, 2022, The Company issued an aggregate of 58,257 Class A ordinary shares of the Company Streeterville (Note 13). The fair value of the conversion note was assessed at $1,534,654 upon conversion based on the binomial model assessed by the independent valuation firm.

F-45

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Equity (continued)

On February 3, 2023, the Company issued an aggregate of 111,875 Class A ordinary shares of the Company to Streeterville (Note 13). The fair value of the conversion note was assessed at $3,128,453 upon conversion based on the binomial model assessed by the independent valuation firm.

Shares issued for reserve

On August 5, 2021, the Company issued 16,729 Class A ordinary shares held in an escrow account as reserve solely for potential stock options. On September 20, 2022, the Company issued 10,069 Class A ordinary shares held in an escrow account as reserve solely for potential stock options. As of December 31, 2023, no shares were transferred to the holders.

At the market(“ATM”) offering

On February 23, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners, as sales agent (the “Agent”), pursuant to which the Company may offer and sell, from time to time, through or to the Agent, as sales agent and/or principal (the “Offering”) up to $30,000,000 of its Class A ordinary shares (the “Shares”). Any Shares offered and sold in the Offering will be issued pursuant to the Company’s Registration Statement on Form F-3 (the “Registration Statement”) filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2021, and the sales agreement prospectus that forms a part of such Registration Statement, following such time as the Registration Statement is declared effective by the SEC, for an aggregate offering price of up to $200 million. For the year ended December 31, 2021, the Company sold 6,776 Class A ordinary shares through the ATM offering with net proceeds of $5,128,477. For the year ended December 31, 2022, the Company sold 237 Class A ordinary shares through the ATM offering with net proceeds of $56,449, the amount was received on January 28, 2023.

Shares issued for long-term investments/acquisitions

In connection of the long-term investment of Smartconn, on January 20, 2022, the Company issued 71,410 Class A ordinary shares to the original shareholders of Smartconn as consideration of 19.99% equity interest. The fair value of the shares issued amounted to $8,305,222.

In connection of the long-term investment of Boxinrui on June 28, 2022, the Company issued 83,094 Class A ordinary shares to the original shareholders of Boxinrui as consideration of 15% equity interest. The fair value of the shares issued amounted to $6,674,772. On December 28, 2022, the Company further issued 230,419 Class A ordinary shares to the original shareholders of Boxinrui as consideration of 20% equity interest. The fair value of the shares issued amounted to $4,446,163.

In connection of the long-term investment of Chenbao, on August 24, 2022, the Company issued23,985 Class A ordinary shares to the original shareholders of Chenbao as partial consideration of 5% equity interest. The fair value of the shares issued amounted to $1,844,377.

In connection of the long-term investment of DTI, on November 1, 2022, the Company issued 231,278 Class A ordinary shares to the original shareholders of DTI as consideration of 19% equity interest. The fair value of the shares issued amounted to $9,058,701.

On January 5, 2023, the Company entered into an equity transfer agreement with a shareholder of Smartconn which the Company agrees to purchase 31% equity of Smartconn at 90% of the appraisal price. The consideration of the Acquisition will be paid in the form of 478,747 Class A ordinary shares of the Company. The fair value of the shares issued amounted to $12,640,062

F-46

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Equity (continued)

On March 24, 2023, the Company entered into an equity transfer agreement with a shareholder of DTI which the Company agrees to prepaid 698,301Class A ordinary shares to purchase 32% equity of DTI. The fair value of the shares issued amounted to $15,906,186.

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 1,151,869 shares to further acquire 65% equity interest in Boxinrui for a consideration in form of 1,151,869 Class A ordinary shares to the Relevant Shareholders. The fair value of the shares issued amounted to $24,078,675.

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 53,388,709 Class A ordinary shares to the previous shareholders as a compensation due to continuous declining share price. On November 23,2023, the Company fully issued the related compensation shares. The fair value of the shares issued amounted to $30,938,757.

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 69,141,256 Class A ordinary shares to the previous shareholders as a compensation due to continuous declining share price. On November 23,2023, the Company fully issued the related compensation shares. The fair value of the shares issued amounted to $40,067,357.

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 10% of their after-tax profits on an individual company basis as determined under PRC accounting standards to the statutory reserve and has the right to discontinue allocations to the statutory reserve if such reserve has reached 50% of registered capital on an individual company basis.

The Company’s subsidiaries in PRC had accumulated deficits for the years ended December 31, 2023 and 2022, as a result, the statutory reserve balances were $nil as of December 31, 2023 and 2022.

Note 16 — Commitments and contingencies

Contingencies

In the ordinary course of the business, the Company subject to periodic legal or administrative proceedings. The Company accrues liability when the loss is probable and reasonably estimable.

On August 22, 2023, one supplier of the Company filed a lawsuit against the Company for a debt dispute of $1,422,555 (RMB 10,100,000). On November 16, 2023, the court ordered the Company to pay the supplier $1,422,555 (RMB 10,100,000) and related interest. On March 26, 2024. the Court made the final judgement to maintain the original ruling on November 16, 2023. The Company has recorded the disputed amount $1,422,555 (RMB 10,100,000) in the accounts payable and related interest $23,988 (RMB170,311) in accrued expenses and other current liabilities based on the best estimate of the management and the Company’s legal counsel as of December 31, 2023. The supplier also applied an order to freeze total cash of $1,442,243 (RMB10,239,780), which was recorded as restricted cash as of December 31, 2023.

F-47

X3 HOLDINGS CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 — Segment reporting

For the years ended December 31, 2023 and 2022, the Company’s CODM reviewed the financial information of the business carried out by the Company on a consolidated basis. Therefore, the Company has one operating segment, which is the provision of global trade software application and technology services. The Company operates solely in the PRC and all of the Company’s long-lived assets are located in the PRC.

The following table presents revenues by the service lines:

|  | For the Years Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
REVENUES: |  |  |  |  |  |  |  |  |
Application development services* |  | $ | 9,780,115 |  |  | $ | 3,847,199 |  |  | $ | 20,323,422 |
Consulting and technical support services |  |  | 3,609,158 |  |  |  | 2,538,500 |  |  |  | 4,555,352 |
Subscription services |  |  | 695,010 |  |  |  | 758,526 |  |  |  | 936,913 |
Trading revenue |  |  | 2,549,808 |  |  |  | 3,338,584 |  |  |  | 6,277,141 |
Other revenue |  |  | 190,732 |  |  |  | - |  |  |  | - |
Total revenues |  | $ | 16,824,823 |  |  | $ | 10,482,809 |  |  | $ | 32,092,828 |

* | For the years ended December 31, 2023, 2022 and 2021, certain application development service arrangements included sales of IT equipment. Such revenue of $2,001,750, $2,609,531 and $14,472,010 was included in the application development service revenue for years ended December 31, 2023, 2022 and 2021, respectively.

Note 18 — Subsequent events

The Company evaluated all events and transactions that occurred after December 31, 2023 up through the date the Company issued these consolidated financial statements, for disclosure or recognition in the consolidated financial statements of the Company as appropriate.

F-48

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